Solution to Problem Set 11-12 (ECO100)

# Solution to Problem Set 11-12 (ECO100) - f) Personal Income...

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Prof. Gustavo Indart Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Solution to Problem Set 11-12 1. a) Net Domestic Income 195,000 + 35,000 + 20,000 + 30,000 = 280,000 b) Gross Domestic Product 280,000 + 42,000 + 38,000 = 360,000 c) Consumption 360,000 – 75,000 – 90,000 – 97,000 + 155,000 = 253,000 d) Personal Income 280,000 – 15,000 – 10,000 + 30,000 = 285,000 e) Savings 285,000 – 253,000 – 60,000 = -28,000 2. a) Gross Domestic Product as Aggregate Expenditure AE = 173,000 + 65,000 + 67,000 + 85,000 - 95,000 = 295,000 b) Net Domestic Income calculated from Aggregate Expenditure NDY = 295,000 – 35,000 – 25,000 = 235,000[= GDP – Ind Tx – Dep] c) Net Domestic Income calculated from factor cost NDY = 170,000 + 40,000 + 15,000 + 10,000 = 235,000 [W&S + inc Profit + uninc Net Income & Rent + Interest] d) Net Domestic Product 295,000 – 35,000 = 260,000 (or 235,000 + 25,000) [or consistent with a] e) Disposable 173,000 + 35,000 = 208,000

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Unformatted text preview: f) Personal Income 208,000 (or consistent with e) + 25,000 = 233,000 g) Gross National Product 295,000 (or consistent with a) – 8,000 = 287,000 3. The value of the services of productive factors (Net Domestic Income) gives a measured of GDP at factor cost, that is, GDP = NDI + Indirect Taxes + Depreciation. 4. CPI = Value of consumption basket in current prices / Value of consumption basket in base year prices, and the value of this consumption basket in Year 1 (base year) prices is 10 x \$20 + 2 x \$400 + 1 x \$40 = \$1,040. 2 a) The value of the consumption basket in Year 2 prices is 10 x \$21 + 2 x \$440 + 1 x \$38 = \$1,128, and thus the CPI in Year 2 is (1,128 / 1,040) x 100 = 108.5. The rate of inflation in Year 2 is therefore 8.5%. b) The value of the consumption basket in Year 3 prices is 10 x \$22 + 2 x \$450 + 1 x \$40 = \$1,160, and thus the CPI in Year 3 is (1,160 / 1,040) x 100 = 111.5. The rate of inflation in Year 3 is [(111.5 – 108.5) / 108.5] x 100 = 2.8%....
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## This note was uploaded on 01/16/2011 for the course ECO ECO100 taught by Professor Inheart during the Fall '09 term at University of Toronto.

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Solution to Problem Set 11-12 (ECO100) - f) Personal Income...

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