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Supplementary Answer

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shaboum608
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Supplementary exercises

ELEMENTS OF ANSWER

A- Consider the following hypothetical economy that consists of three firms.

Compagnie des Groupe Chimique Tunisian Agri- Total Factor


Phosphates de Tunisien (GCT) Fertilizer (TAF) Income
Gafsa (CPG)

(Values in Producing Transforming Producing


Millions TND) Natural Natural Agricultural
Phosphate Phosphate into Fertilizer using
Phosphoric Acid Phosphoric Acid
Value of sales 4 900 8 000 26 200
Intermediate 0 4 900 8 000
goods
Wages 1 900 2 500 7 000 11 400
Interest Payments 2 700 5 000 1 400 9 100
Profit 2 800 1 510 1 390 5 700
Total expenditure 7 400 13 910 17 790
per firm
Value added per
firm =
Value of sales – 4 900 3 100 18 200
cost of
intermediate
goods
Question 1
Use the table above to compute the GDP in three different ways.
a. First Way: Measuring GDP as the value of production of final goods and services.
4900+3100+18200=26 200
b. Second Way: Measuring GDP as spending on domestically produced final goods and
services.
Aggregate spending = 26 200
c. Third Way: Measuring GDP as factor income earned from firms in the economy.
11 400 +9 100 + 5 700= 26 200
Question 2

The GDP denoted by Y is divided into four components: Consumption (C), Investment (I),
Government Purchases (G) and Net Exports (NX). Write down the equation that relates Y to the
four components.

1
Y=C+I+G+NX
Question 3
In which GDP component are the Tunisian household purchases of new houses included?
I
Question 4
The Tunisian government provides social welfare and unemployment benefits to citizens in
need. In which GDP component are these transfer payments included?
None
Question 5
Suppose that the government of Tunisia decides to import a 3 200 Millions TND of high tech
goods from Germany and France; and to export 1 400 Millions TND of textile products.
Determine how much GDP and each of its components is affected.

NX= X-M= 1400-3200= -1800 MD

GDP increases by 1400MD. G and M both increase by 3200MD, NX decreases by 1800MD


Question 6
If Tunisia were a closed economy, explain - using a circular-flow diagram - how the
households, firms, markets for goods and services, markets for factors of production interact.

E- The following data is released by the National Institute of Statistics:

Year 2013 2014 2015 2016 2017

Household Consumer price index (CPI) (2010 = 100) 115.1 120.8 126.6 131.4 138.3

CPI for Food and non-alcoholic drinks 121.7 128.3 135.0 138.5 146.2
CPI for Alcoholic beverages and tobacco 118.2 124.6 132.7 131.8 138.1
CPI for Clothing and footwear 119.9 128.9 137.6 147.4 159.1
CPI for Housing, water, gas, electricity and other 110.5 116.4 122.5 129.1 135.6
CPI for Furniture, household equipment and routine home maintenance 116.1 122.4 129.2 135.2 141.6
CPI for Health 106.3 109.1 112.8 115.8 120.0
CPI for Transport 112.2 116.2 119.0 121.6 128.8
CPI for Communications 102.8 102.5 99.7 98.9 100.5
CPI for Leisure and culture 104.9 108.5 111.9 114.0 116.9
CPI for Education 111.4 114.5 121.0 132.3 139.3
CPI for Restaurants and hotels 121.3 129.4 142.1 148.5 157.7
CPI for Miscellaneous goods and services 113.8 120.5 128.3 136.1 142.5

2
Question 1: For which category of goods and services – of Household Consumption - the assumption
of Sticky Prices in the short run is the most likely to hold? Explain.
The CPI for Communications does not vary that much, so the assumption of Sticky Prices is most
likely to hold for that category
Question 2: Explain how the CPI value of 138.3 in 2017 is obtained from the different categories
without doing any calculation.
12 𝑤𝑒𝑖𝑔ℎ𝑡 𝐶𝑃𝐼 where i refers to the category i, CPI refers to the CPI of category i from the
138.3=∑𝑖=1 𝑖 𝑖 i

last column of the table above, and weighti is the weight in percentage (similar to a quantity) of
category i.
Question 3: Compute the annual deflation rate of the Communications’ category in 2015.
Deflation Rate (2015)= (99,7-102,5)/102,5= 2.73% (and not -2.73%)
Question 4: Identify the problem of unmeasured changes in quality for the Communications’
category. Does this problem overstates or understates the deflation rate computed in Question 3?
Explain.
The better (unmeasured) quality of communication services (better technology) is not reflected in the
cost of living. This problem would overstate the change in price (which is a deflation here): if the better
quality of communication were measured, the price in 2015 would be lower than 99.7. Therefore, in
this case, we end up understating the deflation rate of 2.73%.

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