1. MEASURING ECONOMIC PERFORMANCE FREE RESPONSE QUESTION

2. 2009 Quantity2009 Price base year 2010 Quantity2010 Price Apples6$28 Oranges5$610$10 Bananas2$45$5 The outputs and prices of goods and services in Narvaizland are shown in the table above. Assuming that 2009 is the base year, calculate each of the following. (i) The nominal gross domestic product (GDP) in 2010 (ii) The real GDP in 2010

3. 2009 Quantity2009 Price base year 2010 Quantity2010 Price Apples6$28 Oranges5$610$10 Bananas2$45$5 The outputs and prices of goods and services in Narvaizland are shown in the table above. Assuming that 2009 is the base year, calculate each of the following. (i) The nominal gross domestic product (GDP) in 2010 (ii) The real GDP in 2010 (i)(8 x 2) + (10 x 10) + (5 x 5) 16 + 100 + 25 = $141

4. 2009 Quantity2009 Price base year 2010 Quantity2010 Price Apples6$28 Oranges5$610$10 Bananas2$45$5 The outputs and prices of goods and services in Narvaizland are shown in the table above. Assuming that 2009 is the base year, calculate each of the following. (i) The nominal gross domestic product (GDP) in 2010 (ii) The real GDP in 2010 Real GDP = (8 x 2) + (10 x 6) + (5 x 4) = 16 + 60 + 20 = 96

5. If in one year the price index is 50 and in the next year the price index is 65, what is the rate of inflation from one year to the next? 65 – 50 x 100 = 30% 50

6. Assume that next year’s wage rate will be 10 percent higher than this year’s because of inflationary expectations. The actual inflation rate is 5 percent. At the beginning of next year, will the real wage be higher, lower, or the same as today? Real wage rate will be higher because the inflation rate is 5% but people got a 10% raise

7. Assume that Janice gets a fixed-rate loan from a bank when the expected inflation rate is 5 percent. If the actual inflation rate turns out to be 10 percent, who benefits from the unexpected inflation: Janice, the bank, neither, or both? Explain. Janice will benefit --- The bank set the loan rate so they would make a profit at 5% inflation ---- When the actual inflation rate is 10% the bank is making less profit because Sarah is paying back money that has less value.