Question 5: GDP and Inflation (a) Consider the below production data for a small economy and calculate nominal GDP for each Year.

Year Price of Milk Quantity of Milk Price of Cookies Quantity of Cookies 2019* $2 10 $1 20 2020 $2.25 12 $1.2 25

(b) Given 2019 is the base year, calculate real GDP for each year.

(c) Calculate the rate of real economic growth in 2020.

(d) For each year calculate the GDP deflator. For 2020 calculate the rate of inflation too.

(e) Assume the CPI basket contains 2 units of milk and 3 units of cookies and construct a CPI for each year. For 2020 also calculate the rate of inflation.

Question 6: Production & Economic Growth (a) An economy has the following production function Y= K SQAURED 0.5 AND L SQUARED O.5. If the capital stock (K) is 1024 and Labour (L) is 676 in year t, then calculate output for this economy for year t.

Question 6: Production 8: Economic Growth (10 MARKS) (a) An economy has the following production function Y = KO'SLO'S. If the capital stock (K) is 1024 and Labour (L) is 676 in year t, then calculate output for this economy for year t. (b) The relation between the unemployment rate and the inflation rate is given by: u = un 2(7r rte). If 'un = 5% 8: it = fe = 2% what is the current unemployment rate? (c) If inflation expectations in (b) decrease: Tie = 4% calculate the new rate of unemployment