Reference no: EM13371503

1. The following table shows various stages by which wood is turned into wallpapers as the final product. The numbers are all in million dollars.

Forest Company

Sales of wood                                               $ 1800

Expenses:                                                     600

Rent paid                                                       50

Wages paid                                                    550

Profits                                                             $ 1200

Saw Mill:

Sales of wood chips                           $4200

Expenses:                                           2800

Purchase of wood                               1800

Wages paid                                         400

Interest paid                                        600

Profits                                                  1400

Pulp & Paper Mill:

Sales of paper                                      $ 6500

Expenses:                                             5000

Purchase of wood chips                        4200

Interest paid                                         500

Wages paid                                           300

Profits                                                  $1500

Wallpaper Company:

Sales of wallpapers                         $8000

Expenses:                                         7300

Purchase of paper                             6500

Interest paid                                     200

Wages paid                                       600

Profits                                               $ 700

Assuming that wallpaper is the only final good in the economy, compute the value of GDP for this economy using each of the final good, value-added, and incomeapproaches. Compare your results from the three approaches.

2. Find the value of nominal GDP for Canada for the years 2009 - 2012 from Statistics Canada's website. Assume that the GDP deflator was 100, 102, 105, and 108 for 2009 to 2012, respectively.

a) Calculate the real GDP in Canada for each of those years.

b) Calculate the inflation rate for 2010, 2011 and 2012.

c) Comment on rate of inflation and its trend over this period.

3. A closed economy is characterized by the following information:

Subsistence consumption                            $ 40 million

Propensity to consume                                             0.75

Investment                                                    $ 300 million

Government Purchases                                  $ 450 million

Taxes                                                             $ 400 million

Find out each of the following values:

a)    Equilibrium GDP (Y)                             d) Private Saving

b)    Disposable income (Y_D)                      e) Public Saving

c)    Consumption spending (C)                 f) The multiplier

4. Show the equilibrium in the above economy (as described in Question3) on a properly labelled diagram using Demand and Output lines. If the economy's current production is at $1800 million, how would you characterize the situation in the economy? What needs to happen for this economy to be in equilibrium? Explain this and illustrate it on your diagram.

5. Suppose the money demand is given by M^d = $Y/(2.97 +i ) and $Y = $1500.

a) What is the equilibrium interest rate if money supply (M^s) = $500?

b) If the Central Bank wanted to increase the interest rate to 4%, how much should it reduce the money supply?

c) Show your results in parts a and b on a properly labelled diagram.