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Q1. The firm that printed this textbook bought the paper from XYZ Paper Mills. Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP?
Answer:
The paper is an intermediate good and so it is not (directly) included in GDP. The value of the paper is included in GDP as part of the value of the textbooks that the company produced using the paper. Use the figure above and answer the following questions: Q2. During 2008, in an economy
- Flow B was $900 bllion,
- Flow C was $200 billion,
- Flow D was $300 billion, and
- Flow E was – $70 billion.
Name the flows and calculate the value of a. Aggregate income. b. GDP
Answer:
Flow A is aggregate income; Flow B is consumption expenditure; Flow C is government expenditure; Flow D is investment; Flow E is net exports. a. Aggregate income. Aggregate income is $1.33 trillion. Aggregate income equals aggregate expenditure, which is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore aggregate expenditure equals $900 billion plus $300 billion plus $200 billion plus −$70 billion, which is $1.33 trillion. Therefore aggregate income also equals $1.33 trillion. b. GDP. GDP is $1.33 trillion. GDP equals aggregate income, which from part a is $1.33 trillion. Q. 3 : During 2009, flow A was $1,300 billion, flow B was $910 billion, flow D was $330 billion, and flow E was – $80 billion. Calculate the 2009 values of a. GDP. b. Government expenditure.
Answer:
a. GDP. GDP is $1,300 billion. GDP equals aggregate income. Flow A is aggregate income, so aggregate income— and hence GDP—is $1,300 billion, b. Government expenditure. Government expenditure is $140 billion. Aggregate expenditure equals GDP, which from part (a) is $1,300 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore government expenditure equals aggregate expenditure minus consumption expenditure minus investment minus net exports. Government expenditure equals $1,300 billion minus $910 billion minus $330 billion minus −$80 billion, which is $140 billion.
Answer: In 2010, nominal GDP is $5,600. In 2011, nominal GDP is $6,100. Nominal GDP in 2010 is equal to total expenditure on the goods and services produced by Tropical Republic in 2010. Expenditure on Tropical Republic on bananas is 800 bunches of bananas at $2 a bunch, which is $1,600. Expenditure on coconuts is 400 bunches at $10 a bunch, which is $4,000. Total expenditure is $5,600, so nominal GDP in 2008 is $5,600. Nominal GDP in 2011is equal to total expenditure on the goods and services produced by Tropical Republic in 2011. Expenditure on Tropical Republic on bananas is 900 bunches of bananas at $4 a bunch, which is $3,600. Expenditure on coconuts is 500 bunches at $5 a bunch, which is $2,500. Total expenditure is $6,100, so nominal GDP in 2011is $6,100. b) Calculate real GDP in 2011 expressed in base-year prices. Answer: Real GDP in 2011using base-year prices is $6,800. The base-year prices method calculates the market value of the 2011 quantities at the base-year prices of 2010. To value the 2011output at 2010 prices, real expenditure on Tropical Republic on bananas is 900 bunches at $2 a bunch, which is $1,800, and real expenditure on coconuts is 500 bunches at $10 a bunch, which is $5,000. Adding these two expenditures shows that real GDP in 2011using the base-year prices method is $6,800. Q 6. Use the table to work out in which year Canada’s standard of living (i) increases and (ii) decreases. Explain your answer. Year Real GDP Population 2007 $1, billion 3 2.9 million 2008 $1, billion 33.3 million 2009 $1, billion 33.7 million 2010 $1, billion 34.1 million Answer: The standard of living is measured by real GDP per person. The standard of living decreased in 2008 (slightly) and 2009 because real GDP per person decreased. The standard of living increased in 2010 because real GDP per person increased.
Use the figure above to answer the following questions. Q 7. In 2009, flow A was $1,000 billion, flow C was $250 billion, flow B was $650 billion, and flow E was $50 billion. Calculate investment. Answer: Investment is $50 billion. Aggregate expenditure equals aggregate income, which is flow A, $1,000 billion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore investment equals aggregate expenditure minus consumption expenditure minus government expenditure on goods and services minus net exports. Investment equals $1,000 billion minus $650 billion minus $250 billion minus $ billion, which is $50 billion. Q 8. In 2010, flow D was $2 trillion, flow E was – $1 trillion, flow A was $10 trillion, and flow C was $ trillion. Calculate consumption expenditure. Answer: Consumption expenditure is $5 trillion. Aggregate expenditure equals aggregate income, which is flow A, $10 trillion. Aggregate expenditure is the sum of consumption expenditure (Flow B ), investment (Flow D ), government expenditure (Flow C ), and net exports (Flow E ). Therefore consumption expenditure equals aggregate expenditure minus investment minus government expenditure on goods and services minus net exports. Consumption expenditure equals $10 trillion minus $2 trillion minus $4 trillion minus −$1 trillion, which is $5 trillion.
