Exercise 01:

Consider the following: Year Price of Bread Price of Water Price of DVD Price of Medical checkup 2015 $1.50 $0.50 $8.00 $100.00 2016 1.40 0.60 2.00 120.00 2017*r 1.60 0.45 6.00 150.00 a) Assuming that the market basket is made up of 1 unit of bread, 2 units of water, 1 unit of DVD and 1 Medical Checkup, calculate the price index for this basket for 2015, 2016 and 201?. (let the year 2015 to be the base, with an index value of 100').| b) Calculate the ination rate for 2016 and 2017 (using the price of 2015 as a base). The following table shows the initial level of Aggregate Demand (ADD) and Aggregate Supply (A30) for the economy of Atlantis. The natural rate of output is $10 trillion. Price Level AD0 (trillions) ASO (trillions) AD1(trillions) 40 14 5 50 13 6 60 12 8 70 1 1 9 80 10 10 90 9 1 1 100 '1' 12 1 1 0 6 14 120 5 15 a) What is the initial equilibrium price level and real GDP? b) At this initial equilibrium, is Atlantis experiencing a recessionary or expansionary gap? And how large if the gap? c) Assume that the population of Atlantis increased, resulting in an increase of aggregate demand by $ 2 trillions at every price level; add on the table above the new schedule for Aggregate Demand (ADI). What is the new equilibrium price and real GDP? d) At the new equilibrium (AD1 and A80) is Atlantis experiencing a recessionary or expansionary gap? And how large is the gap