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It is the year 2018, and the country of Hypothetica had the following economic activities take place: *Domestic consumers spent $4 billion, 10% of which

  1. It is the year 2018, and the country of Hypothetica had the following economic activities take place:

*Domestic consumers spent $4 billion, 10% of which were of goods initially produced in 2017. Of this $4 billion, foreigners with working visas living in Hypothetica bought $0.2 billion worth of locally made goods and services.

*A total of $300 million worth of housing stock was sold. 80% of this was new housing stock.

*Owners of factories rented out by businesses were paid $100 million.

*Businesses invested $10 million in new capital (i.e. machinery) stock.

*Businesses also bought $100 million worth of company shares on the stock exchange.

*The government spent $100 million to purchase refurbished cars for official business, and spent a further $10 million engaging agents to undertake and complete the process.

*Hypothetica is a closed economy.

  1. What was the value of consumption in Hypothetica is 2018? Explain how you obtained this value (i.e. what did you count, and what did you exclude). (1.5 marks)
  2. What was the value of investment in Hypothetica in 2018? Explain how you obtained this value (i.e. what did you count, and what did you exclude). (1.5 marks)
  3. What was the value of government expenditure in Hypothetica in 2018? Explain how you obtained this value (i.e. what did you count, and what did you exclude).(1.5 marks)
  4. Calculate Hypothetica's GDP in 2018 using the expenditure method.(1.5 marks)
  5. The standard of living in Brazil is higher than the standard of living in Belgium as the size of Brazil's nominal GDP (using current USD) in 2019 was estimated at $1.84 trillion as opposed to Belgium's $0.53 trillion in the same period (figures from the World Development Index Database). Do you agree or disagree with this statement? Explain your answer and provide real world evidence to justify your answer.(4 marks)

Question 2 on Topic 4 (10 marks)

  1. A piece of jewellery was worth $15,000 in 1965, and has increased in nominal terms by 2.5 times between 1965 and 2005. CPI in 1965 was 85 and by 2005 stood at 160.
  2. Calculate the rate of inflation between 1965 and 2005.(2 marks)
  3. If this piece of jewellery had risen in price at the rate of inflation, what would it be worth in 2005?(2 marks)
  4. Your great-aunt Theresa thinks the jewellery is worth much more in 2005 than it was in 1965. Do you agree or disagree with her? Justify your answer. (2 marks)
  5. Christina's boss has just given her a 2% pay rise this year, yet this still reduces her standard of living. How can this be so? Explain your thought process with respect to the concept of wages.(4 marks)

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