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PART C: Solve the following problem (30 marks) A small economy is producing only three goods and services. The quantities and market prices of each
PART C: Solve the following problem (30 marks) A small economy is producing only three goods and services. The quantities and market prices of each good/service produced in each year from 2020 to 2022 are listed below. The typical household consumes 40 loaves of bread, 7 haircuts and 1 unit of internet (one internet subscription) per year. Internet Bread Haircuts Subscriptions Year Output Price Output Price Output Price 2020 9000 $1.50 200 $ 25 80 $200 2021 9300 $1.60 230 $28 70 $225 2022 9500 $1.75 240 $30 85 $240 QUESTIONS a) Fill in the following table. Non-integer numbers should be reported with one decimal place. GDP GDP Growth CPI deflator Nominal Real GDP deflator Cost CPI CPI rate real Inflation Inflation Year GDP (BY=2020) (BY=2020) basket (BY=2020) GDP rate rate 2020 2021 2022 b) Show your calculations/formulas used to calculate the values for the year 2021 only. c) Compare the GDP deflator and the CPI inflation rates in the last two columns. Give two reasons why the GDP deflator inflation rate and the CPI inflation rates are generally not identical. d) Assume that out of the 9000 loaves of bread produced in 2020, only 8700 are sold on the market- 8200 loaves are bought by Canadian consumers and 500 by some American stores. The remaining300 loaves of bread are frozen by producers to be used in the future to make breadcrumbs. With these changes, how much does the bread production contribute to the nominal GDP and each of its expenditure components? Write the formula for GDP and explain how many loaves of bread should be included in each component. If more people move in this country in the future, how do you expect GDP and each of its component to change? Explain
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