1. Nominal GDP of the Republic of Ireland was 42,942 IR£million in 1996 and 48,241 IR£million in 1997. The GDP deflator (base year 1990 = 100) was 112.6 in 1996 and 115.1 in 1997.
a. What was the growth rate of nominal GDP between 1996 and 1997? (3 points)
b. What was the inflation rate from 1996 to 1997? (3 points)
c. What was the growth rate of real GDP from 1996 to 1997? (3 points)
d. The nominal GDP per capita was 11,843 IR£ in 1996 and 13,177 IR£ in 1997. What was the growth rate of the population of Ireland? (3 points)
e. Ireland is a member of the new European Economic and Monetary Union (EU-11 or "Euroland"). List the other 10 countries that are members. (3 points)
2.In April 1997, the Republic of Ireland had a labour force of 1,539,000, employment of 1,380,000, and there were 1,276,000 people not in the labour force.
a. Calculate the unemployment rate for Ireland. (2 points)
b. Calculate the participation rate for Ireland. (2 points)
c. Calculate the employment ratio for Ireland. (2 points)
d. Is it possible to have both an increase in the unemployment rate and an increase in the employment ratio? Explain (in your own words). (4 points)
3. a. Discuss four possible problems with using leading indicators to forecast recessions. (10 points)
b. Consumer expenditures on durable goods such as cars and furniture, as well as purchases of new houses, fall much more than expenditures on non-durable goods and services during recessions. Why do you think that is? (10 points)
4. a. From Statistics Canada (http://www.statcan.ca/english/econoind/indic.htm), report the latest monthly change in:
Composite Index of Leading Indicators
U.S. Composite Index of Leading Indicators
Business Investment (Machinery and equipment)
New motor vehicle sales
Housing Starts
Gross Domestic Product (at market prices)
Toronto Stock Exchange 300 Index
Consumer Price Index
Unemployment rate
Participation rate
Be sure to include the month of the latest reported period, the value of the statistic, and the monthly change. (5 points)
b. Describe each statistic (from part a) as leading, lagging, or coincident. (5 points)
c. Based on these observations, what stage of the business cycle do you believe that we are presently in? (i.e. expansion, peak, recession, trough, or recovery). Defend your decision by referring to the data that you have collected. (5 points)
5. Given the following information:
GNP = 1500
Government Purchases of Goods and Services = 300
Government Deficit = 75
National Savings = 300
Investment = 250
NFP = 20.
Find:
a. Consumption (3 points)
b. Private Savings (3 points)
c. Disposable Income (3 points)
d. Gross Domestic Income (3 points)
e. Net Exports (3 points)
6. This question investigates the sources of revenue and expenditures
of the federal government using data available from the
CANSIM database. Note: You are only required
to obtain the data necessary to answer the questions. The number in
brackets refers to the CANSIM series number.
Total revenue (D459000)
--- Direct Taxes, Persons (D459001)
--- Direct Taxes, Corporations and Government
Business Enterprises (D459006)
--- Direct Taxes, Non-residents (D459007)
--- Indirect Taxes (D459008)
--- Other Current Transfers from Persons
(D459018)
--- Investment Income (D459019)
Total Current Expenditure (D459023)
--- Current Expenditure on Goods and Services
(D459024)
--- Transfer Payments to Persons (D459029)
--- Subsidies (D459046)
--- Capital Assistance (D459066)
--- Current Transfers to Non-residents
(D459069)
--- Interest on the Public Debt (D459072)
--- Current Transfers to Other Levels of
Government
(D459073)
Surplus (+) or Deficit (-) per National
Accounts
(D459101)
a. State the percentage of total current expenditure that was spend on transfer payments to persons in 1996. What components of total current expenditure are used when calculating GDP using the expenditure approach? What happens to the other components? (5 points)
b. On a separate piece of paper, plot the interest on the public debt as a percentage of total current expenditures from 1970 to 1997. Describe the results. (5 points)
c. On a separate piece of paper, plot the surplus or deficit from 1970 to 1997. Describe the recent trend. (5 points)
d. As a result of accumulated government deficits, the federal government has a large debt. Since much of this debt is financed from foreign lenders, describe its effect on : (a) the difference between GNP and GDP; (b) the difference between NX and the CA. (10 points)
Question 1:
b) [(115.1 - 112.6) / 112.6]*100 = 2.22%
c) {[(48241 / 115.1) - (42942 / 112.6)] / [42942 / 112.6]}*100 =
d) {[(48241 / 13177) - (42942 / 11843)] / (42942 / 11843)}*100 = [(3.661 - 3.626) / 3.626] = 0.97%
e) Belgium, Federal Republic of Germany, Spain, France, Italy, Luxembourg, Netherlands, Austria, Portugal, Finland
Question 2:
a) [(1539000 - 1380000) / 1539000]*100 = 10.33%
b) [(1539000) / (1539000 + 1276000)]*100 = 54.67%
c) [(1380000) / (1539000 + 1276000)]*100 = 49.02%
d)Yes, it is possible for the unemployment rate and the employment ratio to rise at the same time. For example, suppose that the population falls, the labour force is constant, the number of unemployed rises and the number of employed falls (but by less than the decline in population). Then the unemployment rate rises since there are more unemployed with the same labour force, but the employment ratio rises since population declines more than employment does.
