Assignment

QUESTION ONE The following data relates to inflation in an economy. Use it to answer the questions that follow An economy produces the following goods and services: Item Quantity in 2018&2019 Price in 2018 Price in 2019 Food 100,000 4 5.5 Transportation 14,000 5 6.5 Utilities 4000 20 22 Education 3,000 2,500 2,700 a. Calculate the rate of inflation in the year 2019 if 2018 is the base year. b. An entrepreneur has decided to install a new plant this year. He has 12 workers in his company whose salaries are indexed to the rate of inflation. The costs of raw materials also rise in tandem with inflation. Last year, he spent GhC300,000.00 on payment of salaries, GhC400,000.00 to buy raw materials. He also borrowed GhC500,000.00 during the year to install a new plant. He pays 22% interest rate on the loan. He also spent GhC20,000 on energy during the year. His total sales during the year was about 20% more than the previous year's sales but 16% less than last two years' sales. Last two years, he made a total sale equivalent to a triple of the total cost for last year. i. Calculate the total cost and total revenue of this firm and determine the firms profit last year ii. Project what would be the total cost of the firm in 2020 as a result of inflation and determine the firms' total profit iii. The cost of installation of the new plant is GhC60, 000.00. With this installation, sales will increase by 10%. Determine the firms expected profitability if he expects inflation to double, following Bank of Ghana's drastic reduction of the policy rate iiii. Explain some of the strategies this company could adopt to mitigate the effect of inflation on its profit and assess the effect of these strategies on gross domestic product (GDP)