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Tabassum Assignment 1 ECON 1500

ASSIGNMENT # 1
Macroeconomics – Summer 2024
Longo Faculty of Business - Humber College

INSTRUCTIONS
The assignment is due at the beginning of the class on the due date (Please check
Critical Path for due dates). You must perform this assignment in groups of 6 students.
Type your answers in Microsoft Word. Ensure that you complete all the parts to all
questions and follow the organization suggested by each question. I recommend that
you use Microsoft Excel to perform calculations and prepare data tables for presentation
where applicable.

The assignment must be submitted as a group. Clearly print the names of all the
contributing group members on the cover page and report any non-contributing
members in the comments section of the assignment. Make sure to work well ahead of
the due date and designate a responsible group member to upload the final assignment
with the consent of all the members. Everyone is responsible to make sure that the
assignment was submitted on time. All group members should have the final draft of the
assignment in case the designated member is not able to upload the assignment for any
reason, another member should be able to do so to avoid penalties. The link to submit
the assignment will disappear after the due time on the due date.

Note: Once completed, please convert the document to PDF before uploading on the
Blackboard. You will get only one chance to submit the assignment so please make
sure to upload the correct document. No email assignments and no individual
assignments will be accepted. Failure to submit the assignment on the provided link will
result in a grade of zero for the entire group – No Exceptions.

EVALUATION
Assignment 1 will be graded out of 100 marks and is worth 10% of your course grade.
Work not handed in by the due date and time will earn a grade of zero.

QUESTION 1 – Chapter 5 (35 marks)

The gross domestic product (GDP) is the most watched of all economic indicators
contained in Canada’s national accounts. Visit the Statistics Canada website
www.statcan.gc.ca. Locate in Canada’s Economic Accounts, the summary tables for the
economic series mentioned in parts (a) and (b) below; and then answer parts (c), (d),
and (e).

a) [5 marks] Find tables for gross domestic product Expenditure Based and
Income Based, annual, (Separately), at market prices or Current Prices for
the years 2019 through 2023. Download and attach the data table at the end of

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your answers to this question. (Do NOT provide the link to the table, you will
get a zero for providing the link and not attaching the actual table). (This is
nominal GDP table also known as GDP at market prices)

b) [5 marks] Find the Real Gross Domestic Product (Real GDP), Expenditure-
Based, annual, at 2017 constant prices, for the years 2019 through 2023.
Download and attach the data table at the end of your answers to this question.
(Providing the link to the data table will get you a grade of zero)

c) [5 marks] What trend do you observe in GDP at market prices (in the data that
you found in a)? What trend do you observe in GDP at constant prices (in the
data that you found in b)? How and why do the two series differ? Explain your
answer. To show the trend, a line graph is best (you can draw it in Word or
Excel) Attach the graphs directly within the question.

Answer.

 Both real and nominal GDP rose from 2018 to 2022, however there is a
small dip in the GDP in the year 2020 due to Covid -19 pandemic but after
2020 it recovered and started rising at a constant pace.

 It can be seen in the graph that nominal GDP is above real GDP in all the
years and the gap between them gradually increased, the reason for the
deviation between the two variables is that nominal GDP measures the
value of all final goods and services produced in an economy at current
prices, whereas real GDP measures the total value of all goods and
services produced in an economy at constant prices or base year prices
which in this example the base year is 2017.

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 As prices increase over time due to inflation, the nominal GDP also
increases even if the actual quantity of goods and services produced
remains constant, however, real GDP removes the effect of price changes,
providing a more accurate measure of economic growth in terms of actual
productivity.

In conclusion, the difference between the two measures highlights the

importance of accounting for inflation to understand the true growth of an
economy.

d) [5 marks] Define the GDP Deflator and using the data tables for nominal GDP
(market prices) and for real GDP (constant prices), calculate the GDP deflator for
each year (2019-2023). Present the data in a table for each year. Show all your
work.

Answer. GDP deflator: A measure of the price level calculated as the ratio of
nominal GDP to real GPD times 100, by contrast by holding prices constant at base-
year levels, real GDP reflects the quantities produced. From these two statistics, we
compute the third, called GDP deflator, which reflects the prices of goods and
services but not the quantities produced, it is calculated as:

GDP deflator = Nominal GDP/ Real GDP X 100

Year Nominal GDP Real GDP Deflator

2018 2,263,494 2,228,686 101.561
2019 2,336,653 2,258,277 103.470
2020 2,280,683 2,166,474 105.271
2021 2,513,089 2,301,670 109.183
2022 2,750,683 2,380,074 115.567

e) [5 marks] For the year 2023, calculate the values of each of the four
components of GDP at market prices (Expenditure based): consumption (C),
investment (I), government purchases (G), and net exports (NX). Show and
explain all your calculations. Make sure to include the sub-components that are
relevant to each of the four components only. It’s ideal to do this in MS Excel for
easy calculations.

Answer. For the year 2022 the total nominal GDP is $2,813,289 CAD

Y=C+G+I+NX

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Amount
Consumption (C) $

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Goods
Durable goods 189,264
Semi-durable goods 103,366
Non-durable goods 369,248
Services 811,710
Non-profit institutions serving households' final consumption
expenditure 39,661
1,513,24
Consumption Total 9

Amount
INVESTMENT (I) $
Non-residential structures 154,775
Machinery and equipment 91,448
Intellectual property products 59,794
Non-profit institutions serving households' gross fixed capital
formation 2,898
Non-farm inventory 52,180
Farm inventory 5,117
Other 1,046
Residential structures 241,638
Investment Total 608,896

Amount
GOVERNMENT (G) $
General governments final consumption expenditure 582,117
General governments gross fixed capital formation 104,664
Government Total 686,781

Amount
NET EXPORTS (NX) $
Exports to other countries 952,159
Exports of goods to other provinces 240,989
Less: Imports from other countries 948,468
Less: Imports from other provinces 527,673
NX Total 3,693

Adding all the values= C + G + I + NX+ Statistical discrepancy

= 1,513,249 + 608,896 + 686,781 + 3,693 + 672

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= $2,813,289 CAD

f) [10 marks] Find the latest release about real GDP on Statistics Canada’s
website (4th quarter of 2023). Explain how real GDP has changed during the 4th
quarter and what factors contributed towards the change. Provide all the relevant
details. Use the Stats Canada’s release for the answer.

