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Measure of the performance of an economy

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1. Using the following demand and supply functions answers the following questions.

Qd = 22 - 2p + 0.5Y; Qs = 15 + 4p - 2CI; where Y = income and CI - cost of inputs.

(a) Calculate the equilibrium price and quantity when Y = 30 and CI = 10

(b) What happens to the equilibrium price and quantity if (i) Y increases to 40, (ii) CI increases to 15?

2. Consider an economy that produces and consumes hot dogs and coca cola.  The table below provides the price and quantity data for hot dogs and coca cola for two years, 2005 and 2010.

 

2005

2010

Good

Quantity

Price

Quantity

Price

Hot dogs

400

$2.00

500

$2.75

Coca Cola

600

$1

750

$1.25

(a) Using 2005 as the base year, compute nominal GDP, real GDP, the GDP deflator and fixed weight CPI index index.

(b) By what percentage did GDP deflator and CPI index rise between 2005 and 2010?

(c) Explain why real GDP is a better measure of the performance of an economy compared to nominal GDP? 

Reference no: EM131085976

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