1. Real - Vs. - Nominal GDP(55 points)

Economy in country X produces 3 products, C, D, and P. Table below shows the prices and quantity of the 3 products for years 2015, 2016, and 2017.

Product C Product D Product P

Year Price per unit. Quantity. Price per unit. Quantity Price per unit. Quantity

2015 $ 900 10 $10 100 $15 2

2016 1000 10.5 12 105 16 2

2017 1050 12 14 110 17 3

a.CalculateNominalGDP in country X for each year.

2015: $______________

2016: $______________

2017: $______________

b.CalculateRealGDP in country X using 2015 as the base year.

2015: $______________

2016: $______________

2017: $______________

c.Explain why nominal GDP is larger than the real GDP in 2017

2. CPI and Inflation

National University is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you to create an index of textbook prices. The average student purchases 4 English, 3 math, and 5 economics textbooks. The prices of these books are given in the accompanying table.

2015 Price (each) 2016 price (each) 2017 price (each)

4English textbooks. $130 $145 $155

3Math textbooks $175 $189 $200

5Economic textbooks $190 $210 $245

a.Using2016as a base year, calculate Consumer Price Index (CPI) for the books for each year.

2015: CPI ______________

2016: CPI ______________

2017: CPI ______________

b.Calculate the inflation rate between years 2015 and 2017? ___________

3. Converting dollar value from one year to another

Supposed you earned $63,572 in 2015 when CPI was 237.02, to keep up with inflation what should your income be in 2018 when CPI is 249.56?

4. Unemployment rates

Country Y has 75 million civilians, non-institutional, population all over 16 years of age. 61.4 million are employed, and 8.4 million are unemployed of which 1.4 million are frictionally and 2.5 million are structurally unemployed.

a.Calculate the actual (or total) unemployment rate. ___________________

b.Calculate the Natural Rate of Unemployment (NRU). ___________________

c.Is this country in a recession or a boom? _______________________

d.Explain your answer to part c. _____________________________

5. Define Fiscal Policy and explain how an expansionary fiscal policy can help an economy get out of a recession.

6.Monetary policy:

An economy is facing a recessionary gap. How should the Central Bank use each of the three monetary policy tools listed below to eliminate the recessionary gap?

1) Open Market operations:

2) Discount rate:

3) Required Reserve Ratio:

7. Open-Economy Macroeconomics:

Suppose the US and Japan are the only two countries in the world. What will happen to value of the U.S. dollar if the following events occur, other things equal?

a.The U.S. imposes some import tariffs on Japanese goods.

b.Interest rates in the U.S. rise above interest rates in Japan.