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University of Toronto Scarborough
Economics for Management Studies
Iris Au

STUDY QUESTIONS WEEKS 12 Week 1Topics Introduction to macroeconomics Unemployment and inflation how are they measured including both CPI and GDP deflator and in what ways are they harmfulGDP Potential GDP and the business cycleThe NAIRUUsing the CPIMeasuring GDPReal GDPReading Chapter 1920Supplements ABin the Course HandbookStudy Questions1The following data are from Canadas National Accounts for 2002 all data are in millions of current dollars92131Personal Consumption ExpendituresDurable GoodsSemi and Nondurable Goods214552Services349498Wages Salaries and supplementary labour income597316Capital Consumption Allowances ie Depreciation155004Government ExpendituresCurrent Expenditure218895Gross Fixed Capital Formation30430Indirect Taxes minus Subsidies138197Corporation Profits before taxes includes govt enterprises143250Interest and miscellaneous Investment Income 49425Net Payments of Investment Income to Nonresidents27389Investment in Machinery and Equipment83025Construction ofResidential Structures65270Nonresidential Structures48469Inventory accumulation2828Net Income of Nonfarm unincorporated businesses incl rent72960Net Income of farm operators1715Inventory Valuation Adjustment 3561Exports474303Imports4239891aUse the above figures not all of them one of them is related to GNP calculation rather than GDP to compute GDP by value of final product and by value of the income received by the factors of productionYou should obtain different answers before making adjustments since there is astatistical discrepancyWhat are your two answers bThe official figure for GDP is found by averaging the two estimates you found in aWhat is GDP computed this wayThe difference between this average and the estimate you found for GDE in a is the statistical discrepancy sometimes called the residual error of the estimateHow big is it cCalculate GNP from the dataWhy is it different than GDPWhich would you expect to be larger in Canada and why dIn 1998 GDP was 914973 million dollars and in 2002 it was 1154859 million dollarsThese are the figures for nominal GDP ie measured in current dollars However in 1998 the GDP deflator was 996 19971000 while in 2002 it was 1075By what percent did current dollar GDP rise from 1998 to 2002 By what percent did real GDP riseWhat was the rate of inflation between 1998 and 20022The following are some of the values for the Consumer Price Index from 1973 to 2005 this version of the index uses 1992 as the base year for 2002 we use the value of the CPI in JuneYear197319741975197619771978197919801981198219831984CPI28131134537140043647652458965369172119851986198719881989199019911992199319941995199675078181584889093398510001018102010421059199719981999200020012002107610861105113511641190aThe CPI rose by 34 points between 1974 and 1975 and by 52 between 1990 and 1991Why do we believe that inflation was more serious in the 1970s than it was in the early 1990s when the CPI rose by more in the early 1990s than it did earlierbA family friend confides in you that hisher family income after taxes was 20000 in 1977 and 50000 in 2000Is the friend better off or worse off in 2000 and by how much in year 2000 dollarsWhat was the 1977 equivalent of the current income of 50000What is the 2000 equivalent of the 1977 income of 20000cYou will notice that the CPI index provided above ends in 2002You are interested in the more recent values and you consult the Bank of Canada websiteThere you discover that the CPI had the following values in the next five yearsJune 200310252June 20041051June 20051071June 20061095June 20071119You are a bit confused until you discover that this series uses 2002 as the base year and that the CPI in this series June 2002 was 999 how would you splice the two series together that is assuming that you wanted to continue to use the series which had 1992 as a base year how would you create the values that you need to continue the series into the five years ending in 2007Compute the annualized rate of inflation over the period June 2002 to June 20073We discussed two price indexes the Consumer price Index CPI being an example of an index that has fixed quantity weights and the GDP Deflator being an example of an index that has current quantity weightsSuppose we have an economy with only consumption goods and no inventories in which there are only two goods produced hamburgers and bodysuitsThe prices and quantities consumed for the years 2001 and 2002 are given in the following table20012002QuantityPriceQuantityPriceHamburgers1000300800200Bodysuits20020004002500aDetermine current dollar GDP for this economy in 2001 and 2002By what percentage does current dollar GDP increasebIf 2001 is the base period determine 2002 GDP in constant 2001 dollars ie real GDP for this economycDetermine the equivalent of the 2002 GDP deflator again use 2001100 as the base in this economydCompute the rate of price increase from 2001 to 2002 using the two different price indexesAre you surprised about which is largerExplain eAre consumers better off or worse off in 2002 compared with 2001Explain 46The economy of Xanadu with only two consumption goods Widgets and Wombats and one capital good Machines with no inventory and no imports and exports has the following prices and quantities consumed and produced in 1991 and in 200119912001PriceQuantityPrice QuantityWidgets 300200400 150Wombats400150300 300Machines10000 1020000 5Questions 4 through 6 concern this economy3
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