Q1) Use a production possibilities frontier to describe the idea of trade-off.

Q2) Consider the following data on the Pakistan economy:

Nominal GDP GDP Deflator

Year(in billions of rupees) (base year 2012)

2018 21,501 111.4

19989,16376.3

i.What was the growth rate of nominal GDP between 1998 and 2018? (Hint: The growth rate of a variable X over an N-year period is calculated as [(X_final/X_initial)^1/N - 1] x 100).

What was the growth rate of the GDP deflator between 1998 and 2018?

i.What was real GDP in 1998 measured in 2012prices?

ii.What was real GDP in 2018 measured in 2012prices?

iii.What was the growth rate of real GDP between 1998 and 2018?

Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain.

Q3)Cost of a dozen oranges was Rs80 in January 1980 and Rs.170 in January 2018. The average hourly wage for production and nonsupervisory workers was Rs.650 in January 1980 and Rs.2200 in January 2018.

i.By what percentage did the price of oranges rise?

ii.By what percentage did the wage rise?

iii.In each year, how many minutes did a worker have to work to earn enough to buy a dozen oranges?

Did workers' purchasing power in terms of oranges rise or fall?

Q4) a)Explain whether each of the following events increases or decreases the money supply.

i.The State Bank of Pakistan sells bonds in open-market operations.

ii.The State Bank of Pakistan reduces the interest rate it pays on reserves.

iii.MCB Bank repays a loan it had previously taken from the State Bank of Pakistan.

iv.After a rash of pickpocketing, people decide to hold less currency.

v.Fearful of bank runs, bankers decide to hold more excess reserves.