#1 - Use the information below for Questions 17 and 18.

A make believe economy produces the following 3 goods.

Good2011 Quantity2011 Price2012 Quantity2012 PriceApples50$1.5055$2.00Oranges10$2.5010$2.50Pears40$2.0030$2.50

Assuming 2011 is the base year, calculate real GDP and the GDP price deflator in 2012.

#2 - Assuming 2011 is the base year, calculate the percent change in real GDP and the percent change in the GDP deflator between 2011 and 2012.

#3 - Suppose that Japan can produce 5 cars in 4 hours and 15 HD TVs in 6 hours. The US can produce 5 cars in 4 hours and 15 TVs in 3 hours. Explain which country has a comparative advantage in producing cars and which country has a comparative advantage in producing TVs . In your answer, be sure to be very specific as to how you identified the comparative advantage in each country and define how one goes about identifying comparative advantage .

#4 - Assuming that this is what is produced in each country (5 cars and 15 HD TVs), nothing more and nothing less, explain how both countries can benefit through trade. Again, be very specific in terms of identifying the gains from trade and how each country is better as compared to not trading at all.

#5 - Suppose the one year nominal interest rate is 3 percent and that the expected inflation is equal to 5 percent. The price index over this one year period went from 216 to 220. Compare the ex-ante real rate of interest to the ex-post real rate of interest. Which real rate of interest would you more likely be willing to spend today and which real rate of interest would you more likely be willing to save and why?