1. The table below gives data for Southland where there are three consumption goods: bananas, coconuts and grapes.

a.  Compute the expenditure for the base period and the current period.

b. What are the consumer price indexes for base period and for current period? What is the inflation rate?

c.   On the basis of the data on prices, would you predict consumers would make any change within their consumption basket between base period and current period? What problem can it create?

2. Which of the following would be included in the GDP of Canada in 2009?

i. Coca-cola builds a new bottling plant in Canada in 2009.

ii. Air Canada, which bought several airplanes from Bombardier 10 years ago, sells one of these planes to Korean Air in 2009.

iii. A Canadian citizen buys a share of TD bank from Toronto Stock Exchange.

iv. A BC winery sells and ships a bottle of wine to a consumer in California.

v. Mario mows David's lawn; in exchange, David tutors Mario in chemistry.

vi. A book publisher produces too many copies of a new book; the books do not sell this year and the publisher adds the surplus books to inventories.

3. Some economists think the high rates of growth of productivity achieved by many Asian economies cannot be sustained. Why may they be right? What would have to happen for them to be wrong?

4. Consider a new deposit to the Canadian Banking system of $1000. Suppose that all commercial banks have a reserve ratio of 10%.

a. Fill up the following table.

b. Many more rounds of money creation will go on. What is the total money creation after completion of all the rounds?

5. Identify the types of unemployment in each of the following cases:

i. Elizabeth has just graduated from MacEwan University and is still looking for her first job.

ii. A long term decline in the demand for cotton has resulted in unemployment in the cotton industry

iii. During the summer months, unemployment in winter resort towns increases

iv. Accounting clerks lose their jobs because of computerization of accounting

6. A labor force survey on a Polynesian island records the following data for December 31, 2005: employed 13,500; unemployed 1,500; not in the labor force 7,500. The survey also recorded during 2006: hires and recalls 1,000; job losers 750; job leavers 300; new entrants to labor force 150; re-entrants in labor force 450; withdrawals 500. The working age population increased 2006 by 100. All the job losers, entrants, re-entrants became unemployed. Calculate the unemployment rate and the labor force participation rate at the end of 2006.

7. Use the graphs for the market for loanable funds to explain the affect of each of the following events on the equilibrium interest rate and investment:                                                                             

i. The government introduces a new stimulus package of $1.5 billion

ii. Government decreases taxes on investment

iii. Lack of confidence in the banking system affects both the savers and investors