Question 3:
a) Although leading indicators seem to be useful for forecasting the future state of the economy, there are a number of problems in using them. First, the data is usually revised, sometimes substantially, so a signal from the leading indicators may be reversed later. Second, they sometimes give incorrect signals. Third, they don't provide much information on the severity or exact timing of the coming recession. Finally, structural changes in the economy mean the set of indicators must be revised periodically.
b) Expenditure on durable goods is more sensitive to the business cycle than expenditure on non-durable goods and services, because people can more easily change the timing of their expenditure on durables. When economic activity is weak, and people face the danger of losing their jobs, they avoid making durable goods purchases. Instead, they may drive their cars a little longer before buying new ones, get the old washing machine repaired instead of buying a new one, and put off buying new furniture until a new expansion indicates greater income security. So in a recession, durable purchases decline a lot, but when an expansion begins, durable purchases pick up substantially.
Question 4:
a) and b)
Composite Index of Leading Indicators:
November 1998 208.6 +0.2% <leading>
U.S. Composite Index of Leading Indicators:
N/A N/A N/A <leading>
Business Investment (Machinery and equipment):
3rd quarter 1998 62.5 +0.6% <coincident>
New motor vehicle sales:
October 1998 119,000 -10.9% <coincident>
Housing Starts:
August 1998 130,600 -6.5% <leading>
Gross Domestic Product (at market prices):
Nominal: 3rd quarter 1998 887.4 +0.3% <coincident>
Real: 3rd quarter 1998 830.7 +0.4%
Toronto Stock Exchange 300 Index:
December 1998 6,485.94 +2.24% <leading>
Consumer Price Index:
November 1998 109.0 +0.0% <lagging>
Unemployment rate:
December 1998 8.0 +0.0% <coincident>
Participation rate:
December 1998 65.6 +0.0% <coincident>
c) Any reasonable answer will be accepted. Your answer should be defended by referring to the data collected above.
Question 5:
GDP = GNP - NFP = 1500 - 20 = 1480 (d)
GDP = C + I + G +NX
1480 = C + 250 + 300 + NX
S = I + CA
S = I + NFP + NX
300 = 250 + 20 + NX which implies NX = 30 (e)
Therefore C = 1480 - 250 - 300 - 30 = 900 (a)
Spvt + Sgov = National Savings which implies Spvt = 300 - [ - 75] = 375 (b)
Disposable Y = GNP - Taxes
G - T = Deficit
300 - T = 75 which implies T = 225
Disposable Y = 1500 - 225 = 1275 (c)
Question 6:
a) Transfer payments to persons = $54,570 million; % of total current expenditure spent on transfer payments to persons = 32.58%
Only current expenditure on goods and services is directly included in GDP as calculated by the expenditure approach. The other components of total current government expenditures, such as transfer payments to persons, are eventually included in GDP calculations as consumption and investment by individuals and companies. For example, employment insurance payments are not include in government purchases, but are eventually included in GDP when the EI recipient uses the money to buy groceries.
b) and c)
| Date | b) Interest on the public debt as a percentage of total current expenditures | c) Surplus (+) or Deficit (-) |
|
1970 |
12.6 | 247 |
| 1971 | 11.7 | -139 |
| 1972 | 11.6 | -530 |
| 1973 | 11.6 | 434 |
| 1974 | 10.7 | 1268 |
| 1975 | 10.7 | -3823 |
| 1976 | 12.0 | -3337 |
| 1977 | 11.9 | -7343 |
| 1978 | 13.4 | -10854 |
| 1979 | 15.6 | -9383 |
| 1980 | 16.4 | -10663 |
| 1981 | 19.2 | -7315 |
| 1982 | 19.6 | -20281 |
| 1983 | 18.7 | -24993 |
| 1984 | 20.1 | -30024 |
| 1985 | 21.9 | -31424 |
| 1986 | 23.0 | -23617 |
| 1987 | 23.2 | -20704 |
| 1988 | 24.8 | -19166 |
| 1989 | 27.1 | -21055 |
| 1990 | 27.6 | -25412 |
| 1991 | 25.5 | -30398 |
| 1992 | 24.1 | -29217 |
| 1993 | 23.3 | -35131 |
| 1994 | 24.2 | -28442 |
| 1995 | 26.8 | -26566 |
| 1996 | 27.1 | -15938 |
| 1997 | 26.7 |
A reasonable description of the data is adequate.
d) Recall the relationships: GNP = GDP + NFP and CA = NX + NFP. Interest payments on a large foreign debt will contribute to large negative net factor payments from abroad (NFP). Thus, we expect that GNP < GDP and CA < NX.
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