Econ Assignment 5 Q and a

ECONOMICS 110/112*

Assignment #5/#2 – Suggested Solutions

2008/2009

Due Dates and Notes:

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DUE: By Friday February 27, 2:00 PM. Completed assignments should be placed in the slot marked

for your section in the white assignment collection box outside room A516 in Mackintosh-Corry Hall.

Late assignments will not be accepted.

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Use the Cover Page when submitting assignments.

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Group Work: Maximum 4 per group, all students must be registered in the same section of the same

course. Names must be in alphabetical order on the cover page.

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Graded work will be available for pick-up beginning on Friday March 13 in the Econ Distribution

Center, M-C A512 (next to the TA office). You will require your student card.

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This assignment covers material from Chapters 20-23 of the text.

True, False, or Uncertain

[48 marks - 6 marks each]

Explain why each of the following statements is True, False, or Uncertain according to economic

principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the

explanation that is important.

A5-1. Suppose you buy a used economics textbook from a used bookstore in downtown Kingston. This

transaction does not affect current GDP since the book was not produced this year.

False

Although the book was not produced this year, there is a part of the transaction that does add to current

GDP. The way to see this is to consider the value added of the transaction. The bookstore purchases

the used book from someone then sells it to you for a higher price. So the value added of the

transaction is the sale price less what was paid for the book. It is this amount that the bookstore uses to

pay income to the factors of production that it hires (labour, rent for the store, any interest payments,

and profits to the owner).

A5-2. Suppose a Canadian company exports all of its $7 M worth of its output to the US. It imports $1 M

worth of raw material from Mexico, pays its workers $3...