Consider an economy that produces and consumes pizza and hot dogs. The following table shows data for two different years, 2010 and 2015. 2010 2015 Good Qty Price Qty Price Pizza 200 $3.25 200 $5.12 Hot Dogs 200 $2.68 400 $3.09 a. Using 2010 as the base year, compute the following statistics for each year: i. nominal GDP, ii. real GDP, 3 iii. the implicit price deflator for GDP, and iv. a fixed-weight price index such as the CPI. b. What does the CPI tell you about inflation in this economy? c. Convert the inflation rate to a percent (take your CPI answer in part a(iv), subtract 1 and multiply the decimal by 100). Assume that the Federal Reserve wants to keep inflation at its target of 2%. Assume that velocity of money and output is constant such that their growth rate is equal to 0%. What must the Fed do to the money supply in order to keep inflation at 2%? d. Based on your answer to part (c), what do you expect to happen to the nominal interest rate? e. The city of Baltimore wants to invest in its infrastructure (they want to build roads). To do so, they will need to borrow money. They will issue municipal bonds to do so. Should they borrow now or wait until the Federal Reserve implements the monetary policy you found in part (c)? Explain.