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Page 231 1a. Using 2003 prices, the 2003 shopping basket has a value of $25 [= ($2.50 x 5) + ($1.25 x 10)]. Using 2004 prices, the 2003 shopping basket has a value of $26.75 [= ($2.75 x 5) + ($1.30 x 10)]. b. With 2003 as the base year, the 2003 value of the index is 100 [= ($25/$25) x 100]. The 2004 value of the index is 107 [= ($26.75/$25) x 100] c. The inflation rate is 7 percent [= ((107 – 100)/100) x 100]. 2. Rearranging the formula for deriving real GDP, nominal GDP in 2001 is found by multiplying real GDP by the GDP deflator expressed as a decimal, or $205.3 billion [= ($210.7 billion x 0.97458)]. Because 2002 is the reference year, the 2002 value of the GDP deflator is 100, and real GDP has the same value as nominal GDP ($234.3 billion). The 2003 value of real GDP is $242.6 billion [= ($245.9 billion/1.01340)], found by dividing the year’s nominal GDP by the value of the GDP deflator expressed as a decimal. Rearranging the formula for deriving real GDP, the 2004 value of the GDP deflator is found by dividing nominal GDP by real GDP, then multiplying by 100 [102.945 = ($258.7 billion/$251.3 billion) x 100]. Nominal GDP in 2005 is found by multiplying real GDP by the GDP deflator expressed as a decimal, or $275.6 billion [= ($261.4 billion x 1.05438)]. Page 238 1a. The labour force is found by adding the number of unemployed members of the labour force, workers with full-time jobs, part-time workers who wish to have full-time jobs, and part-time workers who do not wish to have full-time jobs [31.4 million = (2.3 million + 21.4 million + 3.5 million + 4.2 million)]. b. The labour force population is found by rearranging the formula used to derive the participation rate, by dividing the labour force by the participation rate expressed as a decimal [49.1 million = (31.4 million/0.64)]. c. The official unemployment rate is found by dividing the total number of unemployed members of the labour force by the labour force, then multiplying by 100 [7.3 percent = (2.3 million/31.4 million) x 100]. 2. An unemployment rate that includes underemployment is found by summing the number of unemployed members of the labour force and the number of part-time workers who wish to have full-time jobs, dividing this amount by the labour force, then multiplying by 100 [18.5 percent = ((2.3 million + 3.5 million)/31.4 million) x 100]. |