1. Suppose that the residents spend all their income on cucumbers, yams, and carrots. In

2005, they buy 100 pounds of cucumbers for $200, 50 pounds of yams for $75, and 500

carrots for $50. In 2006, they buy 75 pounds of cucumbers for $225, 80 pounds of yams

for $120, and 500 carrots for $100. [10 marks]

a. Find the price of each good in each year:

b. Calculate the price of each vegetable in each year.

c. Using 2005 as the base year, calculate the CPI for each year.

d. What is the inflation rate in 2006?

2. Consider the following data on GDP: [15 marks]

Year Nominal

GDP

(millions)

GDP

Deflator

(base year:

2000 $9,873 1996) 118

1999 $9,269 113

a. What is the growth rate of nominal GDP between 1999 and 2000?

b. What was the growth rate of the GDP deflator?

c. What was real GDP in 1999?

d. What was real GDP in 2000?

e. What was the growth rate of real GDP between 1999 and 2000?

f. Was the growth rate of nominal GDP higher or lower that the growth rate of real GDP?

Explain.

Graded Assignment

[Introduction to Macroeconomics (ECON1002) Academic Year 2017/2018, Semester 2]

Page 3 of 3

3. Briefly discuss four (4) limitations of using GDP per capita as a measure of economic

wellbeing. [10 marks]

4. Suppose that the T-account for The Open Campus National Bank (OCNB) is asfollows:

Assets Liabilities

Reserves $100,000

Loans 400,000

Deposits $500,000

I. If the central bank requires banks to hold 5% of deposits as reserves, how much in

excess reserves does OCNB now hold? [5 marks]

II. If OCNB decides to reduce its reserves to only the required amount, by how much

would the economy’s money supply increase? [10 marks]