Answer. Real gross domestic product (GDP) rose 0.2% in the fourth quarter of
2023 after a 0.1% decline in the third quarter. In the last quarter, GDP growth
was boosted by an increase in exports and a decrease in imports, but it was
slowed by a decrease in corporate investment.

Final domestic demand, including spending on final consumption and gross fixed
capital formation, decreased by 0.2% in the fourth quarter. A 0.2% rise in the
previous quarter. Real GDP and final domestic demand have been increasing for
the three consecutive years after the economic disaster caused by the COVID-19
pandemic in 2020. Nevertheless, excluding 2020, there was a small increase in
real GDP in 2023 compared to previous years.

Main factors contributing to the 0.2% growth in the Real GDP in 4 th quarter
of 2023 are given as follows:

 Household spending rises: Household expenditure increased by 0.2% in

4th quarter which further led to spending on new trucks, vans and utility
vehicles, Overall growth was hit by a decline in expenditures by
Canadians abroad -4.8% whereas an increase in spending by non-
residents in Canada +4.4, which is a negative contributor to household
spending.

 Business investment declines: Businesses are not investing in structures

or new technologies; investment fell 3% in the fourth quarter which is sixth
time over the last 7 quarters. There is a 1.4% decrease in businesses
investing in machinery and equipment and a 0.2% decrease in spending
on intellectual property followed by 2.2% decline in spending on mineral
exploration.

 Compensation of employees rose 0.8% in the fourth quarter of 2023, the

slowest growth rate since the second quarter of 2020. The lower growth in
the fourth quarter of 2023 reflected slower wage growth in services
producing industries relative to the previous quarter, as well as declining
wages in the goods-producing industries.

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 In the fourth quarter of 2023, corporate incomes increased 2.9%, after

rising 3.4% in the third quarter. The expansion of gross operating surplus
of non-financial corporations 3.3% fuelled the continued increase, while
declining surplus among financial corporations 1.8% partly offset overall
corporate income growth.

In conclusion, the real GDP in the fourth quarter of 2023 shows a mixed picture,
with real GDP increasing slightly due to higher exports and less imports but on
the other hand there is decrease in business investment. Household spending
presented medium growth, however housing investment and business
investment continued to decline.

TABLES FOR PART A.) AND B.)

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GDP Income based on current prices.

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B) GDP Expenditure method @ constant prices ( 2017) Real GDP

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QUESTION 2 – Chapter 6 (30 marks)

The consumer price index (CPI) is an economic indicator that is a closely watched by
many stakeholders in the economy. Visit the Statistics Canada website
(www.statcan.gc.ca) find data on the Consumer Price Index, Annual Average, Not
Seasonally Adjusted, and its major components for Canada for the period of 2019 -
2023.

a) [5 mark] Copy the data table from the Website and paste here.

b) [8 marks] Calculate the inflation rate for each of the eight main items between
2022 and 2023 using the formula you have learned in the class (show and
explain all your calculations). Which item showed the highest rate of inflation
from 2022 to 2023? Which item showed the lowest rate of inflation? Why?
Explain your answer. [To find the reason, search Statistics Canada’s website
where they post the recent CPI figures or use your own observations]

c) [7 marks] Calculate the inflation rate for two special aggregates separately
between 2022 and 2023 (show and explain all your calculations). Which of the
two aggregates showed the highest rate of inflation? Which item showed the
lowest rate of inflation? Why? Explain [The table should include 8 regular items
and 2 special aggregates at the bottom]. If the aggregates are not listed on the
table on the website as “special aggregates”, then use All items excluding
energy and All items excluding food and energy as 2 aggregates.

d) [10 marks] Looking at the CPI data for April 2023 and April 2024, explain how
CPI and inflation has changed over the year. Explain if you observe any
significant changes between the two periods in the 8 major components of CPI
that you have reported above. Explain the detailed economic reasons for
changes during this period. Use the CPI monthly data not seasonally adjusted for
this question as well as any relevant recent news release. This information
should be contained in the CPI May 2024 release.

QUESTION 3 – Chapter 7 (10 marks)

The International Property Rights Index scores countries based on the legal and political
environment and how well property rights are protected. Go online and find a recent
ranking. Choose 3 countries with high scores and 3 with low scores. Then find
estimates of GDP per person in each of these 6 countries. What pattern do you find?
Give two possible interpretations of the pattern. Organize your information in a table.
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QUESTION 4 – Chapter 9 (25 marks)

a) [5 marks] Go to Statistics Canada’s website and under the Subject tab, go to

Labor section and find the table of Labor Force Characteristics by province,
monthly, seasonally adjusted. (This table is long, you must attach the entire
table to cover all the provinces) Do not provide the link, copy/paste the whole
table.
b) [10 marks] Calculate the labor force participation rate, the unemployment rate
and the employment rate for all the provinces and for Canada for April 2023 and
April 2024. Show all your work. Organize the data in a table.
c) [10 marks] Comment on how the three variables have changed over the year
and explain the economic reasons for the change. Use labor force survey and
the internet to answer this question. Site the resources appropriately.

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