1. The country of Kamuza produces a fruit called Kamu and uses the muza as a currency unit. This is some data for Kamuza for 1993 and 1994:
1993 1994
------- -------
Output (tonnes of Kamus) 15,000 28,000
Employment (workers) 1,000 1,400
Unemployed ( " ) 200 100
Total labor force 1,200 1,500
Prices (muzas/tonne of 2 2.5
Kamus)
a) Calculate the average productivity of labor in 1993 an 1994.
b) What is the growth rate of the average productivity of labor between 1993 and 1994?.
c) What is the unemployment rate in 1993 and 1994?
d) What is the inflation rate in 1993 and 1994?
2. To eliminate the influence of price changes in growth accounting, GDP is measured in real terms (relative to a base year). To do this, link to the CANSIM database from the QED web pages and select series D10000, which is quarterly nominal GDP, and series P700000, which is monthly price indexes for all items, in Canada. In the retrieval form, convert both series to "annual" using the "average" method and select the years 1992 to 1994.
a) What are the growth rates of nominal GDP from 1992 to 1994?
b) What are the inflation rates from 1992 to 1994?
c) Find the growth rates of real GDP from 1992 to 1994.
d) Suppose all you knew were the price indexes for 1992 and 1994 (you do not know the price index for 1993). Calculate the (constant) annual rate of inflation from 1992 to 1994.
3. In the country of Kwaki, people produced canoes, fish for salmon, grow wheat and bake bread. The bakery is owned and operated by a foreigner who resides in Kwaki. In 1994, they produced 5000 canoes but sold only 4000 as the economy entered a recession. The cost of each canoe was $1000, but the ones that sold were priced at $1250. They fished $10 million worth of salmon. They used $2 million of salmon as fertilizer for wheat. They grew $5 million worth of wheat of which $4.5 were sold on the market and the baker purchased the rest. The $1 million worth of bread was baked and consumed locally. What is Kwaki's GDP and GNP?
4. For 1992, Econoland had the following nominal quantities (in billion of dollars) and price indexex (1987=100) for each category of expenditure.
Nominal value
Price index
-------------
------------
Consumption 438.5
122.1
Fixed Investment 121.0
115.0
Government Purchases 173.4
131.2
Exports 187.7
108.1
Imports 194.5
98.0
Change in inventories -6.2
115.0
a) Calculate the real quantity for each category (to
one decimal point).
b) Calculate nominal and real GDP.
c) Find the implicit price deflator (1987=100).
5. Suppose the nominal interest rate is 7.5%, today's price level is 174 and you expect the price level to be 189 one year from now.
a) What is the expected inflation rate?
b) What is the expected real interest rate?
c) Based on your answer in (b), would you increase or decrease savings and why?
6. In 1991, an economy's real GDP was 4962.4, the capital stock was 12,503.4 and employment was 122.8 (in millions of workers). In 1992, the numbers were: real GDP 5083.6, capital stock 13,880 and employment 124. Suppose the production function in both years had an exponent of 0.25 on capital, an exponent of 0.75 on labour and the total factor productivity denoted by A.
a) Calculate TFP for 1991 and 1992.
b) How much did TFP grow from 1991 to 1992.
c) Suppose tax incentives had raised the capital stock in 1992 making it 10% higher (than the figure given above). If employment did not change, what would have been the percent increase in real output between 1991 and 1992?
d) Instead of the information in (c), suppose employment in 1992 was 10% lower (than the number above). With capital in 1992 fixed at 13,880, what would have been the percent decrease in real output between 1991 and 1992?
1.(a)
output
APL = ------------------- = 15 (in 1993), 20
(in 1994).
employed workers
(b) Growth rate of APL = [(20-15)/15] x 100 = 33.3 perc.
(c) unemployment rate = (unemployed/TLF)x100 = 16.67
perc. (in 1993)
= 6.67
perc. (in 1994)
(d) Inflation rate = [(2.5-2)/2]x100 = 25 perc.
2. For this question, it makes no difference, i.e, the answers are the same , if you add up GDP to obtain a yearly total or you took the average to obtain a mean quarterly GDP for both years.
The latter approach gives the ff:
Nominal GDP (average quartely) Price level
Real GDP
------------------------ -----------
---------
1992 172530 128.075
134710.1
1993 178214 130.433
136632.6
1994 187513 130.675
143495.7
(a) growth rates of nominal GDP = 3.29 perc. in
1993
= 5.22 perc. in
1994.
(b) inflation rates = 1.84 perc. (in 1993)
= 0.19 perc. (in 1994)
(c) real GDP = (nominal value/price index)x100 (last column)
growth rates of real GDP = 1.427 perc. in
1993
= 5.02 perc. in
1994.
(d) let constant inflation rate = pi,
then (1+pi)(1+pi) = 130.675/128.075
which gives pi = 1 perc.
3. Note : only final goods and inventory (at cost) counts.
value in $million -------------- 4000 canoes sold @$1250 = 5.0 inventory (1000 canoes) @$100 = 1.0 Fish as final good = 8.0 ($2m fish used up as intermediate good) wheat sold on market = 4.5 ($0.5 wheat used as intermediate good) Bread consumed = 1.0 -------- GDP = 19.5 less NFP (profit of foreigner) = - 0.5 ---------- GNP = 19.0
4. (a) real GDP = (nominal value/price index)x100
Nominal value Price index Real value ------------- ------------ ---------- Consumption 438.5 122.1 359.13 Fixed Investment 121.0 115.0 105.22 Government Purchase 173.4 131.2 132.16 Exports 187.7 108.1 173.64 Imports 194.5 98.0 198.47 Change in inventories -6.2 115.0 -5.39 ------- --------- (b) TOTAL 719.9 566.26
(c) implicit price deflator = (nominal value/real
value)x100
= 127.1
5. (a) Expected inflation = [[expected P(t+1) -
P(t)]/P(t)]x100
= [(189-174)/174]x100
= 8.62 perc.
(b) expected real interest rate = nominal rate -
expected inflation
= 7.5 -8.62 = -1.12
perc.
(c) NO. for example, returns from $1.00 savings is worth less than today. consumption today will thus increase and savings reduce.
6. (a) TFP = 12.72 (for 1991)
= 12.60 (for 1992)
(b) growth rate of TFP = (12.6-12.72)x100/12.72 = -0.94 perc.
(c) 10% increase. Capital stock = 15268
Subst. in output equation : Y = 5204.54 (for
1992)
percent increase in Y = 4.88 perc.
(d) 10% decrease. employment = 111.6
subst into output equation = 4695.86
percent change in Y = -5.37 perc. (a
decrease).