Refer to table above to answer the following questions;

a. What is nominal GDP in each year?

b. Using year 1 prices, what is real GDP in year 2? What is the growth rate of real GDP?

c. What is the rate of inflation using the GDP deflator?

d. Using year 1 prices, what is real GDP per worker in year 1 and year 2? What is labour productivity growth between year 1 and year 2 for the whole economy?

Now suppose that banking services in year 2 are not the same as banking services in year 1 because they include internet banking, which year 1 banking services didn’t include. The technology for internet banking was available in year 1 but the price of banking services with internet banking in year 1 was $13 and no one chose that package. However, in year 2 the price of banking services with internet banking was $12 and everyone chose to have that package in year 2 (that is, in year 2 no one chose to have the year 1 banking services package without internet banking)

e. Using year 1 prices, what is real GDP for year 2? What is the growth rate of real GDP?

f. What is the rate of inflation using the GDP deflator? (2 marks)

g. What is the labour productivity growth between year 1 and year 2 for the whole economy?

h. ‘If banking services are mismeasured—for example, by not taking into account the introduction of internet banking—we will overestimate inflation and underestimate productivity growth.’

Discuss in the light of the answers to parts (a) to (g).

Suppose that there are only two goods produced in the economy, Call center services and banking services. Prices (P), quantities (Q) and the number of workers (W) occupied in the production of each good for year 1 and year 2 are given by the following table: Year 1 P1 Two products Call centre 10 Banking 10 Q1 100 200 WI 50 50 Year 2 P2 22 12 12 Q2 100 230 W2 50 60