This assignment has a maximum total of 100 marks and is worth 10 percent of your total grade for this course. You should complete it after completing your course work for Units 1, 2, and 3. Answer each question clearly and concisely.
1. a. Distinguish between microeconomics and macroeconomics. (2 marks)
b. Label each of the following topics as a microeconomic or macroeconomic. (8 marks)
(i) “Edmonton woman wins over $21 million in lottery”
(ii) “The price of iPods falls”
(iii) “Bank of Canada raises interest rates”
(iv) “Unemployment rate falls in the third quarter”
2. i. What are the main functions of markets? (2.5 marks)
ii. On a graph of the circular flow, label the flows in which the following occur.
(7.5 marks)
a. television sets sold by firms to households
b. dividends paid by businesses
c. capital owned by households and used by firms
d. land rented to businesses
e. fridges sold by firms to households
3. Identify the following as consumption or investment goods or both. Justify your answers. (10 marks)
a. a haircut
b. a share of stock
c. the Trans-Canada highway
d. a ski lift
e. an unsold truck by a GM plant in Ontario
4. Base your answers to the questions on this information: In one month, Jason can produce either 300 kilogram of foods or 150 litres of liquor. (10 marks)
a. If Jason produces 250 kilograms of food per month, how much liquor must he produce to achieve production efficiency?
b. Calculate the opportunity cost of producing 1 kilogram of food. Show your work.
c. Calculate the opportunity cost of producing 1 litre of liquor. Show your work.
d. What is the relationship between your answers to b and c?
e. What is the marginal cost of a litre of liquor when the quantity produced is 75 litres a month? What is special about Jason’s marginal cost of liquor?
5. Explain how each of the following events will influence the demand or supply of commercially brewed beer, and predict the change in equilibrium price and equilibrium quantity.
(10 marks)
a. a big decrease in the price of home-brewing kits
b. a rapid increase in population
c. sales tax on beer increases
d. an increase in price of barley, a beer ingredient
e. expectation of a decrease in the future price of beer
6. Use the data below to compute answers to the questions that follow: (10 marks)
Item Amount
(in billions of dollars)
Consumption expenditure 300
Government expenditure 99
Interest and investment income 31
Profit of corporations and
government enterprises 54
Income from farms and
unincorporated businesses 40
Gross investment 146
Exports 36
Imports 56
Wages, salaries, and supplementary
labour income 275
Capital consumption allowance 50
Indirect taxes less subsidies 75
a. Calculate net exports.
b. Use the expenditure approach to calculate GDP.
c. Use the income approach to calculate GDP.
d. Calculate net domestic product (at factor cost).
e. Calculate net domestic income (at market price).
7. If the nominal GDP is $559 billion in the base year, and it rises to 577 in year 1, and 605 in year 2, what is the real GDP in each year, given that the price index has risen from 100 in the base year to 104.5 in Year 1 and up to 108.3 in Year 2? If the price index 20 years before the base year was 41.2, and the nominal GDP for 20 years before the base year was 191.0, what was the real GDP for that year? Show your work in all cases. (10 marks)
8. According to UNESCO’s 2011 report, two-thirds of African children are locked out of secondary school. If government policy can provide good schools and encourage children to take advantage of them, (10 marks)
a. describe two ways in which greater education opportunities could lead to faster economic growth.
b. explain what will happen to potential GDP.
c. explain what will happen to employment.
d. explain what will happen to real wage rate.
9. In 2008, the debt of Canadian households rose much faster than their wealth as stock markets corrected and the housing market slowed down. During the first quarter of the year, overall household debt rose by about 3 percent, while personal disposable income rose by 2 percent (Financial Post Magazine, August 19, 2008).
(10 marks)
a. Explain why the growth of household wealth slowed in Canada.
b. When a household buys shares (stocks), does that represent consumption, saving, or investment? Explain.
c. When a household buys a new house, does that represent consumption, saving, or investment? Explain.
d. What factors may influence a household when deciding between buying stocks, bonds, or a house?
10. Which of the following would or would not be included in the calculation of GDP? Justify your answer in each case. (10 marks)
a. an initial public offering (IPO) for Wind Mobile in Ontario
b. the sale of previously owned antique cars in Edmonton, Alberta
c. Government of Canada purchase of second-hand British Navy submarines for the Royal Canadian Navy
d. the coverage of prescription eyewear under Alberta Blue Cross
e. a dinner at Red Lobster Restaurant in Edmonton