1. (25 points) Use the information on values in chart below (measured in Neverlandian pesos) from the country of Neverland in 2010 to find values for the following categories: Household and institutions spending-650 Household and institution production=150 Net income payments from the rest of the world-5 Nonprofit institutions production=50 State and local government spending-30 Change in private inventories=2 Depreciation=60 a. b. C. d. e. Business spending-50 Exports-225 Imports-125 Government production=200 Statistical discrepancy=0 GDP-850 Private household production (5 points) Business production (5 points) Fixed investment spending (by business) (5 points) Federal government spending (5 points) National income (5 points) 1 2. (30 points) Assume that in a labor market, labor demand is given by LD-60-3W and labor supply is given by LS=25+2W where W is the real wage of workers. a. Draw labor demand and labor supply curves in the W-L space by clearly labelling each curve (10 points) b. Find the equilibrium wage and equilibrium quantity of labor (5 points) C. If minimum real wage is set by the government as W-10, what is the labor demand at W-10 (5 points)? What is the labor supply at W-10 (5 points)? How many people are unemployed at W-10 (5 points)? d. c. 3. (25 points) Suppose that the relation between consumption and income is C-90+0.75 Y. What is the marginal propensity to consume (mpc) (5 points)? b. For each additional dollar that households receive, how much do they save (5 points)? C. d. C. What is the level of consumption when income is equal to 500? 600 (5 points)? What is the level of saving when income is equal to 500? 600 (5 points)? As income rises from 500 to 600, by how much does consumption rise? By how much does saving rise (5 point)? 4. (30 points) Suppose an extremely simple economy produces only two goods, pillows and rugs. In the first year, 50 pillows are produced and sold at $5 each; 11 rugs are produced and sold at $50 each. In the second year, 56 pillows are produced and sold for $5 each; 12 rugs are produced and sold at $60 each. a. b. c. d. What is the growth of nominal GDP (5 points)? What is real GDP in each year, expressed in terms of constant Year 1 dollars (5 points)? What is the growth of real GDP (in constant Year 1 dollars) (5 points)? Calculate a constant-weight price index for the second year, using the first year as the base year (10 points). e. What is the growth of prices (inflation rate) from the first to the second year (5 points)? 2