Course: economics

Part 3: Problems

A. Assume 2018 is the base year with a CPI of 100, complete the following table. Show ALL your work and round your final answer to two decimals.

Year	Cost of Basket	CPI	Nominal GDP	Real GDP
2018	$120	?	$1,250	?
2019	?	110	$2,300	?
2020	$350	?	?	$1,900
2021	$92.15	?	$625	?
2022	?	33.59	?	$3,200

B. Assume the government increases taxes by $1.5 million.

1. By how much will aggregate demand decrease by in the 3 scenarios below? Show ALL your work (5 points)

Scenario 1: MPC = 0.35 and MPS = 0.65

Scenario 2: MPC = 0.5 and MPS = 0.5

Scenario 3: MPC = 0.85 and MPS = 0.15

2. What do you conclude? (5 points)