1)State the national income identity and explain each of its components in detail.

2)What do we mean by "Real" GDP? How does this differ from nominal GDP?

3)Suppose you take out a loan at your local bank and the nominal interest rate is 12% Then bank expects the inflation rate to be 4% during the life of your loan.

a)What is the bank's real interest rate?

b)What equation do we use to solve for (a)?

c)As a borrower, would you benefit from a higher or lower actual inflation rate and why?