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##### Majuli, the island country produces only lobsters and crabs

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Question;Economics;11/4;Answer the;questions as completely as possible. Draw diagrams and give examples whenever;and wherever, you think, they help make your point. Show all your work to;receive full credit for correct answers, and partial credit for incorrect answers.;1.;Majuli, the;island country produces only lobsters and crabs. The following table gives the prices;and quantities in 2009, 2010 and 2011.;GOODS;2009;2010;2011;Price;Quantity;Price;Quantity;Price;Quantity;Lobster;20;1000;25;1100;30;1100;Crab;10;500;12;525;15;525;a) Calculate;Majuli?s Nominal GDP in 2009, 2010, and 2011.;b) Calculate;real GDP and GDP Deflator in 2009, 2010, and 2011, taking 2009 as the base;year.;c) What can;you say about the growth of quantity and prices in 2010 and 2011 from your;calculations of real GDP and GDP deflator? Calculate the growth rates to answer;this question.;2.;a) Consider;the following price indexes: 90 in 2009, 100 in 2010, 110 in 2011, and 121 in;2012. Answer the following questions.;i) What is;the base year?;ii) What is;the inflation rate from 2009 to 2010?;iii) What is;the inflation rate from 2011 to 2012?;iv) If the;cost of the consumption basket in 2010 is $2,000, what is the cost of the same;basket of goods and services in 2009? In 2012?;b) Currently;the CPI used to calculate the inflation rate is equal to 90. The general;expectation throughout the economy is that next year the value of CPI will be;94.5. The current nominal interest rate is 4.75 percent. What is the real;interest rate?;3.;Suppose that;there are 10 million workers in Canada and that each of these workers can;produce either 2 cars or 30 bushels of wheat in a year.;a) What is;the opportunity cost of producing a car in Canada? What is the opportunity cost;of producing a bushel of wheat in Canada? Explain the relationship between the;opportunity costs of the two goods.;b) Draw;Canada?s production possibilities frontier. If Canada chooses to consume 10;million cars, how much wheat can it consume without trade? Label this point on;the production possibilities frontier.;c) Now;suppose that the United States offers to buy 10 million cars from Canada in;exchange for 20 bushels of wheat per car. If Canada continues to consume 10;million cars, how much wheat does this deal allow Canada to consume? Label this;point on your diagram. Should Canada accept the deal?

Paper#57990 | Written in 18-Jul-2015

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