1. Please state whether each of the following claims are true, false or uncertain. Justify for your answer.

a) "An increase in the growth rate of the nominal GDP implies an increase in the growth rate of the real GDP".

b) "A decrease in the price of a good that is imported into Poland - holding all other prices and quantities fixed - will tend to decrease both the GDP deflator and the CPI index in Poland".

c) "Government's transfer payments to individuals enter into the computation of the GDP".

d) "In the base year, nominal and real GDP are equal".

2. Suppose that there are only 2 goods in the economy, A and B. We have yearly data on prices (p) and quantities produced (q) for each good for the period 2009-2011.

Year	pA	qA	pB	qB
2009	1	2	3	3
2010	2	2	4	2
2011	2	4	3	3

a) Compute the nominal GDP for each year.

b) Compute the GDP deflator for each year using the 2010 as base-year. Compute the inflation rate.

c) Suppose that the basket of goods used by the Government to compute the CPI consists of 2 units of good A and 3 units of good B. Using 2010 as the base-year, compute the CPI and also the CPI based inflation rate for each year. How do the numbers for CPI based inflation compare with the numbers for GDP deflator based inflation obtained in the previous point? Why?

Suppose that in Poland the velocity of money is constant. We have the following macroeconomic data: real GDP, +7%; rate of money growth, +20%; nominal interest rate, +15%.

1) What is the real interest rate?

2) What is the real interest if the nominal interest rate is 12%? What does this result mean?

3) Suppose real GDP is -2%. What does this mean? What is the real interest now?