ECMA06_Tutorial_Questions

# ECMA06_Tutorial_Questions - University of Toronto...

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University of Toronto Scarborough Department of Management Introduction to Macroeconomics: A Mathematical Approach TUTORIAL QUESTIONS Tutorials are scheduled on different days during the week for different students. Tutorial questions are printed on the following pages.

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ECMA06 TUTORIAL #1 (Week #1) NOTE -There is no tutorial class this week - you should work on these questions on your own (answers will be handed out in next tutorial). Question 1 An economy with only two consumption goods, no inventory, and no imports and exports, has the following prices and quantities consumed (and produced) in 2004 and 2005: 2004 2005 Price Quantity Price Quantity Food \$10 180 \$12 200 Clothing \$15 100 \$25 64 a) Compute the equivalent of the CPI for this economy. Compute the equivalent of the GDP deflator for this economy. (Note that Statistics Canada – Canada’s main statistical agency – has changed the way it calculates the price index; we will continue to use the older – and simpler – methods to compute the price index in this course, in order to teach the fundamentals about construction of price indexes). In each case assume that the index is 100 for 2004; i.e., 2004 is the base year. Verify that the CPI is larger than the GDP deflator. What is the annual rate of inflation for this period? b) Compute current dollar GDP for 2004 and 2005. Compute the constant dollar GDP for 2004 and 2005, using 2004 dollars. Can you state whether consumers are better or worse off in 2004 than in 2005? c) Would all individual consumers agree with your conclusion about being better or worse off? Explain fully. d) Does this question capture entirely the reallife differences between the CPI and the GDPdeflator? Question 2 a) The Canadian CPI in 1971 was 25.1; the CPI for 2001 was 116.4 (these are the real-life numbers, based on setting the CPI for June 1992 equal to 100). By how much did prices rise over the 30-year period. Compute the annualized rate of inflation over this period. b) A friend boasts that his father’s starting salary in 1971 was \$8000 per year, while his salary at his new job in 2001 was \$32,000. Express the father’s salary in 2001 dollars. Express your friend’s starting salary in 1971 dollars. Who had the higher real income, and by how much? 2
ECMA06 TUTORIAL #2 Question 1 You are given the following pieces of information about the Canadian economy for 2001 (actually, these are annualized figures, based on the data from the 2 nd quarter of 2001): Net income of non-farm unincorporated businesses, including rent \$64.7B Exports of goods and services \$496.2B Corporation profits before taxes \$133.8B Government business profits before taxes \$10.8B Fixed capital formation (i.e., purchases of capital equipment by business and government) \$214.0B Personal expenditure on consumer goods and services \$619.6B Interest and miscellaneous investment income \$58.5B Capital consumption allowances \$141.2B Wages, salaries and supplementary labour income

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ECMA06_Tutorial_Questions - University of Toronto...

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