1. Nominal GDP in Canada was $748.6 billion in 1994 and $711.7 billion in 1993. The GDP deflator was 125.6 in 1994 and 124.7 in 1993.

a. What was the growth rate of nominal GDP between 1993 and 1994?

b. What was the inflation rate from 1994 to 1995?

c. What was the growth rate of real GDP from 1993 to 1994?

2. Some economists attribute the rapid growth in Canadian real GDP from 1993 to 1994 to the growth in the U.S. economy. To investigate this, link to the CANSIM database from the QED web pages and select series D369377, which is quarterly real U.S. GDP. In the retrieval form, convert this to `annual' using the `average' method, and select the years 1990 to 1994.

a. What are the levels of U.S. real GDP for each year from 1990 to 1994?

b. What are the four growth rates?

3. In the country of Kwaki, people produce canoes, fish for salmon, and grow corn. In 1994 they produced 5000 canoes using labour and natural materials only, but sold only 4000, as the economy entered a recession. The cost of producing each canoe was $1000, but the ones that sold were priced at $1250. They fished $30 million worth of salmon. They used $3 million of the salmon as fertilizer for corn. They grew and ate $55 million of corn. What was Kwaki's GDP in 1994?

4. For 1992 the Canadian economy had the following nominal quantities (in billions of dollars) and price indexes (1987=100) for each category of expenditure:

                       Nominal value    Price index
Consumption            423.1             125.1
Fixed investment       112.0             111.0
Government purchases   165.8             123.2
Exports                180.4             100.9
Imports                186.7              97.2
Change in inventories   -3.28            111.0

a. Calculate the real quantity for each category (to one decimal point).

b. Calculate nominal and real GDP.

c. Find the implict price deflator (1987=100).

5. Suppose the nominal interest rate is 8%, today's price level is 174, and you expect the price level to be 178 one year from now.

a. What is the expected inflation rate?

b. What is the expected real interest rate?

c. If interest income is taxed at a tax rate of 29% then what is the expected after-tax real interest rate?

6. [Warning: You may want to answer this question well before the due date, to avoid a queue for the printed material.] The uses-of-saving identity describes how Canadian savings go to investment in domestic capital or in foreign assets. The identity is:

Sp + Sg = I + CA.

In the ``Canadian Economic Observer, Historical Statistical Supplement 1994/95'':

a. Find Sg in millions of dollars, for 1993 and 1994 from Table 3.

b. Find I in millions of dollars, for 1993 and 1994, from Table 1. Use the part of the table for the expenditure approach, and add fixed capital investment and inventory investment for the private sector and government sector.

c. Find CA, in millions of dollars, for 1993 and 1994 from Table 17.

d. Use the identity to estimate Sp for 1993 and 1994.

7. Imagine an economy where 1991 real GDP was 4861.4, the capital stock was 13,806.2, and employment was 118.4 (in millions of workers). In 1992 the numbers were: real GDP 4986.3, capital stock 14,040.8, employment 119.2. Suppose the production function in both years had an exponent of 0.25 on capital, an exponent of 0.75 on labour, and total factor productivity denoted by A.

a. Calculate total factor productivity for 1991 and 1992.

b. How much did TFP grow from 1991 to 1992?

c. Calculate the percentage increase in real output between 1991 and 1992.

d. Suppose tax incentives had raised the capital stock in 1992, making it 10% higher at 15,444.9. If employment din't change, what would have been the percent increase in real output between 1991 and 1992?

e. Instead of the increase in the capital stock in part d, suppose employment was 10% higher in 1992, making it 131.1. With the capital stock fixed at 14,040.8, what would have been the increase in real output between 1991 and 1992?

2. Answer a. b.

1990       4897.27
1991       4861.46       -0.73
1992       4986.25        2.56
1993       5134.52        2.97
1994       5344.00        4.08

3. Answer: Inventories are valued at the cost of production, so the 1000 canoes in inventory were valued at $1000 each for a total of $1 million. Four thousand canoes at $1250 each totaled $5 million. Salmon as a final good were worth $27 million and corn worth $55 million was grown. So total GDP was $88 million.

4. Answer:

a. real C 338.2; real I 100.9; real G 134.5;
real Exports 179; real Imports 192.1; real CBI -2.95

b. Add up nominal quantities, subtracting imports to get nominal output of 691.32. Do the same for real quantities to get 563.25.

c. The implict deflator is nominal GDP/real GDP x 100 = 122.0

5. Answer. The expected inflation rate is 2.29%. The expected real interest rate is 5.71%. The expected after-tax real interest rate is 3.39%.

6. Answer

a. Sg is -46,044 in 1993 and -33,033 in 1994.

b. Adding the four categories, I is 129,987 in 1993 and 142016 in 1994.

c. CA is -28,794 in 1993 and -22,299 in 1994.

d. By subtraction, Sp is 147,237 in 1993 and 152,750 in 1994.

7. Answer

a. 1991: 12.49; 1992: 12.70

b. +1.7%

c. +2.6%

d. Y = 5107.5, a 5.1% increase.

e. Y = 5356.2, a 10.2% increase.