answer questions 4 and 5

1. Suppose an economy's real GDP was $1,000 in 2019 Moreover, the inflation rate was 100% and the growth rate of real GDP was 10% between 2019 and 2020. Using 2020 as the base year, what are the values of this economy's (a) GDP price index in 2019, (b) nominal GDP in 2019, and (c) nominal GDP in 2020? 2. In an open economy, (a) [ 5 point] If GDP = $1,000, government expenditure = $250, consumption = $500, net exports = $100 and the budget deficit = $40, what is the value of disposal income? Show your work. (b) . If GDP = $500, consumption = $350, transfer - taxes = $20, investment = $150 and the budget deficit = $120, what is the value of net exports? Show your work. 2 3. The labor market and the supply side of a macroeconomy in 2019 are described by the following equations: Production Function Y=aN, Price Markup P= Wage Adjustment W = W_, 1+= N-N' ] where Y is output, N is employment, P is price, W is current nominal wage, N* denotes the full-employment level of employment, and a, z, and & are all positive parameters. We also have the following information: N' =500, a =4, z=0.6, = =0.8, and P= 10 in 2018. (a) Derive the AS curve for 2019. Show your work. Assume that the AD curve for the economy in 2019 is given by Y = 1000 - 10000 P (b) Find the equilibrium levels of (i) output, (ii) price, and (iii) nominal wage in 2019. Notice that price level cannot be negative in equilibrium. Show your work. 4. (a) Explain in words what is precisely meant by the "neutrality of money"? (b) ,Illustrate the neutrality of money with the diagram for the Classical case of the AD-AS model under a decrease in the quantity of nominal money supply. Explain your answers. 5. Use the IS-LM and AD-AS diagrams to analyze the effects of the following events on equilibrium (i) output, (ii) interest rate and (iii) prices, assuming that all the curves have the normal shapes. Explain your answers. (a) an increase in the marginal propensity to consume out of total income; (b ) the introduction of financial innovations that reduce the money demand