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Macroeconomics 1

Chapter 24 Finance, savings and investment

3. The table below shows the price and quantity data for economy C, which produces only two
2005
2006
Price (\$)
Quantity
Price (\$)
Quantity
2.50
1000 loaves
3.00
1200 loaves
Jam
5.00
500 jars
4.00
700 jars
a) Find this economy's Nominal GDP for 2005 and 2006.
b) Calculate this economy's real GDP for 2006 using the base year prices method. Use 2005 as
the base year.
4. A high rate of inflation depresses a country's economic growth rate, but policies to reduce
inflation could also have negative side effects on the economic growth. Explain why.
5. The table below gives information on price level changes in Country C.
Country C: Consumer Price Index, 2002-2006
End of year
Consumer price index
Inflation rate (% per year)
200
100
2003
106
2004
111
2005
115
2006
119
a) Fill in the third column by calculating the inflation rate in the Country C for 2003,
2004, 2005 and 2006.
b) What has happened to the inflation rate from 2003 to 2006?
6. Economy G has a population of 16 million, of which 12 million are of working age, that is, 15
years and older. The employed number is 9 million and unemployed 1 million.
a) What is this economy's labour force?
b) What is the unemployment rate?
ECO 101
TUTORIAL 3
1. The table below presents the various stages in the production of wheat flakes. First, the farmer
grows the wheat and sells enough for a packet of wheat flakes to the miller for \$0.60. The miller
then husks the wheat and sells it to the breakfast cereal maker for \$1. The breakfast cereal maker
then processes the wheat into wheat flakes and sells it to the grocer for \$2. Finally the grocer
sells the packet of wheat flakes to a consumer for \$2.50. Fill in the value added by each of the
four stages of production in the last column.
Stages in the Production of Wheat Flakes
Transaction
(dollars)
(dollars)
i. Farmers sell wheat to miller
0.60
ii. Miller sells husked wheat to breakfast cereal maker
1.00
ili. Breakfast cereal maker sells wheat flakes to grocer
2.00
iv. Grocer sells wheat flakes to consumer
2.50
2. The table below presents national account statistics for a hypothetical country.
\$m
Private final consumption expenditure
200
Private gross fixed capital expenditure
50
Taxes (direct and indirect)
90
Transfer Payments
30
Exports
20
Imports
10
Government expenditure
70
Depreciation
Indirect taxes
Subsidies
Wages, salaries and supplements
230
Gross operating surplus
Calculate the following for the country:
a) GDP at market prices using expenditure approach.
b) GDP at factor prices using expenditure approach.
c) GDP at factor prices using income approach.
d) Disposable income (YD).
e) Savings (S).
f) Net investment.
g) Net taxes.
h) Show that total leakages and injections within the circular flow of income are equal.

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