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Question 1 The table above shows the transaction in an economy in 2016: Item Amount (millions of dollars) Consumption expenditure 120 Expenditure on intermediate goods

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Question 1 The table above shows the transaction in an economy in 2016: Item Amount (millions of dollars) Consumption expenditure 120 Expenditure on intermediate goods 40 Transfer payments 15 Expenditure on shares and bonds 35 Fixed Capital Investment 20 Inventories at beginning of year 8 Inventories at end of year 12 Government expenditure 50 Exports 30 Expenditure on new houses 10 Expenditure on resale houses 5 Imports 40 (a) Calculate the GDP for the economy in 2016. Identify the items that are not included in the calculation of GDP and explain why they are not included in the calculation of the GDP in 2016. (b) State whether the following statements are true or false. Justify your answers. (i) With deflation, nominal GDP is higher than real GDP (ii) Inflation reduces the welfare of workers in general unless the nominal wage is indexed.J L Question 2 A self-sufcient economy called Delta produces three types of products, rice, meat and vegetables. The table below shows the prices and quantities pf the three products g 2014, 2015 and 2016. H _ mm Rice 54 500 $5 550 $7 600 Meat $3 400 $5 420 $6 450 Vegetables $5 200 $6 250 $8 280 I (3) Calculate the nominal GDP and the real GDP for Delta in 2014, 2015 and 2916, taking 2014 as the base year. (b) Compute the nominal GDP and the real GDP growth rate for Delta in 2015 and 2016. Which of the growth rate better represents the well-being of the people in Delta? Explain. Question 3 Consider a typical household in an economy which consumes three items over the years 2016, 2017 and 2018, as shown in the table below: 2016 2017 2018 Price Quantity Price Quantity Price Quantity Chicken $3 10 $3.20 11 $3.50 12 Fish $5 5 $5.30 5 $5.80 6 Bread $2 6 $2.10 7 $2.40 9 (a) Using 2016 as the base year, compute the CPI for 2017 and 2018. Use the CPI to compute the inflation rate between 2016 and 2017, and also between 2017 and 2018. (b) Do you expect the inflation rate to accurately represent the actual cost of living changes for the household? Explain

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