Consider an imaginary economy that produces only three goods – steak, eggs and wine. Information on

| March 14, 2016

Consider an imaginary economy that produces only three goods – steak, eggs and wine. Information
on the quantities and prices of each good sold for two years is given below:
.0001pt;”>

_2014_

_2015_

Quantity

Price €

Quant it v

Price €

Steak (kilojjroms)

80

5

100

6

Eggs (dozens)

120

1

100

0.8

Wine (bottles)

50

10

60

12

.0001pt;”>

For this hypothetical economy, calculate for both years:

a. Nominal GDP.

b. By v\hat percentage does nominal GDP change from 2014 to 2015?
c Real GDP in constant 2014 euros (i.e. 2014 is the base year).

d By what percentage does real GDP change from 2014 to 2015?

e. Compute the GDP deflator (for both years)

I”. The rate of inflation from 2014 to 2015.

2. You are provided with the following information about the economy. There are 300 million working
age civilian individuals in the economy. Of these 300 million, 150 million are currently working, 20
million are looking for work, 30 million stopped looking for work 2 months ago, and the remaining
100 million do not want to work

a Calculate the labour force for this economy
b The unemployment rate
c The participation rate

3. Economy is characterized by following behavioural equations (in M EUR):

Z=C+I+G C = 300 + 0.75Yu 1 = 300

V -Y-I G=200 T = 200

Consider only goods market where interest rale and prices do not appear in the model. Solve for

a. Equilibrium GDP (Y).

b. Disposable income (Yd) at equilibrium level

c Consumption spending (C) at equilibrium level
d. Total demand at equilibrium level (/)

As Mime that government decreases the spending (G) lo 100

c Sohc for the nevt equilibrium output

f Compute the new total demand at equilibrium le*cl

e. Ikm much has equilibrium output changed compared lo the initial output’

h Show the initial equilibrium and the new equilibrium on the graph

? Y

Isc ihc paph proiklcd below to answer the following questions about ihc financial markets

/•;. n if rale

a. Show ihc equilibrium intcreM rale i’on ihc graph Suppose central honk oHtducti expamionars

monetars polio Shim graph*a!h the effect on financial markets

b What are theeffect* ol the o. nam-.oars moneurs polio’ Hnir whether oWgmmranahtei

mcrtaa*. drcreate or mo (harngt

W(mono tuppts I

M* l mono stock!

i (intercm rate)

M°<mones demjnd)

Suppose a bond pass € 1000 inone \car Calculate the interest rate on this bond when the price of the

bondis(«40

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