ANSWER KEY - Econ 1012 A & B – Spring 2024 – Crowdmark Assignment #4: Chapter 4: GDP – Worth = 3%

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CHAPTER 4: Part A: QUESTIONS #1 - #9 – Worth 5 Marks Each – for a Total of 45 Marks

1. Using the Diagram Below answer the following questions:

In the figure above A =$100, B = $50, C = $30 and D = $10, based on this information answer the following
questions: Show your work on the line provided below.

a. Consumption = ___$50_______________________________________________________________
b. Investment = ______$10______________________________________________________________
c. Government Spending = _____$30______________________________________________________

d. Net Exports = [GDP – (C + I + G)} = {100 – (50 + 10 + 30)] = $10_________________________________

e. Aggregate Expenditure = ______$100______________________________________________
f. Aggregate Income = _____$100___________________________________________________
g. Aggregate Production = ________$100_____________________________________________
h. GDP = ______$100__________________________________________________________________

i. List the 3 Leakages = _______S T M_______________________________________________________

j. List the 3 Injections = _______I G X _________________________________________________

k. If Taxes = T = 2, then Savings = S = ?. Hint: Use the Leakage & Injection Identity to solve for S.

S+T+M=I+G+X Therefore, S = I + G – T + (X – M) = (10 + 30 – 2 + 10) = 48

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 2. Using the information provided answer the questions below: Show your Work to Earn Full Marks
 Consumption Expenditures: $500 billion
 Wages and salaries: $400 billion
 (Gross Private) Investments Expenditures: $80 billion
 Government Expenditures: $100 billion
 Indirect Taxes less Subsidies: $100 billion
 Imports: $50 billion
 Exports: $30 billion
 Depreciation $50 billion

a) Calculate GDP = C + I + G + X – M = 500 + 80 + 100 + 30 – 50 = 660

b) Calculate NDP = GDP – Depreciation = 660 – 50 = 610

c) Calculate NDI = NDP – Indirect taxes less subsidies = 610 – 100 = 510

d) Calculate Other Factor Income = NDI – wages & salaries = 510 – 400 = 110

3. Using the information provided in the table below answer the following: Show Your Work.

A) What is the value of GDP? GDP = [400 + 60 + 120 + 100 – 120] = 560

B) What is the value of net exports? NX = [100 – 120} = -20

C) What is the value of GNP? GNP = [GDP + (Income receipts from ROW – Income payments to ROW) = 560 + (10 – 8) = 562

D) What is the value of NNP? NNP = [GNP – Depreciation] = 562 – 40 = 522

Government purchases $120 billion

Depreciation $40 billion

Consumption $400 billion

Investment $60 billion

Exports $100 billion

Imports $120 billion

Income receipts from rest of the world $10 billion

Income payments to rest of the world $8 billion

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4. Using the information found in the table, answer the questions below: SHOW Your Work.

Other factor incomes $570

Indirect taxes 230
Depreciation 250
Wages, salaries, and supplementary labour 1,20
income 0
1,10
Consumption expenditure
0
Government expenditure on goods and services 500
Government transfer payments 50
Net exports 40
Subsidies 0
Statistical Discrepancy 0
Exports 30

a) NDI at factor costs = [Wages + Other factor incomes] = [1200 + 570] = 1770
b)
c) NDI at market prices = [NDI at factor costs + (Indirect taxes – Subsidies)] = [1770 + (230 + 0)] =2000
d)
e) GDP at market prices = [NDI at market prices + Depreciation] = [2000 + 250] = 2250
f)
g) Gross Investment = I = [GDP – (C + G + NX)] = [2250 – (1100 + 500 + 40] = 610
h)
i) Net Investment = [I – Depreciation] = 610 – Depreciation = [610 – 250] = 360
j)

5. Using the table below: Show your Work.

a. Calculate Net Domestic Income at market prices. ____2450___________

[GDP – Depreciations] = [(C + I + G + NX) – Dep] = [(2200 + 400 + 500 + (-150)) - 500] = 2450

b. Calculate Net Domestic Income at factor costs: _____2300________

[NDI at mkt prices – (Indirect taxes – subsidies)] = 2450 – (150 -0) = 2300

Government expenditures on goods and service $500

Wages, salaries, and supplementary labour income 2,000
Depreciation 500
Investment 400
Consumption expenditure 2,200
Net exports -150
Indirect taxes 200
Subsidies 50

6. Use the table below to answer the following question: Show your Work.

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 a) GDP = [C + I + G + X – M] = Aggregate Expenditure = Aggregate Production = Aggregate Income

GDP = [750,000 + 300,000 + 200,000 + 250,000 – 300,000] = $1,200,000 = $1,200,000 = $1,200,000

b) Prove the Identity: Leakages are equivalate to Injections. Show your Work.

