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ECO403 Macroeconomics Assignment 1 Solution Fall 2012

Togo is a country in West Africa bordered by Ghana to the west. French is the core language of the people of Togo. Being an agrarian economy, more than 60% population is engaged in agricultural or pastures sector. Togo is the world’s largest producer of phosphate after Senegal and South Africa. Although this sub-Saharan economy is heavily dependent on agriculture sector, still some basic foodstuff is being imported. Major exportable items are cotton, cocoa, coffee and phosphate which generate 40% of export earnings while importable items of the country are fuel, energy and capital goods. Suppose in the year 1986, out of total population of Togo, 90 Lakh people were employed and 7 Lakh were unemployed. In the second year (1987), because of twin deficit, government of Togo printed more money to cover the budget deficit. This printing more money directly affected the price hike of the commodities which deteriorated overall situation of the economy. In year 1987, out of the total population, 87 Lakh people were employed and 11 Lakh were unemployed. During this year, phosphate mining also suffered from the collapse of international price, domestic price and increase in foreign competition. Printing more money and disturbing international scenario of phosphate effected the income, consumption and production of Togo generally and unemployment particularly.
Suppose, during these two years, people of Togo produced and consumed only five commodities i.e. fish, milk, meat, rice and fruit. Following table shows the price and quantity of these five commodities in the year 1986 and 1987.

 

1986

1987

Commodities
Price (Rs) Quantity Price (Rs)

Quantity

Fish

10

50

13

70

Milk

5

100

7

100

Meat

7

150

10

155

Rice

6

70

10

90

Fruits

7

90

14

90

Requirements:
With the help of above data, calculate Togo’s:
a) Nominal GDP for year 1986
b) Nominal GDP for year 1987
c) Real GDP for year 1987
d) GDP deflator for the year 1987
e) Labor force for year 1986 and 1987
Note: Use 1986 as base year where required.
Note: Write down formula and all relevant steps involved in calculations
Marks: (4+4+4+4+4)

 

Solution:

Commodities 1986 1987
Price Quantity Price Quantity
Fish 10 50 13 70
Milk 5 100 7 100
Meat 7 150 10 155
Rice 6 70 10 90
Fruits 7 90 14 90

 

Requirements:

With the help of above data, calculate Togo’s:

Nominal GDP : Y = P x y

y = quantity

P = price

 

a)      Nominal GDP for year 1986

 

Commodities Nominal GDP
Fish 500
Milk 500
Meat 1050
Rice 420
Fruits 630

 

b)      Nominal GDP for year 1987

 

Commodities Nominal GDP
Fish 910
Milk 700
Meat 1550
Rice 900
Fruits 1260

 

c)       Real GDP for year 1987

 

Real GDP y = Y/P

Where we multiple each year’s Quantities (y) with the previous year’s Prices (P)

Commodities Nominal GDP
Fish 700
Milk 500
Meat 1085
Rice 540
Fruits 630

 

d)      GDP deflator for the year 1987

 

GDP Deflator = (Nominal GDP/Real GDP) x 100

 

Product GDP Deflator
Fish 130
Milk 140
Meat 142.86
Rice 166.67
Fruits 200

 

 

e)      Labor force for year 1986 and 1987

Labor force = employed + unemployed

1986: 90 lac employed and 7 lac unemployed

Labor Force        = 97 lac

1987: 87 lac employed and 11 lac unemployed

Labor Force        = 98 lac

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