1. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and catsup in 2010. Assume one half of the tomatoes are used in making the catsup and the other half of tomatoes are purchased by households.

Product

Quantity

Price ($) Shoes 40

quantity shoes 50

price DVDs 100

quantity dvds 25

price Tomatoes 2000

quantity tomatoes 1

price Catsup 300

quantity catsup 5

a. What is the nominal GDP in 2010 for this simple economy?

b. In 2011, suppose that the whole tomatoes products were used in making the catsup and at the same time the price of shoes, DVDs, Tomatoes, Catsup increased three-fold each and their respective quantities also increased twice. Calculate Real GDP, GDP deflator and rate of inflation in 2011.