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#1 01-22-2011, 10:41 PM

I have a few macroeconomic homework questions which I didn't quite get..

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1. How would each of the following transactions affect the GDP of Canada?
a) The Canadian government pays $1 billion in salaries for government workers.
b) The Canadian government pays $1 billion to Employment Insurance beneficiaries.
c) The Canadian government pays a Canadian firm $1 billion for constructing an airport.
d) The Canadian government pays $1 billion in interest to holders of Canadian government bonds.
e) The Canadian government pays $1 billion to a U.S. firm for military aircraft

.

I found out what happens to the GDP but i'm not really sure why it happens:

a) GDP increases
b) No affect on GDP
c) GDP increases
d) No affect on GDP
e) GDP decreases since the Canadian government is paying outside of the country for a good.

I think I got the reason for e, but what are the other reasons?

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2. Here are some data for an economy. Find its GDP. Explain your calculations.

Consumption expenditures: $600
Exports: 75
Government purchases of goods and services: 200
Construction of new homes and apartments: 100
Sales of existing homes and apartments: 200
Imports: 50
Beginning-of-year inventory stocks: 100
End-of-year inventory stocks: 125
Business fixed investment: 100
Government payments to retirees: 100
Household purchases of durable goods: 150

I'm not really sure how to find the GDP. I'm assuming I have to add a bunch of these up. So starting from the top, if consumption expenditures is $600 do I add $600 to GDP? And add 75 from exports on top of that? I'm not sure about many of them. Would imports mean I subtract 50 from the GDP? And isn't Household purchases of durable goods fall under Consumption expenditures?

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3. The standard assumption is that the GDP deflator will rise over time and be used to reduce (or deflate) nominal GDP to real GDP of a lower dollar amount. But the implicit chain price index form of the GDP deflator dropped from 100 in the first quarter of 1997 to 99.1 by the fourth quarter of 1998. Nominal GDP increased from $870 billion in the first quarter of 1997 to approximately $928.3 billion in the fourth quarter of 1998. Use the GDP "deflator" to calculate real GDP for the fourth quarter of 1998.

I don't really have any clue how to do this

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4. Ellen is downloading labour market data for the most recent month, but her connection is slow and so far this is all she has been able to get:

Unemployment rate: 5.0%
Participation rate: 62.5%
Not in the labour force: 60 million

Find the labour force, the working-age population, the number of employed workers, and the number of unemployed workers for this high-population country.

From my book I know that:

participation rate = labour force / working-age population

However we only know participation rate so we can't find the other 2..

Also from my book:

labour force = employed workers + unemployed workers

We are given none of this info..

And lastly from my book:

unemployment rate = unemployed workers / labour force

All we are given is unemployment rate..

How would I figure the labour force, working-age population, number of employed workers, and number of unemployed workers out?

blahbleh · #2 01-23-2011, 04:49 AM

1.
a - money is paid from produced work, new value (goods & services) is added to economy.
b - money is given to insurance which is not really paying for new value. no new value is added to economy.
c - building airport added value to economy.
d - bond was new goods and services when it was bought. After being bought, bond is not new anymore, thus interest paid for bond does not add new value.
----> the key is newly added value or not.

2. Use the formula: GDP = Consumption + Investment + Government Spending + (Export - Import)

3. Use GDP Deflator formula: GDP Deflator = (Norminal GDP/Real GDP)*100
99.1 = (928.3*100)/Real GDP
Solve this and you get Real GDP of 936.73 for 1998

4. Participation rate is 62.5%, so non-participation rate is 37.5% (100-62.5).
"Non-participation rate" means "not in the labour force". 37.5% is 60 million, so 62.5% is 100 million. So the labour force is 100 million.

Use the formula "participation rate = labour force / working-age population", we have 62.5%=100/working-age population. Solve this and we get working-age population of 160 million.
Unemployment rate is 5%, so employment rate is 95%. 95% * 100 million (labour force) = 95 million. Number of employed workers is 95 million, number of unemployed workers is 5 million.

Hopefully I did not make any stupid mistake.

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