1. [20 points] Assume an economy with an oil company, a construction firm, a government, and some (e) [3 points] Assuming both goods are consumer goods, compute the consumer price index (CPI) in year consumer/workers. The construction company builds an oil platform, and sells it to the oil company for 1 and year 2 using year 1 as the base year. According to this price index calculate the percentage change $150 million. To construct this platform, the construction company uses up 5,000 toones of steel out of in the general price level. Is there inflation or deflation? its inventory, each tonde valued at $10,000, and pays $30 million in wages & salaries to its workers and $10 million in indirect taxes to the government. The oil company produces 3 million barrels of oil, valued (f) [4 points] Are the two measures of inflation/deflation in parts (d) and (e) different? If so, why? at $100 per barrel. 2 million barrels are sold to the domestic consumers, and 1 million barrels are exported. The oil company pays $50 million in wages & salaries to its workers, and $20 million in indirect taxes to the government. The consumers pay $20 million in income taxes to the government. The 3. [20 points] The table below lists Canadian population and labour market date for the years 2019 and government hires some workers to provide government services, and pays them $50 million in wages & 2020. Use the table to answer the following questions. salaries. There are no interest payments or depreciation in this economy. (Hint: 1 million = 1,000,000 2019 2020 (a) [3 points] Calculate the after-tax profits of the oil company and the construction firm, where profits Population aged 15 and over 30,897,900 31,177,500 are the difference between revenue and costs. (Hint: if some of a firm'soutput is not sold in a given Labour Force 20,063,500 20,045,100 period but held as inventory, its value is still considered part of its revenue for that period. So, when a Employed 19,021,500 18,432,400 firm uses part of its inventory that was produced in another period we must subtract its value from revenues for this period. This will become clear when we compute GDP.) (a) [3 points] What are the labour force participation rates for 2019 and 2020? (b) [5 points] Calculate the GDP for this economy using the value-added approach. Show your work. (b) [3 points] What is the number of unemployed in 2019 and in 2020? (Hint: the government's value added are its input costs of production.) (c) [3 points] What is the unemployment rate in 2019 and in 2020? (c) [5 points] Calculate the GDP for this economy using the expenditure approach. Show your work. (d) [4 points] In which year was there more likely to have been a recession? Explain. (d) [5 points] Calculate the GDP for this economy using the income approach. Show your work. (e) [7 points] Suppose that the Prime Minister appears on national TV and claims that the rise in the (e) [2 points] Calculate the disposable income, YD, and savings, S, of this economy. Show your work. unemployment rate is due to more individuals searching for work and not because of firms cutting jobs due to the government's lockdown policies. Given what you found above, how would you address this claim? 2. [20 points] Suppose that an economy produces two different goods: durables and ponadurables. Assume that all production is consumed domestically in the same year. The per unit price and quantity data for two years are given below: Year 1 Year 2 Good Qty Price Qty Price Durable 10 $2 5 $4 Non-Durable 5 $4 10 $2 (a) [2 points] Calculate the nominal GDP in year 1 and year 2. (b) [4 points] Using year 1 as the base year, calculate the real GDP at constant prices in year 1 and year 2. Calculate the implied (net) growth rate of real GDP from year 1 to year 2 (c) [4 points] Using year 2 as the base year, calculate the real GDP at constant prices in year 1 and year 2. Calculate the implied (net) growth rate of real GDP from year 1 to year 2 (d) [3 points] Compute the GDP deflator in year 1 and year 2 using year 1 as the base year. According to this price index calculate the percentage change in the general price level. Is there inflation or deflation