Q2. Consider an economy that produces three goods: gadgets, books, and tulips. The following table consists of quantity (in millions) and prices of each between 2005 and 2008. Gadgets 10 200 11 205 12 210 ' 13 200 Books 100 20 100 20 110 20 l Tulips 1000 _ 2 990 I2 900 2 _ 1000 1.9 (a) Evaluate the following statements. Use 2005 as a base year. [5] 0 Since this country is producing more gadgets each year and it is the most expensive good, the economy must be growing over time. . Since the prices of each good largely remain the same or are increasing for the most of the time, the economy must be growing over time. (b) Suppose the Central Bank increased money supply by 3.89% between 2005 and 2006. How much do you expect the change in prices be? Explain it by using an appropriate theory. [5] (c) The survey result shows that an average household consumes 2 gadgets, 50 books, and 10 tulips a year. Does the purchasing power of an average household with an annual income of $50000 in 2005 remain same in 2008'? If yes, explain. If not why? (Hint: Use CPI to nd out the purchasing power). [5]