Q1. Explain (briefly) whether each of the following is a positive or normative statement. (No marks will be rewarded to undefended responses) [12]

(a) Government should increase the amount of Child Tax Benefit to poor families to help reduce child poverty in Canada. [3]

(b) Personal disposable income should increase whenever the government institutes personal income tax cuts. [3]

(c) A generous unemployment insurance system is a primary cause of high unemployment in Europe. [3]

(d) The government budget surplus must largely be applied to reducing government debt in Canada. [3]

Q2. You are provided with the following macroeconomic information for the economy of Mumba: [10]

				1999		   2000

Output (Pizzas)			9000		   8000
Employment 			900		   800
Unemployed			100		   100
Price per pizza			$9.00		  $8.50

Calculate the following: (write the formulas used in each calculation)

· Growth rate of output between 1999 and 2000
· Growth rate of average labour productivity between 1999-2000
· Inflation rate
· Unemployment rate for 1999 
· Unemployment rate for 2000

Q3. Argue whether the following statements are true, false or uncertain. (No marks will be awarded to undefended responses; as a general guideline, your responses should be roughly of half page in length and not exceed the limit of one page) [30]

(a) Tuition expenditures of foreign students in Canada are part of Canadian GDP as well as Canadian GNP.

(b) The Compagnie Naturelle sells mounted butterflies, using butterfly bait it buys from another firm for $20 thousand. It pays its workers $40 thousand, pays $2 thousand in taxes and has profits of $5 thousand. The value added by this company is $27,000.

(c) Gross Domestic Product is a reliable measure of aggregate economic activity.

(d) Inventories are significant in GDP measurement only if they change from the preceding year.

(e) According to the uses-of-savings identity, a rising budget deficit will reduce (crowd out) investment one to one if private savings are unchanged in the economy.

(f) GDP=NNP+DEP+Factor payments to foreigners-Factor incomes received from abroad.

Q4. Citizens of Mumba produce coconuts, hay and provide land-surveying services. In 1999, they produced $20 million worth of coconuts, all of which were consumed domestically. They produced $10 million worth of hay, half of which was sold to neighboring countries. The remaining half was stored for use later. They provided $2 million worth of land surveying services, $1 million in Mumba and $1 million in the neighboring countries. They purchased $2 million worth of wheat from neighboring countries. Explain how you will calculate the following variables:

· GNP					[5]
· GDP					[5]
· NFP					[5]
· Net Exports (NX)			[5]
· Current Account Balance		[3]

Q5. The country of Mumba has produced the following quantity of tea and juice, with the price of each listed in dollar terms

		1999		2000
	Price	Quantity	Price	Quantity
Tea	1.00	50,000	1.50	45,000
Juice	2.00	20,000	2.00	22,000

(a) Explain what is meant by a Fixed-weight price index. Use the data given above to calculate the fixed-weight price index for 1999 and 2000, treating 1999 as the base year. Given an example of a fixed-weight price index used in Canada. [10]

(b) Explain what is meant by a Variable-weight price index. Use the data given above to calculate the variable-weight price index for 1999 and 2000, treating 1999 as the base year. Given an example of a variable-weight price index used in Canada. [10]

(c) Compare the inflation rates, calculated using parts (a) and (b). [5]