(Solved): Suppose you have the following measure of nominal GDP by the income approach. GDP=W+GCS+GMI ...

Suppose you have the following measure of nominal GDP by the income approach. $\begin{array}{l}\text{ GDP }=W+GCS+GMI+T_{IN}\\ \text{ GDP }=700+100+100+100=1,000\end{array}$ Now a decrease in the average wage rate in the economy decreases employment compensation by 8 percent. Assuming there is no change in total employment, capital. consumption and indirect business taxes. a) What effect would this decrease in employment compensation have on costs of production? Increases factor costs Factor costs remain unchanged Decreases factor costs b) If businesses lowered prices to pass on these changed costs to buyers, how much would prices change, as measured by the GDP deflator? Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places.