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# Here is some additional information about this economy that holds true for all 3 years unless otherwise stated: Unless otherwise stated, the goods…

•Unless otherwise stated, the goods are produced within the economy.

•Good 1 is purchased by firms, governments and foreign firms. The shares of good 1 that go to firms, government and foreign firms are 60%, 28%, and 12% respectively.

•Goods 2 and 6 are pure consumption goods. Good 2 is equally split between domestic and foreign households. Although good 6 is solely purchased by domestic households, 20% of it is produced outside the country.

•Both households and small businesses purchase good 3: three-fifths goes to households while two-fifths goes to small businesses.

•Good 4 is a capital intensive good that is purchased by firms and governments only; domestic firms purchase 80% of it while foreign governments buy the rest. Of the amount of good 4 bought by domestic firms, a quarter comes from abroad.

•Half of good 5 is consumed by households. Of the remaining half, three-fifths goes to firms and two-fifths goes to government.

•The government has chosen 2015 as the base year.

a)Compute the different components of nominal GDP under the expenditure approach for 2015, 2016, and 2017. (9 points)

b)Find the real GDP and the GDP deflator for 2015, 2016, and 2017. (4 points)

c)Find the CPI for 2015, 2016, and 2017. (3 points)

d)Suppose the country’s inflation rate is given by the percentage rate of change in GDP deflator, compute the inflation rate in 2016 and 2017 (3 points)

e)Redo part (c) if inflation rate is given by the percentage rate of change in the CPI. (3 points)

f)You realize that you get different inflation rates in 2016 and 2017 when using different indices. Provide one reason for these differences (Your answer should be related to the information given in the question. DO NOT provide the general explanation learned in class or from the text; otherwise, you will receive a grade of zero for this question). (3 points)

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