ECO102 Tutorial 02

ECO102 - Week 02.pdf

• Value Added in Macroeconomics
• GDE Approach:
  • $C+I+G+(X-\mathrm{Im})$
  • Consumption
  • Investments
  • Govt. purchases
  • • Net Imports
• $(1+\mathrm{\Delta }NGDP)=(1+\mathrm{\Delta }RGDP)(1+\mathrm{\Delta }GDPD)$
  • $\text{GDPD}$ is GDP deflator
• $GDI=W+\text{Interests}+\pi +\text{Depreciation}+(\text{Taxes}-\text{Subsidies})$
  • $\pi =\text{profit}$
• 1
  • #tk important question for final
  • (ECO102 - Week 02, p.6)

  • An incorporated winery purchases 1000 cases of bottles, 40 000 kilograms of grapes, and 10 kilograms of imported yeast. The winery produces and sells 1 000 cases of wine. Producer's (Basic) Prices are 600 dollars per case of wine, 100 dollars per case of bottles, 3 dollars per kilogram of grapes and 4000 dollars per kilogram of yeast. The winery employs 20 workers. Intermediate inputs and labour compensation are the only costs. A Statistics Canada economist calculates 175 000 dollars Gross Surplus for the winery. a. Value Added at the winery is equal to x b. Employee Compensation at the winery is equal to y

  • Cost of inputs: $1000\times \mathrm{\$}100,40000\times \mathrm{\$}3,10\times \mathrm{\$}40000,\text{Gross Surplus}=175000$
  • a) Value Added
    • Revenue is $\mathrm{\$}600\times 1000$
    • $\begin{array}{ll}\text{Revenue}& =\mathrm{\$}600\times 1000=600000\\ -\text{Wine Cases}& =\mathrm{\$}1000\times 100=100000\\ -\text{G}& =\mathrm{\$}40000\times 3=120000\\ -\text{Y}& =\mathrm{\$}10\times 4000=40000\\ \text{VA}& =340000\end{array}$
  • b) Employee compensation is $y$
    • $\begin{array}{ll}\text{Revenue:}& 600000\\ -\text{Bottle:}& 100000\\ -\text{Grapes:}& 120000\\ -\text{Yeast:}& 40000\\ -\text{Wages:}& x\\ \text{Gross Surplus:}& 175000\end{array}$
    • $600000-100000-120000-40000-x=175000$
    • $x=165000$
• 2
  • $\text{Value Added}=900-200=700.0$
• 3
  • $\text{GDE}$ gross domestic expenditure GDE
  • $\mathrm{GDE}=1200+(0)+(0)+(0-1000)=200.0$
  • This is the increase in GDE.
• 4
  • Find the GDI
  • $\begin{array}{ll}\text{Wages}& 20\\ \text{Int, Investment Income}& 30\\ \text{Profits}& 40\\ \text{Depreciation}& 10\\ \text{Indirect Taxes}& 20\\ \text{GDI}& 120\end{array}$
• 6
  • #tk always on midterm
  • $$\begin{array}{ccccc}\text{Year}& p_x& x& p_y& y\\ 2019& 1& 1& 2& 12\\ 2020& 2& 2& 4& 14\\ 2021& 3& 3& 6& 15\end{array}$$
  • Calculate Real GDP
    • Find GDP for each year
      • $GD{P}_{2019}=(1)(1)+(2)(12)=25.0$
      • $GD{P}_{2020}=(2)(2)+(4)(14)=60.0$
      • $GD{P}_{2021}=(3)(3)+(6)(15)=99.0$
    • Last first quantity
      • $LQ=p_{x(t-1)}{x}_t+p_{y(t-1)}{y}_t$
      • Last year's price, this year's quantity.
      • $L{Q}_{2019}=1$
      • $L{Q}_{2020}=(2)(1)+(14)(2)=30.0$
      • $L{Q}_{2021}=(3)(2)+(15)(4)=66.0$
    • Calculate the index
      • 2019
        • Base year so index is $1$
      • 2020
        • $\frac{L{Q}_{2020}}{GD{P}_{2019}}=\frac{30}{25}=1.2$
      • 2021
        • $\frac{L{Q}_{2021}}{GD{P}_{2020}}=\frac{66}{60}=1.1$
    • Calculate the chained real gdp
      • $RGD{P}_{2019}=GD{P}_{2019}=25.0$
      • $RGD{P}_{2020}=RGD{P}_{2019}{\mathrm{Index}}_{2020}=25(1.2)=30.0$
      • $RGD{P}_{2021}=RGD{P}_{2020}{\mathrm{Index}}_{2021}=30(1.1)=33.0$
  • Calculate CPI
    • Calculate GDP for each year
      • $GD{P}_{2019}=(1)(1)+(2)(12)=25.0$
      • $GD{P}_{2020}=(2)(2)+(4)(14)=60.0$
      • $GD{P}_{2021}=(3)(3)+(6)(15)=99.0$
    • Calculate the Last First Price
      • $LP=P_{xt}{x}_{t-1}+p_{yt}{y}_{t-1}$
      • $L{P}_{2019}=1$
        • 2019 is our base year
      • $L{P}_{2020}=(2)(1)+(4)(12)=50.0$
      • $L{P}_{2021}=(3)(2)+(6)(14)=90.0$
    • Calculate the Index
      • ${\mathrm{Index}}_{2019}=1$
      • ${\mathrm{Index}}_{2020}=\frac{L{P}_{2020}}{GD{P}_{2019}}=\frac{50}{25}=2.0$
      • ${\mathrm{Index}}_{2021}=\frac{L{P}_{2021}}{GD{P}_{2020}}=\frac{90}{60}=1.5$
    • CPI
      • $CP{I}_{2019}=100$
      • $CP{I}_{2020}=CP{I}_{2019}{\mathrm{Index}}_{2020}=100\cdot (2)=200.0$
      • $CP{I}_{2021}=CP{I}_{2020}{\mathrm{Index}}_{2021}=200\cdot 1.5=300.0$
• 6
  • $(1+0.2)=(1-0.25)(1+\mathrm{RGDP})$
  • $\mathrm{\%}\mathrm{\Delta }\mathrm{RGDP}=0.6=60\mathrm{\%}$