Economics 248 Assignment 1B

This assignment has a maximum total of 100 marks and is worth 20 percent of your total grade for this course. You should complete it after completing your course work for Units 2 through 4. Answer each question clearly and concisely.

1. Explain whether each of the following events increases, decreases, or has no effect on the unemployment rate and the labour force participation rate in Canada. (1 mark each, total marks = 10)
2. After a long search, Shaun gives up looking for a job and retires.
3. Peter finds a job after a long search.
4. Stephen finds a part-time job after a long search.
5. Lilian graduates high school and starts to look for employment.
6. Bruce fails to find a job and relocates to a different country.
7. Jose, an electrical engineer in Sao Paulo, Brazil, is looking for a job in Canada.
8. Maria becomes an adult but has no interest in working.
9. Shaggy, a full-time university nursing student, graduates and immediately finds a job.
10. James quits his full-time job and finds a part-time job.
11. Luke finds a job that starts in 4 weeks' time.

1. Use the data below to answer the questions that follow. (Total marks = 12)

Item	Amount (billions of dollars)
Consumption expenditure	400
Government purchases	100
Interest and investment income	40
Profit of corporations & public enterprises	80
Income from farms and unincorporated businesses	50
Wages, salaries, and supplementary labour income	350
Capital consumption allowance (depreciation)	60
Investment	150
Exports	56
Imports	36
(Indirect) taxes less subsidies	90

1. Calculate net exports. (2 marks)
2. Use the expenditure approach to calculate GDP. (5 marks)
3. Use the income approach to calculate GDP. (5 marks)
4. Use the data below to answer the questions that follow. (Total marks = 15)

Year	Nominal GDP (in billions of dollars)	GDP Deflator (base year = Year0)
Year0	400	100.0
Year1	500	115.0
Year2	800	140.0

A.What was the growth rate of nominal GDP (i) between Year0 and Year1, and (ii) between Year1 and Year2? Show your work. (3 marks)

B.What was the growth rate of the GDP deflator (i) between Year0 and Year1, and (ii) between Year1 and Year2? Show your work. (3 marks)

C. What was the real GDP in Year 0 prices in (i) Year0, (ii) Year1, and (iii) Year2? Show your work. (3 marks)

D. What was the growth rate of real GDP (i) between Year 0 and Year1, and (ii) between Year1 and Year2? Show your work. (3 marks)

E.Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP (i) between Year0 and Year1, and (ii) between Year 1 and Year 2? Explain. (3 marks)

4.Suppose that people in Slotsky country produce and consume pizza and pop as follows. (Total marks = 15)

Year	Pizza	Pop
Quantity	Price	Quantity	Price
Year0	30	5	50	10
Year1	50	10	60	15
Year2	60	12	65	25

A.Calculate theconsumer price index (CPI) in each year using Year0 as the base year. Show your work. (3 marks)

B.Using your CPI in (a), what is the inflation rate in Year1 and Year2? Show your work. (3 marks)

C. Calculate the GDP deflator in each year using Year0 as the base year. Show your work. (3 marks)

D.Using your GDP deflator in (c), what is the inflation rate in Year1 and Year2? Show your work. (3 marks)

E. Is the inflation rate in Year2 the same in (b) and (d)? Explain why or why not. (3 marks)

5. The Organisation for Economic Co-operation and Development (OECD) publishes data that ranks countries based on their spending on research and development (R&D) by residents as a share of GDP. Go online and find a recent ranking, then answer the following questions. (Total marks = 12)

1. What is R&D, and what is its significance? (2 marks)
2. In a table, list four countries with high shares of expenditure on R&D and four countries with low shares. Note: show the share for each country in the table. (2 marks)
3. The World Bank publishes online the GDP per capita (constant base-year US$) for countries. Find and report the most recent estimates of GDP per capita of the countries in (b) above. (2 marks)
4. What pattern do you find between the share of R&D spending and GDP per capita? (3 marks)
5. Give two possible interpretations of the pattern in (d). (3 marks)

6. Consider a closed economy with a gross domestic product (Y) of 1200, consumption expenditure (C) of 750, government expenditure (G) of 200 and tax revenues (T) of 170. The figures are in billions of dollars. Suppose the investment expenditure function is I = 400 - 200r, where r is the real interest rate expressed as a percentage. (Total marks = 12)

1. State the equation between Y and the three components of expenditure. (2 marks)
2. Calculate private saving (S_p), public saving (S_g), and national saving (S). (2 marks)
3. Calculate investment (I). (2 marks)
4. Calculate the equilibrium real interest rate and quantity of loanable funds. (3 marks)
5. If the government ran a budget surplus of $20 billion in the next period, explain how this would affect the market for loanable funds. (3 marks)

7. Use a diagram of the labour market to show the effects of the following on (i) wages paid to workers, (ii) the quantity of labour supplied, (iii) the quantity of labour demanded, and (iv) the amount of unemployment. (Total marks = 12)

1. a decrease in working-age population (2.5 marks)
2. a launch of a new product that requires additional labour to produce (2.5 marks)
3. an increase in average hours per worker (2.5 marks)
4. a decrease in the minimum wage (2.0 marks)
5. an increase in the employment-to-population ratio (2.5 marks)

8. Consider the economy of Agrarian with a nominal GDP of $1 trillion, real GDP of $900 billion, and money supply of $50 billion. Agrarian's central bank is independent from the rest of the government. Suppose commercial banks are required to maintain a reserve requirement of 20% of deposits. Assume that banks do not hold excess reserves. (Total marks = 12)

1. Calculate the money multiplier for this economy. If the central bank wants to increase money supply by $1 billion using open-market operations, will it buy or sell? Explain. (2 marks)
2. Using the quantity theory of money, calculate the price level and the velocity of money in Agrarian's economy prior to central bank action. Show your work. (2 marks)
3. Assume that velocity is constant and real GDP increases by 5% each year. What will happen to nominal GDP and the price level next year if money supply does not change? Show your work. (2 marks)
4. In (c), what money supply should the central bank set next year to keep the price level unchanged? Show your work. (3 marks)
5. In (c), what money supply should the central bank set next year if it wants inflation of 2%? Show your work. (3 marks)