1. Canadian nominal GDP was $712.855 billion in 1993, $747.260 billion in 1994, and $776.299 billion in 1995. The corresponding values for the GDP deflator were 124.68, 125.59, and 127.51.

(a) What were the values of real GDP in each year?
(b) What were the growth rates of real GDP for 1993-1994 and 1994-1995?
(c) Population in Canada was 28.895 million, 29.225 million, and 29.571 million in the three years. What were the growth rates of real GDP per capita for 1993-1994 and 1994-1995?

2. From the CANSIM database, retrieve the values of the Canada-U.S. exchange rate monthly for 1994 and 1995. The series label is B3400. Use the `average' conversion method. (You will notice that the rate is quoted in Canadian dollars per U.S. dollar). Let us call the range of the exchange rate the difference between the highest and lowest monthly values of the rate in a year.

(a) Find the ranges of the exchange rate in 1994 and 1995.
(b) For 1995, what is the range expressed as a percentage of the average monthly rate?

3. In 1994 the Canadian current account deficit was 2.96% of GDP, while in 1995 it fell to 1.44% of GDP. The corresponding values for aggregate investment were 16.2% and 15.0%.

(a) What was national saving as a percentage of GDP in each year?
(b) If the government budget deficit was 4.4% of GDP in 1994 and 3.2% of GDP in 1995, then what was the share of GDP devoted to private saving in each year?

4. Forecasters at the firm Hi-Powrd Econometrics predict inflation rates in 1997 and 1998 of 1% each year. They also predict a one-year interest rate at the beginning of 1997 of 4.5% and a two-year interest rate at the beginning of 1997 of 6.0% per year.

(a) Using the one-year nominal interest rate, what is the firm's implicit forecast for the real interest rate in 1997?
(b) Using the two-year nominal interest rate, what is the firm's implict forecast for the real interest rate in each of 1997 and 1998?

5. Find the effect on Canada's GDP and GNP of the following transactions:

(a) A Swedish logging firm harvests $10 million of eastern white pine in Ontario; their work force is 80% Canadian while their equipment is owned by Swedes.
(b) CIBC moves its merchant banking services from Toronto to New York, though its client base and employees remain the same this year.

6. Suppose that Singapore has the following production function: Y = A K^0.3N^0.7. Suppose that the capital stock was 100 in 1970 and 350 in 1990. Over the same period, output rose from 200 to 600.

(a) An economist believes that the labour input was 30 in 1970 and 40 in 1990. What is the economist's estimate of total productivity growth over this period?
(b) What is her estimate of the growth in output per worker?
(c) Further research shows that, in fact, the labour input rose from 30 to 60 due to increased participation in the labour force by women. How does this revised estimate affect estimates of growth in total factor productivity and in output per worker?

7. Profit-maximizing, competitive firms have the production function Y = A K^0.5N^0.5. Their current capital stock is K=100.

(a) Find an expression for the marginal product of labour.
(b) Hence find labour demand as a function of the real wage, w, productivity A, and capital.
(c) Meanwhile, suppose that labour supply of workers is described by N ^S = 0.25w(1-t), where t is the tax rate. Find the equilibrium real wage and equilibrium employment if A=1.0 and t=0.3.
(d) Find the effects on the real wage and employment of a productivity improvement, A=1.1.
(e) Find the effects on the real wage and employment of a tax cut to t=0.255 (``a fifteen percent tax cut'') with A=1.0.

1. (a) 571.748, 594.99, 608.81 billions of 1986 dollars.
(b) 4.07%; 2.32%
(c) 2.9%; 1.13%

2. (a) For 1994 1.31736--1.38842; for 1995 1.34550--1.41290.
(b) The average value for 1995 was 1.37244, so the ratio of the range to the average was 4.91%.

3. (a) 13.24%; 13.56% so there was a slight increase in national saving, as a share of GDP.
(b) 17.64%; 16.76% so private saving declined as a share of GDP (the increased national saving rate was due to lower dissaving by governments).

4. (a) 3.5%
(b) 5% each year
(Later in the course we'll discuss the yield curve and also the effects of tax on these returns.)

5. (a) GDP increases by $10 million while GNP increases by less than $8 million (the upper limit if the firm's only factor were labour)
(b) GDP falls; GNP is unaffected since the employees are still Canadian.

6. (a) The implied values for A are 4.64 and 7.82, for a total growth of 68.53%. Note: Calculate A=Y/(K^.3N^.7) for 1970 and 1990, then the growth rate of A = (A₁₉₉₀ - A₁₉₇₀)/A₁₉₇₀.
(b) 124.98%
(c) The revised values are 26.93% and 50%. Hence careful growth accounting has a large effect on one's view of the east Asian miracle economies.

7. (a) MPL = A K^0.5 0.5 N ^-0.5
(b) w = A K^0.5 0.5 N ^-0.5 so ND = A²K/4w²
(c) Solving the two equations gives w³ = A² K/(1-t) so in this case w=5.22 and N ^eq=0.9135.
(d) Now w=5.57 and N ^eq=0.974; the positive shock to productivity raises the real wage and employment.
(e) Now w=5.120 and N ^eq=0.953; employment rises with the tax cut, but the pre-tax wage falls (the after-tax wage rises though).

1. (a) 571.748, 594.99, 608.81 billions of 1986 dollars.
(b) 4.07%; 2.32%
(c) 2.9%; 1.13%

2. (a) For 1994 1.31736--1.38842; for 1995 1.34550--1.41290.
(b) The average value for 1995 was 1.37244, so the ratio of the range to the average was 4.91%.

3. (a) 13.24%; 13.56% so there was a slight increase in national saving, as a share of GDP.
(b) 17.64%; 16.76% so private saving declined as a share of GDP (the increased national saving rate was due to lower dissaving by governments).

4. (a) 3.5%
(b) 5% each year
(Later in the course we'll discuss the yield curve and also the effects of tax on these returns.)

5. (a) GDP increases by $10 million while GNP increases by less than $8 million (the upper limit if the firm's only factor were labour)
(b) GDP falls; GNP is unaffected since the employees are still Canadian.

6. (a) The implied values for A are 4.64 and 7.82, for a total growth of 68.53%. Note: Calculate A=Y/(K^.3N^.7) for 1970 and 1990, then the growth rate of A = (A₁₉₉₀ - A₁₉₇₀)/A₁₉₇₀.
(b) 124.98%
(c) The revised values are 26.93% and 50%. Hence careful growth accounting has a large effect on one's view of the east Asian miracle economies.

7. (a) MPL = A K^0.5 0.5 N ^-0.5
(b) w = A K^0.5 0.5 N ^-0.5 so ND = A²K/4w²
(c) Solving the two equations gives w³ = A² K/(1-t) so in this case w=5.22 and N ^eq=0.9135.
(d) Now w=5.57 and N ^eq=0.974; the positive shock to productivity raises the real wage and employment.
(e) Now w=5.120 and N ^eq=0.953; employment rises with the tax cut, but the pre-tax wage falls (the after-tax wage rises though).