S+T+M=I+G+X

[200,000 + (200,000 + 50,000) + 300,000] = [300,000 + 200,000 + 250,000]

Therefore, 750,000 = 750,000

7. Given the information listed below:

ITEMS AMOUNTS
Canadian Miliary Spending in 2023 $10,123,000.00
Purchase of a new aircraft for a Domestic Airlines in 2023 $1,675,123.00
Canadian Bonds purchased by Canadians in 2023 $4,000,000.00
Purchases of GM & Ford Stocks in 2022 by Canadians $2,003,000.00
Canadian Pension Plan Payments made by Canadians Monthly in 2023 $15,000,639.00
Construction of a New Highway between Calgary and Edmonton in 2023 $110,000,234.00
New Housing Starts in 2023 in Vancouver $6,005,555.00
Capital Equipment purchased by Businesses in 2021 $8,952,000.00
Total Inventories in 2023 $1,112,695.33
Total Cost of the U of L Destination Building completed in 2020 $298,000,000.00
Total Revenue generated by GM, Ford & Chrysler from the sale of trucks in 2023 $98,258,126.23

Calculate the value of Investment in Canada for 2023. Show Your Work.

I = [$1,675,123 + $6,005,555 + $1,112,695.33] = $8,793,373.33

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 8. Sally’s Bakery makes each vanilla cupcake that she sells at a Weekly Bake Sale at her Store. The following
ingredients are used each week to bake the cupcakes. The cost of each ingredient that is needed to make just
one cupcake is listed below:
 3/2 cups flour: $0.07
 1/4 teaspoon of salt: $0.01
 2 eggs: $0.86
 2/3 cup sugar: $0.11
 3/2 sticks of butter: $0.75
 2 teaspoons of vanilla extract: $1.20
 1/2 cup milk: $0.15

Sally sets her price per cupcake at $3.50, the same as other cupcake venders at the sale.

a) Calculate Sally’s Value-Added per cupcake. _____0.35 cent________________ Show Your Work

= $3.50 – (0.07 + 0.01 + 0.86 + 0.11 + 0.75 + 1.20 + 0.150 = 0.35 cents

b) Calculate how much each cupcake Salley makes and sells adds to GDP. ____$3.50__________Show Your Work.

Value Added it exactly equal to the Market Price of the Cupcake = $3.50

9. Orange juice is staple in most households, many of us take it for granted how it is produced and how the process
contributes to the country’s GDP that produces and sells orange juice. In the US, the first stage is the Florida
orange orchards growing the oranges, selling the produce to the manufacturing facility for $1.75, enough to
make one bottle of orange juice. The faculty turned the oranges into juice, selling it to the bottling plant for
$3.17 who then sells it to the wholesaler for distribution to the grocery stores for $4.82. Finally, it ends up on
our table when we purchase the bottle of juice from the retailer for $7.99. Using the following information,
answer the questions below:

A) Set up the Value-Added Table (Example is the one used in Class Lectures.) – Use the Space Below.
B) Fill in the Values in the Table and Determine the Value-Added of the Bottle of Orange Juice.

Who What Selling Price to Next of Production Value Added

1 Orchard Owner/Farmer Oranges $1.75 $1.75
2 Manufacture Facility Juice $3.17 $1.42
3 Bottling Plant Bottled Juice $4.82 $1.62
4 Retailer Sold to Customer $7.99 $3.17
Total $17.73 $7.99

In your table the Final Selling Market Price to the Consumer MUST EQUAL the Total of the Value-Added Column.

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CHAPTER 4: Part B: QUESTIONS #10 (A), (B), (C), & (D)– for a Total of 25 Marks

10. (A) – Draw the Circular Flow Chart covered in Class Lectures, making sure to be neat and well labeled. Use the
entire space below to draw. (12 Marks)
a. Once your drawing is completed: Using the values listed in Part C of this question – put in the
numerical values for all the leakages and injections. (1.5 Marks)
b. Using a RED PEN Circle all the Leakages, and with a BLACK PEN Circle all the Injections. (1.5 Marks)

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 (B) - Fill in the Following Blanks: (1/2 mark each for a Total 5 Marks)

1. Identify “The Four Players” in the Circular Flow Chart.

1. __Households_________________________
2. ____Firms________________________
3. ____Government________________________
4. _____Rest of the World (ROW)_______________________
2. The Heart represents the _____Canadian Banking System______________________, which includes
the ___Bank of Canada_________________________and ____Banks____________________________.
3. The Artery represents the __Loanable Funds Market___ where firms can _borrow funds____________.
4. Households either ___Consume (C)____________________ or __Save (S)_____________ their income.
5. Firms borrow from the __Loanable Funds Market to __Invest____________ in the Economy.
6. The Government takes _Taxes (T)______________________ from Households and puts it back into the
Economy as a form of __Government Spending (G)______________________________.
7. Funds flow to the Rest of the World for __Import (M)______________ goods and services and flows into
Canada for ___Export (X)__________________ goods and services.
8. Total Expenditure include C I G X and M
9. Identify the 3 Leakages. ___Savings (S)__; __Taxes (T)______ ; & __Imports (M)___.
10. Identify the 3 Injections. __Investment (I)____; __Government (G)____; & _Exports (X)______.