Prob2.
Solutions:
a. The unemployment rate.
The unemployment rate in July is 9.1 percent. The unemployment rate is the number
unemployed as a percentage of the labour force. The number of unemployed workers is 1,000.
The labour force is the number employed plus the number unemployed so in July it is 11,000.
The unemployment rate equals (1,000/11,000) × 100, which is 9.1 percent.
b. The employment-to-population ratio.
The employment-to-population ratio is 62.5 percent. The employment-to-population ratio is the
number employed as a percentage of the working-age population. The number of employed
people is 10,000. The working-age population is the sum of the labour force and the number of
people who are not in the labour force, which is 16,000. The employment-to-population ratio is
(10,000/16,000) × 100, which is 62.5 percent.
And calculate for the end of August 2012:
c. The number of people unemployed.
The number of people who are unemployed at the end of August is 840. The number of people
who are unemployed at the end of August equals the number unemployed in July plus the
number of people who lost their job and who stayed in the labour market plus the number of
people entering the labour market minus the number of people who were hired minus the number
of people who left the labour market. So the number of people unemployed equals 1,000 + 40 −
150 − 50, which is 840.
d. The number of people employed.
The number of people who are employed at the end of August is 10,050. The number of people
who are employed at the end of August equals the number employed in July minus job losers and
job leavers plus hires and recalls.
e. The unemployment rate.
The unemployment rate at the end of August is 7.7 percent. The unemployment rate equals the
number unemployed expressed as a percentage of the labour force. The number of people who
are unemployed is 840. The labour force equals the number employed plus the number
unemployed and at the end of August it is 10,890. The unemployment rate at the end of August
equals (840/10,890) × 100, which is 7.7 percent.
Prob3.
Solutions:
a. Labour force.
The labour force participation rate equals the labour force divided by the working-age
population. Rearranging this formula shows that the labour force equals the working-age
population multiplied by the labour force participation rate. Using this last formula and the data
given in the problem shows that the labour force equals 27,975,700 × 0 .68, which is 19,023,476.
b. Employment.
The employment-to-population ratio equals employment divided by the working-age population.
Rearranging this formula shows that employment equals the working-age population multiplied
by the employment-to-population ratio. Using this last formula and the data given in the problem
shows that employment equals 27,975,700 × 0.632, which is 17,680,642.
c. Unemployment rate.
The unemployment rate equals the number of people unemployed divided by the labour force.
The labour force, from part (a), is 19,023,476. The labour force equals the number of people
employed plus the number of people unemployed. Employment, from part (b), is 17,680,642 so
the number of people unemployed is 1,342,834. The unemployment rate equals the number of
people unemployed divided by the labour force, then multiplied by 100. Using this last formula
shows that the unemployment rate equals (1,342,834/19,023,476) × 100, which is 7.1 percent.
b. Calculate the CPI and the inflation rate in 2010.
The CPI in 2010 is 173.3. To calculate the CPI, divide the value of the CPI basket in 2010 prices
by the base-year value of the CPI basket and then multiply the resulting number by100. The
value of the CPI basket in 2010 prices is: ($4 × 30) + ($6 × 6) = $156. The value in base-year
prices is $60 + $30 (provided in the question), which equals $90. So the CPI is ($156/$90) × 100
The inflation rate in the 2010 is 73.3 percent. The inflation rate equals the CPI in 2010 year
minus the CPI in the base year expressed as a percentage of the base-year CPI. Because the base-
year CPI is 100, the inflation rate is [(173.3 – 100)/ 100] × 100 = 73.3 percent.
Prob1: Answer: a) b) c)
Prob1:
Michael is an Internet service provider. On Dec. 31, 2009, he bought an existing
business with servers and a building with worth $400,000. During his first year of
operation, the operation costs in total were $500,000 that includes buying of new
servers as well. The market value of some of his older servers fell by $100,000.
a) What was Michael’s gross investment, depreciation, and net investment
during 2010?
b) What is the value of Michael’s capital at the end of 2010?
Answers: a) b) Prob 2 :
a) Answer: b) Answer: c)
Prob1: Ans. Prob2:
Bank of Canada
Bank of Nova Scotia
Ans.
Prob 3 : Ans. Prob 4 : a) Ans. b) Ans.
Prob 5 :
Fig. 24.3:
Ans.
