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Answers to Coursework Questions on GDP, Unemployment, and CPI

## Question 1: Calculating GDP and Net Exports

. You should complete it after completing your coursework for units 1, 2, and 3. Answer each question clearly and concisely.

1.Use the data below to answer 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 (depreciation)    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).

2.Consider the circular flow model for Doneville economy. In 2015, flow A was \$53.0 billion, flow B was \$31.0 billion, flow C was \$13.0 billion, and flow E was \$3.0 billion.

Calculate the following (show and explain your work):
a.GDP

b.Investment expenditure

3.In January 2015, the Zanzi economy had an unemployment rate of 5.9 percent. In August 2016, the unemployment rate was 8.7 percent.

a.Predict what happened to unemployment between January 2015 and August 2016, if the labour force was constant.

b.In part a, what happened to employment? Explain.

c.Predict what happened to the labour force between January 2015 and August 2016, if unemployment was constant.

d.In part c, what happened to labour force participation rate? Explain.

4.The people on Rabuti Island buy only fish and cloth. The CPI basket contains the quantities bought in 2014. The average household spent \$120 on fish and \$60 on cloth in 2014, when the price of fish was \$2 per kilogram, and the price of cloth was \$5 per metre. In 2015, fish was \$4 per kilogram, and cloth was \$6 per metre.

a.Calculate the CPI basket and the percentage of the household’s budget spent on fish in 2014.