Assignment 3

5. How do each of the following transactions affect Canada’s GDP? Unless otherwise indicated, assume that each of the subsequently mentioned people resides in Canada. (2% each) (a) The Government of Ontario spends $ 1 billion on new highways. (b) Seraphima sells her used books for $ 1,000 in Sarnia, Ontario. (c) Razwan sells $ 4 million of maple syrup to a grocery chain in the United States. (d) Hitomi is a Japanese tourist who spends $ 50,000 on her vacation in Alberta. (e) Ichabod purchases a $ 12,000 semiconductor, which he uses to create a robot. He then sells the robot for $ 67,000. (f) Anna-Maria purchases 100 acres of farmland for $ 1 million, and builds a house on the land using $ 200,000 of her own money. (g) Rowena is wrongfully terminated from her job. She hires an employment lawyer for $ 10,000. The lawyer gets Rowena her job back, along with $ 100,000 of compensation from her employer. (h) Drake purchases $ 101,563.45 worth of cocaine. (i) Mario spends $ 10,000 transporting his marijuana to the cannabis shop, where he sells it for $ 25,000. (j) James Bond purchases a martini, shaken not stirred, for $ 12, in Calgary. 6. You own a cigar shop in Port Colborne, Ontario which sells Albanian cigars (tasty). In 2021, you sold 11,000 cigars for $ 60 per cigar. In 2022, you sold 11,000 cigars for $ 70 per cigar. Let 2021 be the base year and show your work. (a) What is your contribution to nominal GDP in 2021? In 2022? (2%) (b) What is your contribution to real GDP in 2021? In 2022? (2%) (c) If you were to calculate a GDP deflator based solely on your cigar sales in 2022 (that is, assuming your cigars are the only products in the economy), what would be the numerical amount of the GDP deflator? (3%) (d) How does this example illustrate that nominal GDP can be a deceptive figure? (3%) 7. Consider a country with no international trade. The country’s economy has fixed prices and interest rates. Let C = 300 + 0 . 2 Y , I = 250, and G = 0 . 5 C . What is this country’s GDP? (10%) 8. Planned obsolescence is the practice of designing products to break quickly and become obsolete. For example, refrigerators built in the 1950s lasted many decades, while modern refrig- erators last 5 to 7 years before being discarded. How does planned obsolescence affect GDP? What is its net effect? Explain. (10%) 2