Reference no: EM131421839

ASSIGNMENT

1. [Reading] Read ONE of the following papers. You have a choice between a shorter, more technical paper or a longer, easier-to-read one.

• ‘The Timing of Railway Construction on the Canadian Prairies' (Technical, 13 pages)

• ‘Some Economic Issues Relating to Railroad Subsidies and the Evaluation of Land Grants' (Easier to read, 21 pages)

a. Write a 3-2-1 report on one of the two papers above. Remember that you CAN'T just copy-and-paste text from the paper. You must use your own words.

3-2-1 report:

i. What are the 3 most important concepts, ideas or issues in the reading? Briefly explain why you chose them.

ii. What are the 2 concepts, ideas or issues in the article that you are having the most difficulty understanding, or that are missing but should have been included?

Briefly explain what you did to correct the situation (e.g. looked up an unfamiliar word or a missing fact), and the result.

iii. If you could ask the author1 question, what would it be? Why is this question important?

b. There are two versions of this question, one for each paper. Answer only the one related to the paper you chose. (2 marks):

i. ‘Timing of Railway Construction': In Lecture 20, we learned that the Canadian Pacific Railway (CPR) successfully offered to extend the line from the original western terminus of Port Moody to Vancouver, 25 km away, in exchange for a considerable grant of land. While the CPR's offer is a matter of public record, as is the ex post success of the endeavor, its ex ante motivations are less certain.

The model in this paper was developed for the wheat-growing regions of the prairies. Suppose you wanted to modify it to examine the CPR's decision to extend the line.Suggest a specific modification that would have to be made to the model in order to do this. (1 mark for the suggestion, 1 mark for explaining why it is necessary.)

Hint: It's taken for granted that equations (4) through (12) would have to be modified or replaced, since they deal with wheat farming explicitly. The question is, what would you replace them with? (e.g. "Equation (6) expresses freight rate as a function of wheat acreage. In the case of the Vancouver extension, an appropriate replacement for wheat acreage would be... , because ... " etc.)

ii. ‘Economic Issues': As discussed in class, the Canadian Pacific Railway received a grant of millions of acres of land from the Federal government. Based on what you have read in this article and learned in class, was a land grant of this size an appropriate incentive? If so, why? If not, what would have been a better incentive? Briefly explain your reasoning.

2. [‘Raphing] This question is meant to show you that you need to be careful when interpreting historical statistics, even when you THINK you have what you need!

In 1986, Alan Green used available data to estimate the net income of Canadian railways from 1871 to 1926. He used a factor income approach. Data limitations meant he had to make strong assumptions to be able to include the earlier years.

In this question, you'll apply a simplified version of Green's methods to calculate net income for the Canadian Pacific Railway (CPR) from 1926 to 1970. We actually have all the information we need for the CPR, so you'll be able to see the impact of Green's assumptions. I've converted all values to 2016 dollar values using the Canadian CPI.

IF DOING THE BELOW BY HAND, USE ONLY 1940 - 1949 (10 YEARS)

a. According to Green, "net railway income is the sum of wages and salaries, interest and dividend payments, [rent payments] and net savings". Net "Savings are defined as the difference between net corporate income and dividends paid out."

Use the data in this assignment's companion Excel sheet to calculate net income (Wages and Salaries + Interest Payments + Dividend Payments + Rent Payments + Net Savings). You will have to calculate Net Savings as (Net Corporate Income - Dividends). Call this series ‘Net Income'. It should have values for every year from 1926 to 1976.

b. Green did not have access to this quality of data for his entire time period, so he had to make some assumptions. We'll re-calculate our net income series using simplified versions of two of his assumptions:

i. Green found that the ratio of wages to operating expenses was very stable at around 59.1%, and used this relationship to estimate wages and salaries. (If operating expenses were $1000, wages were $591.) Calculate an estimated wage series for 1926 to 1970 by multiplying Operating Expenses by 0.591. Call it ‘Wages (Est.)'.

ii. Green did not have information on net corporate income before 1911, so he used net operating income to calculate net savings. Calculate an estimated net savings series for 1926 to 1970 as (Net Operating Income - Dividends). Call it ‘Net Savings (Est.)'.

iii. Use your results from i. and ii. to calculate an estimated net income series from 1926 to 1970. Call it ‘Net Income (Est.)'. (Use the same formula as in a., but replacing wages and net savings with their estimates from i. and ii.)
 
