Reference no: EM1387157
1. The following table shows various stages by which wood is turned into wallpapers as the final product. The numbers are all in million dollars.
Forest Company
Sales of wood $ 1800
Expenses: 600
Rent paid 50
Wages paid 550
Profits $ 1200
Saw Mill:
Sales of wood chips $4200
Expenses: 2800
Purchase of wood 1800
Wages paid 400
Interest paid 600
Profits 1400
Pulp & Paper Mill:
Sales of paper $ 6500
Expenses: 5000
Purchase of wood chips 4200
Interest paid 500
Wages paid 300
Profits $1500
Wallpaper Company:
Sales of wallpapers $8000
Expenses: 7300
Purchase of paper 6500
Interest paid 200
Wages paid 600
Profits $ 700
Assuming that wallpaper is the only final good in the economy, compute the value of GDP for this economy using each of the final good, value-added, and incomeapproaches. Compare your results from the three approaches.
2. Find the value of nominal GDP for Canada for the years 2009 - 2012 from Statistics Canada's website. Assume that the GDP deflator was 100, 102, 105, and 108 for 2009 to 2012, respectively.
a) Calculate the real GDP in Canada for each of those years.
b) Calculate the inflation rate for 2010, 2011 and 2012.
c) Comment on rate of inflation and its trend over this period.
3. A closed economy is characterized by the following information:
Subsistence consumption $ 40 million
Propensity to consume 0.75
Investment $ 300 million
Government Purchases $ 450 million
Taxes $ 400 million
Find out each of the following values:
a) Equilibrium GDP (Y) d) Private Saving
b) Disposable income (YD) e) Public Saving
c) Consumption spending (C) f) The multiplier
4. Show the equilibrium in the above economy (as described in Question3) on a properly labelled diagram using Demand and Output lines. If the economy's current production is at $1800 million, how would you characterize the situation in the economy? What needs to happen for this economy to be in equilibrium? Explain this and illustrate it on your diagram.
5. Suppose the money demand is given by Md = $Y/(2.97 +i ) and $Y = $1500.
a) What is the equilibrium interest rate if money supply (Ms) = $500?
b) If the Central Bank wanted to increase the interest rate to 4%, how much should it reduce the money supply?
c) Show your results in parts a and b on a properly labelled diagram.
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