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Question 2 (40 points): Suppose the economy has the following consumption pattern Sandwich Hotdog Cell phone Super car 2019 Price $7 $3 $200 $5,000 Quantity

Question 2 (40 points): Suppose the economy has the following consumption pattern

Sandwich

Hotdog

Cell phone

Super car

2019

Price

$7

$3

$200

$5,000

Quantity

500

400

100

3

2020

Price

$10

$5

$250

$7,000

Quantity

200

400

100

2

2021

Price

$5

$2

$200

$6,000

Quantity

500

600

200

4

Calculate the nominal GDPs of this economy. (6 points)

Calculate the real GDP of this economy using 2020 as the base year. (6 points)

Calculate the GDP growth in 2021 for nominal GDP and real GDP. Explain why they are different. (8 points)

Calculate the GDP deflators using 2020 as the base year. (6 points)

Now suppose that the government estimates the average consumption of each good to be as below. Calculate the CPI using 2020 as the base year. (6 points)

Sandwich

Hotdog

Cell phone

Super car

Hypothetical

Quantity

300

500

150

3

Calculate the inflation rates using the GDP deflator (part c) and CPI (part d) in 2021 (relative to 2020). (4 points)

Suppose that you earned $100,000 in 2020 and you want to know how much that income would be worth in 2021 values. Calculate the 2021 value of your 2020 income. Should you ask for a raise? (4 points)

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