ASSIGNMENT 1 (Spring 2009)

1.       Assume the following list of national income figures for a given year. All figures are in billions of dollars.

Wages, salaries and supplementary labour income…………………………$118

Individual taxes (less subsidies)………………………………………………………26

 Personal consumption expenditures………………………………………………136

Undistributed Corporate Profits……………………………………………………….13

Net Investment……………………………………………………………………………….35

Government Purchases of goods and services……………………………………..45

Corporate Profits before taxes……………………………………………………………39

Net exports……………………………………………………………………………………….+9

Net income of non-farm unincorporated business ………………………………….17

Capital Consumption Allowances………………………………………………………….25

Accrued net income of farmers……………………………………………………………..10

Interest and Miscellaneous Investment Income……………………………………….15

a)      Calculate the GDP using (i) the income approach and (ii) the expenditure approach. (Both approaches must give the same answer).

2.       Which of the following are included in deriving this year’s GDP? Explain your answer in each case.

a)      Rent received on a two bedroom apartment in downtown Toronto.

b)      Interest received on Government bonds.

c)       Mary a student at Ryerson receives a monthly allowance from home

d)      A$3 billion increase in business inventories

e)      The services of a Molly maid by Mrs. Jones

3.       Evaluate as accurately as you can how each of the following individuals would be affected by  unanticipated inflation of 10% per year

a)      A heavily indebted student

b)      A unionized postal worker

c)       A switch board operator

d)      A pensioned school teacher

e)      A retired business executive whose entire current income comes from interest on government bonds