Problem Set 1
1.
(30 points) Below are some data from the land of milk and honey. EXPLAIN YOUR ANSWERS WELL. SHOW ALL EQUATIONS YOU USED IN CALCULATIONS.YearPrice of milkQuantity of milkPrice of HoneyQuantity of Honey2010$1100 quarts$2100 quarts2011$1200$22002012$2300$4250a.Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2010 as the base year.b.Compute the percentage change (growth rate for GDP and inflation for GDP deflator) in nominal GDP, real GDP, and GDP deflator in 2011 and 2012 from the preceding year. For each year, identify which one of these variables that does not change (zero growth rate or zero inflation). c.Did economic well-being (measured in growth rate of real GDP) rise morein 2011 or in 2012? Explain.2.(30 points) A small nation of ten people idolizes the TV show American Idol. All they produce and consume are karaoke machines and CDs, in the following amounts:Karaoke MachineCDsQuantityPriceQuantityPrice201110$5030$10201212$8050$12a.