United Int.

University
Course: Economics
Assignment II
Faculty: Sayeda Chandra Tabassum

1) In Maryland, there are only 3 goods: popcorn, movie shows, and diet drinks. The following
table shows the prices and quantities produced of these goods in 1980, 1990, and 1991:

A "market bundle" for a typical family is deemed to be 5 pop-corn, 3 movie shows, and 3 diet
drinks. Taking 1990 as the base year
a. Find the growth rate of Nominal GDP from 1980 to 1991
b. Find the growth rate of Real GDP from 1980 to 1991
c. Calculate the inflation rate from 1980 to 1991 using CPI
d. Do you think the economy is actually growing? Explain.

2) The table shows the prices and the quantities consumed in Carnivore Country. The base year
is 2000. This means that 2000 is the year the typical basket was determined so the quantities
consumed in 2000 are the only quantities needed to calculate the CPI in each year. What are
the values of the CPI in 2000, 2001, and 2002, respectively?

Year Price of Apple Quality of Apple Price of Banana Quantity of Banana

2000 2.00 100 1.00 100
2001 2.50 90 0.90 120
2002 2.75 105 1.00 130

3) a) Suppose the last year consumer price index was 1.20. If the inflation rate is 4%, then find
out the consumer price index of the current year.
b) The growth rate of nominal GDP is always greater than the growth rate of real GDP because
changes in nominal GDP reflect both price and quantity changes. True/ False. Explain.

4) You take $100 you had kept under your mattress and deposit it in your bank account. If this
$100 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of
deposits, by how much does the total amount of deposits in the banking system increase? By
how much does the money supply increase?
United Int. University
Course: Economics
Assignment II
Faculty: Sayeda Chandra Tabassum