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Homework 1

Please Answer the Following Questions

Please submit your answer no later than Thursday 21/03/2019 at 12:00 pm

Answer the next question(s) on the basis of the following information:

Year Nominal GDP Price index

1 $ 550 140
2 560 135
3 576 120
4 586 117
5 604 108

1. The economy above has experienced:

A) a declining nominal GDP.

B) a rising price level.
C) a declining real GDP.
D) deflation.

2. In the economy above:

A) the price level is rising faster than nominal GDP.

B) nominal and real GDP are growing at the same rate.
C) the growth of nominal GDP understates the growth of real GDP.
D) the growth of nominal GDP overstates the growth of real GDP.

3. In the economy above, real GDP for year 3 is:

A) $512.
B) $428.
C) $480.
D) $691.

4. If a nation’s GDP rises, then it must be the case that the nation’s
a. income and expenditure both rise.
b. income and saving both rise.
c. income rises, but expenditure may rise or fall.
d. saving rises, but income may rise or fall.
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5. Artica is a nation with a simple economy that produces only six goods: oranges,
bicycles, magazines, paper, orange juice, and hats. Assume that half of all the oranges are
used to produce orange juice and one-third of all the paper is used to produce magazines.

a. Use the production and price information in the table to calculate nominal
GDP for 2011.

b. Use the production and price information in the table to calculate real GDP for
2009, 2010, and 2011 using 2009 as the base year. What is the growth rate of
real GDP from 2009 to 2010 and from 2010 to 2011?

c. Use the production and price information in the table to calculate real GDP for
2009, 2010, and 2011 using 2010 as the base year. What is the growth rate of real
GDP from 2009 to 2010 and from 2010 to 2011?

6. The following table contains nominal and real GDP data, in billions of dollars, from
the U.S. Bureau of Economic Analysis for 2008 and 2009. The data is listed per quarter,
and the real GDP data was calculated using 2005 as the base year. Fill in the columns for
the GDP deflator and for the percent increase in price level.
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7. Evaluate the following statement: Even if the prices of a large number of goods
and services in the economy increase dramatically, the real GDP for the economy
can still fall.