1) An economy has the following labour market statistics:
Total population of working age = 20 million
People working full time = 8 million
People working part time = 2 million (1 million of whom would like full time work)
Number of people unemployed = 1 million
Calculate the following:
a. Size of the labour force ______________
b. The unemployment rate as measured by Statistics Canada ______________
2. Suppose a country produces only computers and automobiles. Quantities and prices for the years 2000 and 2015 are given below. The base year is 2000.
Year
Number of computers
Price per computer
Number of autos
Price per auto
2000
200 000
$10 000
1 000 000
$ 6 000
2015
1 500 000
$ 2 000
1 500 000
$10 000
a. Nominal GDP for 2015 = ______________
b. Real GDP for 2015 = _______________
c. GDP deflator for 2015 = _______________
3. Following is National Accounts information for the economy of Ecoland. All numbers are in millions of dollars.
Consumer expenditure
600
Taxes
400
Transfer payments
250
Investment
150
Government spending on goods and services
200
Exports
240
Imports
220
GDP for Ecoland is equal to $________________
4. Suppose MPC is 0.8 and marginal propensity to import is 0.3. If government increases its purchases of military equipment by $15 million, the aggregate demand curve will shift by $______________ to the LEFT, RIGHT (circle one).
5. The situation for the closed economy of Academia is currently as follows:
Current real GDP = $200B, potential real GDP = $170B, Marginal Propensity to Save = 0.30
a. To close the output gap (assuming no crowding-out effect), government spending on goods and services should INCREASE, DECREASE (circle one) by $__________
b. If government changed its spending on transfers instead of on goods and services, would this change need to be larger or smaller than your answer in (a) to close the gap? Explain why.
6. Suppose that the Canadian economy is initially in long-run macroeconomic equilibrium.
a. In the space below, draw a diagram which includes the aggregate demand, short-run aggregate supply and long-run aggregate supply curves to illustrate this situation. Label all axis and curves for full marks.
b. Now suppose that Canada begins to export more to the U.S. In your diagram above illustrate the effect on the Canadian economy in the short-run.
Real GDP in Canada will INCREASE, DECREASE (circle one)
The aggregate price level in Canada will INCREASE, DECREASE (circle one)
c. The increase in exports to the U.S. created an INFLATIONARY, RECESSIONARY (circle one) gap in the Canadian economy. Show this gap in your diagram.
7. Suppose the Bank of Canada sells $7.5 million worth of government bonds in the open market and the Canadian banking system's desired reserve ratio is 1.5%.
a. If the money market was initially in equilibrium, illustrate how this will affect the money supply and equilibrium interest rate. For full marks, label all curves and axis.
b. What will be the potential change in the money supply following the Bank of Canada's sale of bonds? $________________