Part a) Using the information in the Table below, answer the following questions. A very simple economy producing three goods: Pizzas, pens, and Bikes.

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Question (12 marks)

Part a) Using the information in the Table below, answer the following questions. (7 marks)

A very simple economy producing three goods: Pizzas, pens, and Bikes.

                                                                  2016                                          2021

Product                                     Quantity       Price                Quantity       Price

Pizzas 120 $6.00 100 $7.00
Pens 500 $2.00 600 $2.50
Bikes 5 $1,000.00 8 $1,100.00

  1. Calculate the nominal GDP for both 2016 and 2021 and find out the growth rate. (3 marks)
  2. Calculate the real GDP for 2021, assuming 2016 as the base year. What is the growth rate? (4 marks)

Part (b) State whether you agree or disagree with each of the following statements, and also briefly explain why (5 marks)

  1. The economic growth rate is calculated as the rate of change in nominal GDP between two time periods.
  2. Whenever real GDP declines, nominal GDP must also decline.
  3. Government spending on transfer payments is included in government purchases when calculating GDP, because it results in the production of new goods and services.
  4. The 'rule of 70' states that it takes approximately 70 years for a developing economy to become a developed economy once economic growth begins.
  5. Stagflation occurs when long-run aggregate supply decreases.

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