(C) – Calculate the following – Showing your work for each. (5 Marks)

If consumption is 2000; savings is 500; investment is 500; government spending is 850; transfer payments are 250; total
taxes are 900; exports are 200 and household imports are 60; firm imports are 40 and government imports are 50; then
solve for the following:

a) Aggregate Production = GDP = [2000 + 500 + 850 + 200 – (60 + 40 + 50)] = 3,400

b) Aggregate Income = Aggregate Production = GDP = 3,400

c) Leakages = S + T + M = [500 + 900 + (60 + 40 + 50)] = 1,550

d) Injections = I + G + X = [500 + 800 + 200] = 1,550

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CHAPTER 4: Part C: QUESTIONS #11 – 14 - Worth 5 Marks Each – for a Total of 20 Marks

11. Suppose people only consume 3 different goods. The following table shows the prices and quantities of each
good consumed in 2006, 2007, and 2008. Assuming 2006 is the Base Year.

Normal GDP vs Real GDP

Quantity of
Year Population Price of Fish Quantity of Fish Price of Pork Pork
Price of Beef Quantity of Beef

2006 318 7 400 8 225 10 175

200
344 8 550 7 250 12 275
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2008 375 9 900 6 275 15 275

a. Nominal GDP for 2006 = [(7*400) + (8*225) + (10*175)} = $6,350

b. Real GDP for 2006 = Nominal GDP for 2006 = $6,350

c. Nominal GDP for 2007 = [(8*550) + (7*250) + (12*275)] = $9,450

d. Real GDP for 2007 = = [(7*550) + (8*250) + (10*275)] = $8,600

e. Nominal GDP for 2008 = [(9*900) + (6*275) + (15*275)] = $13,875

f. Real GDP for 2008 = [(7*900) + (8*275) + (10*275)] = $11,250

12.Using the Table Below, with 2010 as the base year, calculate the following: Show Your Work.

Year P1 Q1 P2 Q2 P3 Q3
2010 15 100 7 15 31 40
2011 18 111 9 32 32 40

a. Nominal GDP for 2010 = [($15 * 100) + ($7 * 15) + ($31 * 40)] = $2,845

b. Real GDP for 2010 = Nominal GDP in Base Year = $2,845

c. Nominal GDP for 2011 = ($18 * 111) + ($9 * 32) + ($32 * 40) = $3,566

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 d. Real GDP for 2011 = ($15 * 111) + ($7 * 32) + ($31 * 40) = $3,129

13. TRUE/FALSE Questions: (1/2 Mark each for a Total of 5 Marks)

(A) In year one, nominal GDP is $5,000, while real GDP is $4,500. In year two, nominal GDP is $5,500, while real
GDP is $4,800 then
 Nominal GDP increased more than real GDP. TRUE/FALSE
 Real GDP increased more than nominal GDP. TRUE/FALSE
 Nominal and real GDP increased by the same amount. TRUE/FALSE
 Not enough information to answer. TRUE/FALSE
 Inflation was negative. TRUE/FALSE

(B) If nominal GDP increased by 5.1% and real GDP increased by 2.5% last year then we know the following
happened…….
 Prices went up during the year. TRUE/FALSE
 Prices went down. TRUE/FALSE
 Government Spending & Taxes went up. TRUE/FALSE
 Investment in new housing starts decreased. TRUE/FALSE
 Inflation had no effect. TRUE/FALSE

14. Using the Graph below, answer the questions on page 10: Note: This is a business cycle index which removes the
upward trend line and benchmarks the business cycle around zero.

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 a) Between 2000 & late 2001, Texas was mostly experiencing a/an __Recession__.
b) In 2003, Austin was experiencing a/an __Expansion____________.
c) In 2008 both cities were experiencing a/an ___Recession_______________.
d) Late 2006 Austin was experiencing a/an ___Trough__________________.
e) In 2016, Austin was experiencing a/an _____Recession___________.
f) In 2016, Texas was experiencing a/an _____Expansion_______________.
g) From 2008 to 2010, Texas was in a/an _____Recessionary______________ Gap.
h) From 2001 to 2003, Austin was in a/an ____Recessionary_____________Gap.
i) While between 2003 and mid 2008, Austin was in a/an ___Inflationary____________ GAP.
j) Early 2015, Austin had reach a ___Peak_______________.

CHAPTER 4: Part D: QUESTIONS #15 - Total of 10 Marks

15. In the space below, DRAW the Business Cycle as covered in Class lectures. Make sure to include “ALL” the labeling.

a) Business Cycle & Trend Line – Labeling both including Short-Run & Long-Run identification as well as Yp and Ya.
b) Expansion, Peak, Recession, Trough as well as a Boom.
c) Recessionary Gap (RG) & Inflation Gap (IG) Shade in each with All RG the same colour and ALL IG another colour.

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