Annual Employment, 15 and over, series label D980120 (series is
monthly)
a. Define average labour productivity and calculate it for the time
period 1990-1999. Also, compute the annual growth rates of real output,
employment and average labour productivity for the period 1992-1999.
Present alL the variables, given and computed, in a table. [5]
b. Plot the growth rates of real output, employment and average labour
productivity in a single graph. Comment on the three trends. Is there any
pattern between growth in real output and average labour productivity?
Discuss. [5]
c. What can you say about the early 1990?s and late 1990?s in terms of
economic activity? [5]
Q2. Determine whether each of the following is a positive or normative
statement.
a. Bank of Canada should raise interest rates to fight inflation. [2]
b. Classical economists believe that wages and prices adjust quickly to
restore equilibrium in the economy. [2]
c. The trade deficit should decline because of the fall in the value of
the dollar. [2]
d. The inequality of income that exists in Canada is partly caused by
an unequal distribution of wealth. [2]
Q3. Answer the following three questions.
a. Identify the difference between GDP and GNP. Illustrate with the aid
of an example. [5]
b. Why might measured GDP overestimate or underestimate aggregate
production? Give at least three reasons. [5]
c. The uses-of-savings identity shows that if government budget deficit
rises, then private savings must rise, investment must fall, and /or the
current account must fall. Argue whether this statement is true, false or
uncertain. [5]
Q4. Citizens of the country Heehaw produce hay and provide
entertainment services (banjo-playing). In 1993 they produced $15,000
worth of hay, with $11,000 consumed domestically and other $4,000 sold to
neighboring countries. They provided $7,000 worth of banjo-playing
services, $5,000 in Heehaw and $2,000 in neighboring countries. They
purchased $6,000 worth of soda pop from neighboring countries. Calculate
GNP, GDP and net exports for Heehaw. Show all your steps in calculating
these quantities. [4, 4, 2]
Q5. The following activities took place in an imaginary economy last
year:
| ITEM |
$ |
| Wages paid to labour |
80,000 |
| Consumer expenditure |
65,000 |
| Taxes paid by households |
20,000 |
| Transfer payments |
5,000 |
| Total profits made by firms |
20,000 |
| Profits retained by firms |
5,000 |
| Investment |
25,000 |
| Interest earned by households |
10,000 |
| Rent received by households |
4,000 |
| Taxes paid by firms |
5,000 |
| Government expenditure on goods & services |
20,000 |
| Exports of goods &services |
25,000 |
| Imports of goods and services |
16,000 |
| Depreciation |
5,000 |
Calculate: (explain all the steps)
a. GDP at market prices. Which approach to measuring GDP did you use?[5]
b. GDP at factor cost. Which approach to measuring GDP did you use? [5]
c. Personal disposable income [5]
d. National savings [5]
Q6. The country of Myrule has produced the following quantity of
tea and juice, with the price of each listed in dollar terms
| . |
1998 |
|
1999 |
|
| . |
Price |
Quantity |
Price |
Quantity |
| Tea |
10.00 |
1000 |
12.00 |
1500 |
| Juice |
2.00 |
10,000 |
2.50 |
7,000 |
a. Using a fixed-weight price index, with 1998 as the base year, what
are the price indexes for 1998 and 1999? What is the inflation rate using
this index? What is the percent change in real output using this index?
[10]
b. Using a variable-weight price index, with 1998 as the base year,
what are the price indexes for 1998 and 1999? What is the inflation rate
using this index? What is the percent change in real output using this index?
[10]
Q7. Explain the difference between nominal and real variables. Illustrate
with the help of an example. If the nominal interest rate is 7%, today?s
price level is 150, and you expect the price level to be 156 one year from now,
what is the expected inflation rate? What is the expected real interest rate?
[12]
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