Reference no: EM131381471

1. The following are components of national product and national income for a country:

Items	Billions of Dollars
Consumption of goods and services	500
Corporate Income taxes	30
Corporate retained earnings	30
Depreciation allowances	90
Exports	210
Government expenditures on goods and services	200
Government Net Income transfers to Households	70
Gross Fixed Investment	150
Imports	210
Indirect taxes net of subsidies	100
Interest on government debt	15
Interest paid by producers in the production and service sectors	20
Net income from abroad	10
Non-cash Labour income	20
Personal income taxes	90
Rent of building and equipment	30
Total corporate profit	75
Total earned Labour income( including self employed wages, Supplementary labour income and Farmers income)	530
Total non-Corporate Profit (income from nonfarm unincorporated business)	25
Variation in the stock of inventories	10

Using the figures given in the previous table, answer the following questions. Justify your answers.

a) (i) Calculate total government expenditures?

(ii) Calculate total government revenues

(iii) Is the government running a surplus, deficit, or balanced budget?

b) (i), calculate GDP via the expenditures approach.

(ii) Calculate National Income

c) Calculate National Income via the income approach. Does this match with your answer to question (b) (ii)?

d) Explain why your answers to questions c) and b (ii) should match each other.

e) What is the usefulness for economic policy of estimating GDP using the expenditure approach?

f) (i) Calculate personal income

(ii) Calculate disposable income

(iii) Calculate personal savings

2. True false or uncertain? Justify your answer using the data and concepts of chapter 16 of the lecture notes

"A negative inflation rate is good because lower prices are good for consumers and most economists and policy makers agree that we should have a low inflation rate"

3. Read chapter 16 of the lecture notes: "Characteristics of the Canadian Economy". Please do not copy from the notes. Make up your own answer after reading and turning off your computer or closing your textbook.

a. What is the difference between the nominal interest rate and the real interest rate?

b. What is the Phillips curve?

c. Based on the Canadian evidence, is it true that a higher inflation rate is associated with a higher growth rate of real GDP?

d. The government of the United Sates is concerned about the high unemployment rate in the US, which reached 9.8% in October 2009. Based on the previous experience in Canada, should the governments of the US cause an increase of the inflation rate in order to reduce the unemployment rate to its "natural" level of 4%?