Assignment 2 TECO103:Principles of Economics

Assignment 2 TECO103:Principles of Economics :

Assignment 2 TECO103:Fundamentals of Economics Assignment 2

TECO103: Principles of Economics

Due Date: Sunday, 12/2/2023

Total Marks: 20 marks

Assignment 2 TECO103:Principles of Economics Instructions:

1. This is a group assignment. Each student should find your group member by yourself, each group should have no more than 3 students.
2. Each group MUST submit one copy of the assignment with a cover sheet; the group member MUST sign at the cover sheet.
3. The assignment MUST submit via tern-it-in before the due day.

Question 1 of Principles of Economics (5 marks)

An economy is described by the following equation

C^d=14400+0.5(Y-T)-40000r, I^p=8000-20000r, G=7800, NX=1800, T=8000

1. Find the numerical equation relating planned aggregate expenditure (PAE) to output (Y) and to real interest rate (r).                                                                 (2 marks)
   1. The real interest rate is 0.133, find short-run equilibrium output.                  (1 marks)
   1. Potential output, y*, equals 40,000. What real interest rate should be Reserve Bank set to bring the economy to full employment?                                                     (2 marks)

Question 2 (5 marks)

You are given the following data for 2006 and 2007

	2006	2007
Money supply	1000	1050
Velocity	8.0	8.0
Real GDP	12000	12000

1. Find the price level for 2006 and 2007. What is the rate of inflation between the two years?

(2 marks)

• What is the rate of inflation between 2006 and 2007 if the money supply in 2007 is 1100 instead of 1050?                                                                                                (2 marks)
• What is the rate of inflation between 2006 and 2007 if the money supply in 2007 is 1100 and output in 2007 is 12600?                                                                             (1 mark)

Question 3 (5 marks)

1. The Japanese yen trades at 110 yen per dollar and the British pounds trade at 0.62 pounds per dollar. What is the nominal exchange rate between the yen and the pound?     (1 mark)
2. A Japanese-made computer costs 250 000 yen and a similar British-made computer costs

£1500. Given the nominal exchange rate from part a), which computer is cheaper?

(2 marks)

• From the perspective of the British find the real exchange rate in terms of computers. Based on the real exchange rate you found which country’s computers are more competitively priced?                                                                                       (2 marks)

Question 4 (5 marks)

Table shows the fruit prices that the typical college student purchased from 2001 to 2004.

Items	Quantity	Price (2001)	Price (2002)	Price (2003)	Price (2004)
Apples	10	$0.5	$0.75	$0.85	$0.88
Bananas	12	$0.2	$0.25	$0.25	$0.29
Grapes	2	$0.65	$0.7	$0.90	$0.95
Raspberries	1	$2.00	$1.9	$2.05	$2.13
Total

1. Construct the price index for a “fruit basket” in each year using 2001 as the base year.

(3 marks)

• Compute the inflation rate for fruit prices from 2001 to 2004.                       (2 marks)

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