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1. Items in Dreamland's national accounts include: Government expenditure on goods and services: $500 Consumption expenditure: $1,950 Rent and interest: $400 Indirect taxes: $350

 

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1. Items in Dreamland's national accounts include: Government expenditure on goods and services: $500 Consumption expenditure: $1,950 Rent and interest: $400 Indirect taxes: $350 Gross investment: $550 Wages: $1,600 Profit: $400 Net exports: $200 Depreciation: $450 a) Use the expenditure approach to calculate GDP. b) Use the income approach to calculate GDP. 2. Consider the following the economy that produces two goods, milk and honey. Year 1 Year 2 Milk Honey P $2 $6 100 40 P $3 $6 a) Compute nominal GDP for each year. b) Using year 1 as the base year, compute real GDP for each year. c) What is the growth rate of the economy? 120 25 3. Suppose in 2020 the price and quantity of energy were $1.00 and 50, respectively, and that in 2021 they were $1.04 and 60, respectively. In 2020 the price and quantity of all other consumer goods and services were $1.10 and 40, respectively, and in 2021 they were $1.20 and 30, respectively. a). Using 2020 as a base year and the 2020 bundle as the typical bundle, what is the CPI in 2021? 4. Is the following statement true or false? Please explain. 66 The real interest rate is also known as inflation-free interest rate.| b). What is the rate of inflation between 2020 and 2021? c). Now suppose that these outputs comprise all of GDP. Keeping 2020 as the base year, what is the GDP deflator for 2021?

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