Name:_____________________

Fall 2014

Problem Set 1

(Thursday September 18, 2014 In class – no extensions)

Please Print and Answer in the Provided Space

1) Consider the following estimates for an iPad sold in Canada in 2010: retail price

$550 (say at Best Buy), Apple (a U.S. corporation) wholesale price $475, Apple intermediate costs $385. Of Apple’s intermediate costs, $100 was wholly produced by U.S. manufacturers, and $285 from other foreign producers. Suppose the production chain was as follows: China sells $145 of domestic parts to the Japan, who adds domestic parts and ships to the U.S. for $285.

(For simplicity, assume all figures are already in Canadian Dollars and provide your answers in CAD)

(a) What is Apple’s value added per iPad?

(b) How much value added is in Canadian retail trade?

(c) How much of the iPad’s retail value shows up in Canadian GDP in the product approach? (d) How much of the iPad’s retail value show up in U.S., China, and Japan’s GDP in the product approach?

(e) Where does the iPad show up in the expenditure components of Canada’s GDP?

(f) How does the iPad show up in Canada’s bilateral trade deficits with Japan,

China, and the U.S. respectively?

2) Consider an economy that produces three products: blueberries, blackberries

(the fruit, not the phone), and machines. Production and price data are:

Blueberries

Blackberries

Machines

Year

2008

2009

2008

2009

2008

2009

Quantity

8,000 baskets

10,000 baskets

3,000

6,000

100

110

Price

$2 per basket

$3 per basket

$4 per basket

$2 per basket

$200 each

$250 each

(a) What is the growth rate of nominal GDP from 2008 to 2009?

(b) What is the growth rate of real GDP at 2008 prices?

(c) What is the growth rate of real GDP at 2009 prices?

(d) What is the growth rate of chain-weight real GDP? You may use either the exact or approximate formula.

(e) Let’s say you had to guess to answer to (d) based on the results in (b), (c) without actually using the chain-weighted formula. How can