Tutorial Essay

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Tutorial 1 1. Why do economists use real GDP rather than nominal GDP to gauge economic well-being? 2. Why is it desirable for a country to have a large GDP? Give an example of something that would raise GDP and yet be undesirable. 3. What components of GDP (if any) would each of the following transactions affect? Explain. (a) A family buys a new refrigerator (b) Aunt Jorah buys a new house] (c) PROTON sells a Perdana from its inventory (d) You buy a roti canai (e) PLUS repaves North-South Highway (f) Your parents buy a bottle of French wine (g) Toyota expands its factory in Shah Alam, Selangor. 4. Below are some data from the land of milk and honey. |Year |Price of Milk |Quantity of Milk (litre) |Price of Honey |Quantity of Honey (litre) | |2006 |$1 |100 |$2 |50 | |2007 |$1 |200 |$2 |100 | |2008 |$2 |200 |$4 |100 | a) Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2006 as the base year. b) Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in 2007 and 2008 from the preceding year. For each year, identify the variable that does not change. Explain in words why your answer makes sense. c) Did economic well-being rise more in 2007 or 2008? Explain. 5. A farmer grows wheat, which he sells to a miller for $100. The miller turns the wheat into flour, which he sells to a baker for $150. The baker turns the wheat into bread, which he sells to consumers for $180. Consumers eat the

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