Suppose a simple economy produces three goods only.

The price and output data for some selected years are shown below.

Price

(dollars)

Price

(dollars)

Quantity

(number)

Quantity

(number)

2002

2012

2002

2012

Pop

Crackers

Cucumbers

0.75

1.25

2.00

1.10

2.10

3.00

100

300

200

120

280

190

1) Assume that the reference base year is 2002 (CPI = 100) (1 mark each)

a) What is the CPI (consumer price index) in 2012?

b) What is the nominal GDP in 2012?

c) What is the real GDP in 2012?

d) By what percentage did the economy grow between 2002 and 2012?

2) Assume the following information for a country: total population of 35 million; working-age population of 27 million; 10 million are not in the labour force; 15 million are employed; 2 million are unemployed. Calculate the following to two decimal places. (1 mark each)

a)What is the unemployment rate?

b)What is the labour force participation rate?

3) Refer to the figure above. The country of Kemper is on its aggregate production function at point W in the above figure. If the population increases with no change in capital or technology, what will happen to the economy? Explain your answer. (2 Marks)

4) In 2019 the imaginary country of Laffonia had a real GDP of $4.7 billion and a population of 310,000. In 2020 the real GDP was $5.0 billion and the population was 315,000.

What was Laffonia's growth rate in real GDP (per person) between 2019 and 2020? Round off to two decimal places. (3 Marks)

5) Calculate the inflation rate experienced in 2014 and 2015 based on the CPI for each year below: (1 mark each)

Year

CPI (as of December 31 of the year)

Inflation rate (%)

2013

124.5

Not applicable for 2013

2014

125.2

?

2015

127.5

?

6) Assume the CPI was 100.0 in 2002 and 125.2 in 2014. Jan's wage at ABC Innovation was $60,000 in 2002 and had increased to $70,00 by 2014. After adjusting for inflation, what was Jan's "real" wage in 2014 relative to what she was earning in 2002? (2 marks)

7) Identify which unemployment condition (seasonal, structural, cyclical, frictional) best describes the situation of each of the following individuals. (1 mark each)

a)a wristwatch repairman that was laid off as most people use their cell phone to check the time and few people are buying watches worthwhile repairing. _________________ unemployment

b) a digital artist who lost her job with an advertising company during a recession in the economy. ________________ unemployment

c) a marketing manager who quit her job to look for another similar marketing job which provides a higher salary and more benefits. ___________________ unemployment

8) On January 1, 2019, Seabreeze Construction Company owned 4 dump trucks, 2 excavators and other construction machinery with a total value of $950,000. During 2019, Seabreeze Construction bought two new trucks paying a total of $120,000. On December 31, 2019, the market value of all the firm's trucks and construction machinery was $1,020,000. (1 mark each)

a)What was Seabreeze's gross investment in 2019?

b)What was the amount of depreciation in 2019?

c)What was the net investment in 2019?

9) Suppose that the government starts with a debt of $10 billion. Then in year 1 there is a deficit of $50 billion, in year 2 there is a deficit of $70 billion, in year 3 there is a surplus of $40 billion, and in year 4 there is a deficit of $20 billion. What is the government debt at the end of year 4? (2 marks)

10) The imaginary country of Acordia lists the following projected revenues and outlays for 2020: $30 million in personal income tax, $20 million in corporate income tax, $7 million in indirect taxes, $2 million in investment income, $35 million in transfer payments, $14 million in government expenditures, and $4 million in debt interest. What is the projected budget surplus (or deficit) for 2021? Calculate the amount and indicate whether it is a surplus or deficit. (3 marks)

11) Using the Bank of Canada Inflation Calculator at the site shown below, calculate what would be the value in 2018 of a house in Toronto that cost $15,000 in 1964. Assume that over those years the house increased in value each year at the rate of inflation. (1 mark each)

Note: Instructions on how to use the Inflation Calculator are provided at the site.

Value in 1964: $ 15,000

a)Value in 2018: $ __________________

b)What was the average annual rate of inflation during the period from 1964 to 2018? ____________

Bank of Canada site - https://www.bankofcanada.ca/rates/related/inflation-calculator

TOTAL: 28 marks

VALUE: 10% of the course mark