This Year's Output This Year's Price

400 loaves of bread $6 per loaf

1,000 gallons of water $2 per gallon

800 pieces of fruit $2 per piece

Blash Land produces three final goods: bread, water, and fruit. The table above shows this years' output and price for each good.

a. Calculate this year's nominal gross domestic product (GDP).

b. Assume that in Blash Land the GDP deflator (GDP price index) is 100 in the base year and 150 this year. Calculate the following:

i.The inflation rate, expressed as a percentage, between the base year and this year

ii.This year's real GDP

c. Since the base year, workers have received a 20 percent increase in their nominal wages. If workers face the same inflation that you calculated in part (b)(i), what has happened to their real wages? Explain.

d. If there were an increase in the GDP deflator in Blash Land unexpectedly, would a borrower with a fixed-interest-rate loan be better off or worse off? Explain.