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?