Question

Short-Answer Ouestions The country of Batavia produces only chocolates and watches. Below is a table with recent information on Batavia production and prices. The base year is 2009 Prices and Quantities Price of A Box of Boses of Chocolates Chocolates Price Quantity of Watches Determine the nominal GDP, real GDP, GDP deflator, and inflation rate for 2010 Show all your work to get full credit Suppose that the minimum wage in 1963 was $1.25. In 2013, it was $7.25. The CP in 1963 was 30.9 while the CPI in 2013 was 234.6. Determine whether the real value of the minimum wage rose or declined from 1963 to 2013. Show all your work III. Enumerate the ways in which the government can help increase productivity. IV. Determine who the wealthiest man in history is, after adjusting for inflation. Explain why or why not your standard of living is better his was. Make sure to write your responses in full sentences and not just in bullet points Using the three steps, show how a reduction in taxes on retirement accounts affect the investment-savings equilibrium. In your own words, explain how and why the variables changed values. Make sure to show all of your work and all of the steps. VI. Using the three steps, show how a reduction in investment policy restrictions affect the investment-savings equilibrium. In your own words, explain how and why the variables changed values. Make sure to show all of your work and all of the steps. VII. Suppose that a government starts with a balanced budget. Because of an increase in government spending, it starts running a budget deficit. Using the three steps, explain how this change affects the investment-saving equilibrium. Make sure to show all of your work and all of the steps.

Answer 1

Question I

Nominal GDP is calculated at current years' prices.

Calculate the nominal GDP for 2010 -

Nominal GDP = [Boxes of chocolates in 2010 * Price of chocolates in 2010] + [Quantity of watches in 2010 * Price of watches in 2010]

Nominal GDP = [100 * $5] + [15 * $60]

Nominal GDP = $500 + $900 = $1,400

The nominal GDP for 2010 is $1,400

Real GDP is calculated at base years' prices.

The base year is 2009.

Calculate the real GDP for 2010 -

Real GDP = [Boxes of chocolates in 2010 * Price of chocolates in 2009] + [Quantity of watches in 2010 * Price of watches in 2009]

Real GDP = [100 * $5] + [15 * $50]

Real GDP = $500 + $750 = $1,250

The real GDP for 2010 is $1,250

Calculate the GDP deflator in 2010 -

GDP deflator = [Nominal GDP/Real GDP] * 100

GDP deflator = [1,400/1,250] * 100

GDP deflator = 112

The GDP deflator in 2010 is 112.

The GDP deflator in base year is always 100.

The base year is 2009.

So, the GDP deflator in 2009 is 100.

Calculate the inflation rate for 2010 -

Inflation rate = [(GDP deflator in 2010 - GDP deflator in 2009)/GDP deflator in 2009] * 100

Inflation rate = [(112 - 100)/100] * 100

Inflation rate = 12%

The inflation rate for 2010 is 12%.