c. Plot Net Income (from a.), Net Income (Est.) (from b.), Net Corporate Income and Retained Income on a line graph. The vertical axis should be dollars, and the horizontal axis should be Year and stretch from 1926 to 1970. There should be 4 lines. As usual, make sure your chart, lines and axes have descriptive titles. If you've done this correctly, you should note that Net Corporate Income is much lower than either of your Net Income calculations, and that Retained Income is much closer to the value of Net Income (at least until 1956, but we'll leave that to Question 3).

d. For the period 1926 - 1970, do Green's assumptions provide reasonable results? Explain briefly. For the results to be reasonable, three things have to be true:

i. Net Income and Net Income (Est.) are about the same value.
ii. When Net Income goes up/down, Net Income (Est.) goes up/down.
iii. Any difference between Net Income and Net Income (Est.) is stable: if Net Income and Net Income (Est.) are about 10% apart one year, then they are about 10% apart in all years.

3. [Research] For this question, please refer to the Canadian Pacific Railway 1923 - 1970 report at

https://publications.gc.ca/site/eng/9.829634/publication.html

a. In your graph for Question 2, you should have noticed that Retained Income (or Retained Earnings) is a much better match for the Net Income you calculated than the actual Net Corporate Income that is included in the data.

‘Net Corporate Income' is the ‘bottom line' (literally - the line at the bottom of a company's income statement). Roughly, it's the firm's profit: everything the company earned that year, minus everything it spent money on.

Retained Earnings are a balance that accumulates year on year. They are calculated by adding Net Savings (Net Corporate Income - Dividends) to the previous year's Retained Earnings.

We calculated our Net Income series using the Factor Payments approach, which is the same type of approach used to calculate national income (GDP). In this approach, income is the sum of the payments made to factors of production: labour (wages & salaries), capital (interest), land (rent) and entrepreneurship (dividends).

Knowing the above, explain why Net Corporate Income was so much lower than Net Income calculated using the Factor Payments approach. Also explain why Retained Earnings was (usually) much closer to the ‘correct' Net Income value.

b. After 1956, Retained Income no longer tracks Net Income very closely. Use information from the report to explain why this is the case. [Hint: the Notes for Table 4, on page 18, may be useful.]

4. As we learned in class, before its incorporation in 1886, the area that is now Vancouver included the settlements of Burrard Inlet, Granville and Hastings. Why is Vancouver named Vancouver, and not any of those three names? Explain, and provide a properly cited, reliable source for your claim.

Data for Question 2 (By Hand Version Only)

Year	Wages and Salaries	Interest Payments	Dividend Payments	Rent Payments
1940	$1,329,453,600	$363,839,569	$80,936,651	$56,454,479
1941	$1,499,651,576	$324,099,365	$76,175,672	$53,217,827
1942	$1,687,394,864	$294,274,941	$73,578,774	$51,448,713
1943	$1,796,572,800	$270,491,035	$71,943,690	$50,503,258
1944	$2,100,144,264	$244,292,598	$260,225,627	$49,632,625
1945	$2,109,751,565	$225,468,879	$303,993,978	$47,341,052
1946	$2,191,214,298	$206,843,972	$291,053,869	$45,695,784
1947	$2,170,969,748	$164,617,838	$265,621,978	$32,185,380
1948	$2,259,720,305	$144,776,767	$231,856,472	$28,130,851
1949	$2,247,473,607	$128,682,438	$217,046,181	$24,385,275

Year	Net Corporate Income	Operating Expenses	Net Operating Income	Retained Income
1940	$32,333,624	$2,922,220,483	$731,161,779	$2,311,926,985
1941	$519,059,749	$3,544,204,822	$992,235,366	$2,573,829,904
1942	$588,805,441	$3,972,647,018	$1,121,369,961	$2,936,427,502
1943	$613,220,110	$4,484,469,638	$1,210,085,598	$3,298,941,510
1944	$489,610,788	$4,756,592,307	$992,449,655	$3,551,671,102
1945	$441,223,739	$4,684,202,646	$854,828,862	$3,667,394,686
1946	$343,329,730	$4,296,312,942	$567,289,640	$3,676,159,915
1947	$397,590,500	$4,279,599,562	$539,921,988	$3,479,564,718
1948	$298,082,243	$4,134,978,649	$321,112,241	$2,140,768,728
1949	$312,841,390	$4,102,649,935	$325,902,986	$2,175,756,702

Articles:

1. Some Economic Issues Relating to Railroad Subsidies and the Evaluation of Land Grants.
2. The timing of railway construction on the Canadian Prairies by FRANK D. LEWISand DAVID R. ROBINSON.

Attachment:- Attachments.rar