Economics 248 Assignment 1 (version A)
This assignment has a maximum total of 100 marks and is worth 10 percent of your total grade
for this course. You should complete it after completing your coursework for units 1, 2, and 3.
Answer each question clearly and concisely.
1. Use the data below to answer the questions that follow.
(10 marks)
Item
Consumption expenditure
Government expenditure
Interest and investment income
Profit of corporations and government
enterprises
Income from farms and unincorporated
businesses
Gross investment
Exports
Imports
Wages, salaries, and supplementary labour
income
Capital consumption allowance
(depreciation)
Indirect taxes, less subsidies
Amount
(in billions of dollars)
300
99
31
54
40
146
36
56
275
50
75
a. Calculate net exports.
(1 mark)
b. Use the expenditure approach to calculate GDP.
(2.5 marks)
c. Use the income approach to calculate GDP.
(2.5 marks)
d. Calculate net domestic product (at factor cost).
(2 marks)
e. Calculate net domestic income (at market price).
(2 marks)
2. Consider the circular flow model for Doneville economy. In 2015, flow A was $53.0
billion, flow B was $31.0 billion, flow C was $13.0 billion, and flow E was $3.0 billion.
(10 marks)
ECON 248v9
Assignment 1A
January 25, 2019
Calculate the following (show and explain your work):
a. GDP
(5 marks)
b. Investment expenditure
(5 marks)
3. In January 2015, the Zanzi economy had an unemployment rate of 5.9 percent. In August
2016, the unemployment rate was 8.7 percent.
(10 marks)
a. Predict what happened to unemployment between January 2015 and August 2016, if
the labour force was constant.
(2.5 marks)
b. In part a, what happened to employment? Explain.
(2.5 marks)
c. Predict what happened to the labour force between January 2015 and August 2016, if
unemployment was constant.
(2.5 marks)
d. In part c, what happened to labour force participation rate? Explain.
(2.5 marks)
4. The people on Rabuti Island buy only fish and cloth. The CPI basket contains the
quantities bought in 2014. The average household spent $120 on fish and $60 on cloth in
2014, when the price of fish was $2 per kilogram, and the price of cloth was $5 per
metre. In 2015, fish was $4 per kilogram, and cloth was $6 per metre.
(10 marks)
a. Calculate the CPI basket and the percentage of the household’s budget spent on fish
in 2014.
(4 marks)
ECON 248v9
Assignment 1A
January 25, 2019
b. Calculate the CPI in 2015.
(3 marks)
c. Calculate the inflation rate in 2015.
(3 marks)
5. Canadian GDP growth was 1.1 percent in 2015 and is expected to edge down slightly in
2016 due to the persistent low price of oil, which hurts investment in the oil sector. The
loonie is expected to remain weak vis-à-vis the US dollar, but the growth of US GDP is
expected to slow down in 2016 due to a weak energy sector, a strong dollar, and turmoil
overseas.
(10 marks)
a. Use the expenditure approach for calculating Canada’s GDP to explain how a weaker
loonie might affect the growth of the Canadian economy. Also, how is a slow-down
in US economic growth expected to affect the GDP growth of Canada?
(5 marks)
b. Why might Canada’s recent GDP growth rates overstate the actual increase in the
level of production taking place in Canada?
(2.5 marks)
c. Explain the complications involved with attempting to compare the economic welfare
in Canada and the United States by using the GDP for each country.
(2.5 marks)
6. Suppose a country reported the following data for July 2015:
Labour force: 19,438,500
Employment: 18,002,700
Working-age population: 28,695,400
(10 marks)
Calculate the following:
a. Unemployment rate
(2.5 marks)
b. Labour force participation rate
(2.5 marks)
c. Employment-to-population ratio
(2.5 marks)
d. If the unemployment rate was 6.2 percent in July 2014, did the unemployment
decrease or increase in 2015? Explain any two factors that could be responsible
for this change in unemployment.
(2.5 marks)
7. If the nominal GDP is $324 billion in the base year, and it falls to $320 billion in year 1
and rises to $345 billion in year 2, calculate the real GDP in each year, given that the
price index has fallen from 100 in the base year to 96.5 in year 1 and risen to 108.3 in
year 2. If the price index 5 years before the base year was 72.2, and the nominal GDP for
ECON 248v9
Assignment 1A
January 25, 2019
5 years before the base year was $215.0 billion, calculate the real GDP for that year.
Show your work in all cases.
(10 marks)
8. Classify the following items and scenarios as consumption or investment goods. Justify
your answers.
(10 marks)
a. The Mackenzie pipeline
(2 marks)
b. A loaf of bread
(2 marks)
c. A pair of scissors bought by a hairdresser from the Ace Beauty Supply Company
(2 marks)
d. A tennis racquet
(2 marks)
e. The money spent to stay at the Hilton Hotel by a Canadian couple visiting Hawaii
(2 marks)
9. According to UNESCO’s 2011 report, two-thirds of African children are locked out of
secondary school. If governments were to provide good schools and encourage children
to take advantage of them, answer the following questions.
(10 marks)
a. Describe any two ways in which greater education opportunities could lead to faster
economic growth.
(2.5 marks)
b. Explain what will happen to potential GDP.
(2.5 marks)
c. Explain what will happen to employment.
(2.5 marks)
d. Explain what will happen to real wage rate.
(2.5 marks)
10. The following table presents the data for an economy when the government’s budget is
balanced.
(10 marks)
Real interest rate
Loanable funds demanded
Loanable funds supplied
(percent per year)
(billions of 2007 dollars)
(billions of 2007 dollars)
1
9.0
3.0
2
8.0
4.0
3
7.0
5.0
4
6.0
6.0
5
5.0
7.0
6
4.0
8.0
7
3.0
9.0
8
2.0
10.0
ECON 248v9
Assignment 1A
January 25, 2019
9
1.0
11.0
a. What is a balanced budget, and why does it matter?
(2 marks)
b. Calculate the equilibrium real interest rate, investment, and private saving. Why is
this interest rate referred to as equilibrium?
(2 marks)
c. If planned saving increases by $2 billion at each real interest rate, explain the change
in the real interest rate and investment.
(2 marks)
d. If planned investment increases by $1 billion at each real interest rate, explain the
change in saving and the real interest rate.
(2 marks)
e. If both planned savings and planned investment increase by $1 billion at each real
interest rate, explain the change in the real interest rate and equilibrium quantity of
loanable funds. Sketch your answer using the diagram of the model for loanable funds
market.
(2 marks)
ECON 248v9
Assignment 1A
January 25, 2019