1. The nation of Econoland has 4 goods in its market basket, goods J, K, L and M. In 1992, it utilized 3 units of J at $7 each, 5 units of K at $3 each, 4 units of L at $4 each and 2 units of M at $2 each. In 1997, the respective prices for goods were $8.25, 4, 6, and 3.50, while in 2001 they were $9, 6, 6.50, and 5. In 2005, the prices of those respective goods were $10, 7.50, 5 and 4, while in 2011 the prices were $12, 9, 4.25 and 6.
a. Calculate a market basket and a price index for each year, using 2001 as your base year. Show all work.
2. Calculate the annual rate of inflation from 1992-1997, from 1997-2005, from 2001-2005, and from 1992-2011. Show all work.
3. Assume that in the above referenced years in question # 1, the nominal GDP, in billions of dollars (B), was $4995.3 B, 5782.5 B, 6794.4 B, 8678.6 B, and 10,325.2 B respectively.
Calculate Real GDP for each year. Show all work.
9. You are the now the Trade Minister of Econoland. You are about to be interviewed on Econoland's national news.
The first question the interviewer asks you: "Madame or Mr. Prime Minister, can you explain to me three important reasons why free trade would be important to Econoland?
Then, what are three reasons that Econoland would like to block free trade?" Please answer the interviewer's questions thoroughly and completely.