FRQ B) OUTPUTS AND PRICES IN GALA LAND This Year's Output This Year's Price 400 loaves of bread $6 per loaf 1.000 gallons of water $2 per gallon 800 pieces of fruit $2 per piece Gala Land produces three final goods: bread, water, and fruit. The table above shows this year's output and price for each good. (a) Calculate this year's nominal gross domestic product (GDP). (b) Assume that in Gala Land the GDP deflator (GDP price index) is 100 in the base year and 150 this year. Calculate each of the following. (i) The inflation rate, expressed as a percentage. between the base year and this year (ii) This year's real GDP (c) Since the base year, workers have received a 20 percent increase in their nominal wages. If workers face the same inflation that you calculated in part (b)(i). what has happened to their real wages? Explain. (d) If the GDP deflator in Gala Land increases unexpectedly, would a borrower with a fixed-interest-rate loan be better off or worse off? Explain. FRQ C) 3. Assume that the real interest rate in both the United States and the European Union equals 4.5 percent. (a) Assume that the real interest rate in the United States falls to 3.75 percent. (i) How will the flow of financial capital between the United States and the European Union be affected? Explain. (ii) Using a correctly labeled graph of the foreign exchange market for the euro, show how the value of the euro would change relative to the United States dollar in a flexible exchange rate system. (b) Explain how the change in the value of the euro in part (a)(ii) would affect the European Union's net exports