Exercise 1

Following is the information about an assumed economy:

Bien Hoa Sugar Kinh Do Biscuits Hanoi bus BMV car

Year Price Quantity Price Quantity Price Quantity Price Quantity
2016 9 110 18 100 70 30 120 9
2017 10 110 20 95 71 25 125 10
2018 9 120 21 95 72 27 130 10
Suppose that three fourths of the sugar are used to produce biscuits. The base year is 2016.

1. Calculate nominal GDP of 3 years.

2. Calculate real GDP of 3 years.
3. Calculate CPI of 3 years.
4. Calculate DGDP of 3 years.
5. Calculate economic growth rate of 2017 and 2018.
6. Calculate inflation rate of 2017 and 2018.
7. Suppose that the annual population growth rate is 1 percent. How would real income per capita
change in 2018 compared to 2017.

Exercise 2

My father’s salary in 1990 was 15,000,000 dong and now it is 30,000,000 dong. Knowing that the CPI in 1990
was 105 and this year’s CPI is 185, is my father’s salary higher or lower now than it was in 1990? If yes,
estimate how much his salary has changed (as a percentage).

Exercise 3

Suppose that investment tax credit is offered to newly-established firms applying green technology. Use the
model of loanable funds to explain what would happen to interest rate and the quantity of funds exchanged
in the market.

Exercise 4

Suppose you deposited $100 million in a bank account enjoying an interest rate of 10 percent. You then
expected about an inflation rate of 3 percent. The interest from saving is taxed at a rate of 5 percent.

1. What do you expect the after-tax real interest rate to be?

2. If actual inflation rate is 4 percent, what will after-tax real interest rate be? Will you gain or loss from
this deal? Why?

Exercise 5

Suppose that in a hypothetical economy people hold cash at a rate of 20 percent of deposits, the reserve
requirement is 20 percent of deposits, and monetary base is $6,000 billion.

1. What is the money multiplier?

2. What is the money supply?
3. What should the central bank do in the open market if it wants to increase the money supply by $40
billion? Illustrate graphically.
4. How should the central bank change the reserve to deposit ratio to increase the money supply by
$40 billion? Illustrate graphically.