1. The table below gives data for a small economy in which there are two final goods included in GDP: good X and good Y. Given the following data, answer the following questions. Show all your work, clearly indicating the operations you are conducting. Production Prices Good 201 5 2016 2015 2016 X 30 20 $50 $40 Y 20 30 $100 $110

a. Calculate nominal GDP for each of these years.

Nominal GDP 2015:_____________________ Nominal GDP 2016:_____________________

b. Calculate real GDP for each for each of these years. Use 2015 as the base year. Real GDP 2015:_____________________ Real GDP 2016:_____________________

c. Calculate the percentage change in real GDP from 2015 to 2016. Percentage Change:_____________________

d. Consider again the above table. Using 2015 as the base year, calculate a consumer price index for each of the two years. CPI 2015:_____________________ CPI 2016:_____________________

2. Suppose that you have an economy where the government does not have a deficit and the demand for loanable funds and supply of loanable funds are as follows (if r = 0.2, it is an interest rate of 20%): Demand: r = 0.2 - 0.0001Q Supply: r = 0.0001Q

a. Graph the demand and supply of loanable funds

b. What is the equilibrium interest rate and equilibrium quantity in the market? Interest rate:_________________ Quantity:____________________

c. Now the government has a budget deficit that causes the supply of loanable funds to change to r = 0.01 + 0.0001Q. What is the new equilibrium interest rate and quantity? Interest rate:_________________ Quantity:____________________

d. Is there crowding out in this economy with the new deficit? If so, calculate the amount that private investment is being crowded out and explain why it is happening. Crowding out:______________________

3. 8. Do the following events have their initial impact on aggregate demand, long run aggregate supply, or short run aggregate supply? Do the curves shift to the right or to the left? Show, using a graph for each question.

a. The new government in Canada increases income taxes. AD/AS/LRAS:__________________________ Equilibrium Price:_________________ Equilibrium Quantity:______________

b. There has been an increase in investment in postsecondary education in Canada AD/AS/LRAS:__________________________ Equilibrium Price:_________________ Equilibrium Quantity:______________ c. Canada experiences downward pressure on nominal wages AD/AS/LRAS:__________________________ Equilibrium Price:_________________ Equilibrium Quantity:______________

4. 9. Suppose the economy had been operating at its potential level of real GDP in the past, but net export and consumer spending have suddenly and substantially declined. The decline is expected to last for a significant period of time.

(a) Use an appropriate diagram to illustrate the initial impact of stated event on the economy.

(b)What impact would the event have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, no effect, indeterminate]? [i] Price: ________________________ [ii] Real GDP:___________________________ [iii] Unemployment:____________________ [iv] Budget Deficit:________________________

(c) Describe two different examples of government fiscal policy that could be used to correct the situation outlined at the start of the question. (2 marks) [i] [ii

Use an appropriate diagram to illustrate the impact of stated event on the economy of the fiscal policies you have described.

(d)When compared to the economy's position prior to the use of such policies, what specific impact would the fiscal policies have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, no effect, or is the outcome indeterminate]? [i] Price: ________________________ [ii] Real GDP:___________________________ [iii] Unemployment:____________________ [iv] Budget Deficit:________________________