## Question

Part A – Measuring a Nation’s Income

1. In February 2014, a Toyota dealership in Toronto imported 100 new-model cars from Japan at a cost of $15 000 per car. By December 31, 2014 it had sold 40 of these cars to Canadian customers at a price of $20 000 each and another 20 of these cars to American customers in the U.S. at a price of $21 000 each. The remaining cars were sold to Canadian customers in January of 2015 at a price of $18 000 each.

2.

Which components of Canada’s 2014 GDP (C, I, G, X, IM) did the above transactions affect and by how much? What is the total contribution to GDP as measured by the expenditure approach?

2. The table below gives data for the country of Easton:

Year Nominal GDP Real GDP GDP Deflator

2011 3,055 94

2012 3,170 100

2013 3,410 3,280

2014 3,500 108

a. Complete the table by filling in the 4 missing values.

b. Compute the following for the period 2013 to 2014:

Percent change in real GDP

Percent change in GDP deflator

c. Was the increase in nominal GDP during this period due mostly to an increase in actual production of goods and services or to an increase in the price level? You must provide an explanation to receive a mark.

Part B - Measuring the Cost of Living

1. Suppose a typical family in Happyland consumes only three goods: bananas, sunscreen lotion and gasoline. Each year the typical family purchases 100 kilos of bananas, 50 bottles of sunscreen and 150 litres of gasoline.

The following table shows the prices of bananas, sunscreen and gasoline for 3 years.

2012 2013 2014

Bananas (price per kilo) $1.80 $2.00 $2.20

Sunscreen (price per bottle) $2.00 $2.10 $2.15

Gasoline (price per litre) $0.80 $1.00 $0.90

Given the above information and using 2012 as the base year, calculate the following:

a. Consumer Price Index for 2012, 2013 and 2014

b. Inflation rate for the periods 2013 to 2014.

3. Go to Statistics Canada’s webpage.

On the left side of the page under LATEST INDICATORS, Click on “CPI annual inflation” to view the latest release of the Consumer Price Index, April 2015. Download the pdf version and refer to Tables 1 and 2 to answer the following questions.

a. What was Canada’s all-items, not seasonally-adjusted inflation rate from April 2014 to April 2015? Using the formula for the inflation rate and the statistics given in the report, compute the rate yourself to confirm that it is correct. You must show your calculation to receive a mark.

b. What was the CPI for the Clothing and Footwear component in April 2015? What does this statistic tell us?

c. What can we conclude by comparing the CPI’s for Ontario and Alberta in April 2015? Be specific.

d. The percent change in the CPI from April 2014 to April 2015 was – 1.2 for Prince Edward Island. What name do we give this occurrence?

Part C – Production and Growth

1. In 2003, Canada’s real GDP per capita was about $24 000 and China’s was about $4 000 (both measured in international dollars). China’s real GDP per capita grew at an average annual growth rate of 7.6% during the period 1975 to 2003, while Canada’s annual growth rate averaged 1.8% over this same period.

If the above growth rates continue, approximately how long will it take for China’s living standards (as measured by real GDP per capita) to exceed that of Canada? In approximately what year would that occur?

2. In 2013, the number of labour hours in Prodoland are 200 while productivity is $8 per labour hour. In 2014, labour hours and productivity increased to 210 and $10 per labour hour respectively. What was Prodoland’s rate of economic growth as measured by percent change in real GDP?

Part D – Unemployment

1. Suppose Econoland has a working-age population of 200 million.

Calculate the unemployment rate and the participation rate for each of the following scenarios:

a. The labour force is 160 million and 140 million people are employed.

b. Now assume that 10 million new jobs are created, and this attracts 20 million more people into Econoland’s labor force.

c. Beginning from the situation in (a), suppose that 10 million unemployed people became discouraged and stop looking for work.

d. Beginning from the situation in (a), assume that 10 million current workers retired, but their jobs were filled by others still in the labour force.

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Part A – Measuring a Nation’s Income1.

All right.

2.

IM increase by 100 x 15,000 = $1,500,000 and C increases by 40 x $20,000 = $800,000, and X increases by 20 x $21,000 = $420,000, and I increase by 40 x $15,000 = $600,000.

(-1,500,000) + (800,000) + (420,000...

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