QUESTION: 01

a)Elucidate how an economy's income must always equal its expenditure.

b)Assume a hypothetical economy that produces only one good - Peanut Butter. In year 1, the quantity produced is 4 packs and the price is Rs.400 per pack. In year 2, the quantity produced is 5 packs and the price is Rs.500 per pack. Inyear3, the quantity produced is 6 packs and the price is Rs.600 per pack. Year 1 is the base year.

a.What is nominal GDP for each of these three years?

b.What is real GDP for each of these years?

c.What is the GDP deflator for each of these years?

d.What is the percentage growth rate of real GDP from year 2 to year 3?

e.What is the inflation rate as measured by the GDP deflator from year 2 to year 3?

f.In this one-good economy, how might you have answered parts (d) and (e) without first answering parts (b) and (c)?