Question 3 (20 marks) A. An economy produces two goods only, donut and yogurt. Below are the GDP data for 2017, 2018 and 2019. Yeare 2017 2018 2019 Donut Yogurt Price Quantity Price Quantity $25 2,500 $40 2,500 $30 8,000 $50 5,000- $45 10,000 $60 5,000 With 2017 as the base year, calculate the GDP deflators of 2017, 2018 and 2019. (8 marks) B. Suppose in an economy where consumers buy only the 3 goods in the table below. Year Potato Price $10 $10 Apple Banana Price Price $10 $5e sise $10 2018 2019 Assume the market basket contains 450 potatoes, 150 apples and 500 bananas. With 2018 as the base year, use CPI approach to calculate the inflation rate in 2019. (6 marks) tttttttt C. There are four components in GDP calculation. Which of the four GDP components in Hong Kong would be affected by each of the following transactions? Would the value of the component increase or decrease? (No explanation needed.) Tourists from Taiwan bring their children to Hong Kong Disneyland and stay in the resort hotel for one night (2 marks) tt I ii. The Hong Kong SAR Government sets up a new office in the New Territories to provide public service. (2 marks) ill. A professor of The University of Hong Kong buys a book in the university bookstore for the use in his research. The professor is an American 2 marks) Use the following information for parts C and D. Assume the Central Bank of Country A requires a reserve ratio of 9% and the banks in Country A are not holding any excess reserves currently. The Central Bank now has a target to increase the economy's money supply by $400 million C. Calculate the amount of bonds the government needs to buy from or sell to the market. (6 marks) D. Assume that suddenly people prefer to hold more cash and keep less money in their bank accounts. How will this affect the result of the government action in the part C? (4 marks) 1