Problem Set 3 Karen R. Polenske 11. 481J, 1.284J, ESD.284J Wang Xiaodong Spring 2003 Due April 7, 2004, 9:30am A. China input-output data: Assume that the Ministry of Water is planning to construct a major set of canals that run from the South to the North of China in order to reduce water scarcity in the North.1 You, as a member of the Ministry staff, are responsible for analyzing the economic impacts of the canal construction on both regions. Your first task is to construct an accounting table for each of the two regions. You are provided with the 1997 statistical account information of both regions in the attached table. [Note: These are hypothetical data for North and South China; therefore, these data should not be used for studies other than those in this class.] A1. From the information given in Appendix A and using the attached Excel

worksheet REGION, construct an input-output table for each of the two regions, showing both intermediate and final transactions. You will have to create two regional input-output tables, one for North China and one for South China, based on the data provided in the attached table. When you enter the data into the worksheet REGION, the worksheet will automatically calculate the gross regional consumption and gross regional outlays for you. (60 points)

A2. Specify the gross regional product in 2003 for each of the two regions. Please

also specify the gross regional income in 2003 for each of the two regions. Explain why they are the same or different.

(20 points) A3. Give a brief explanation of the following entries: (12 points) a. the entries in the transportation column (hint: explain the cost

structure of the transportation sector in each region); b. the entries in the transportation row. B. U.S. gross national product The attached definition (refer to Appendix B) was published in the Boston Globe. (1) Explain whether or not the definition is correct and why. (2) What difference, if any, would it make if you were to comment on this as a definition of Gross Domestic Product, rather than Gross National Product?

1 In this exercise, we arbitrarily divide China into the North and South regions, using the Yangtze River as the dividing line. The North includes all provinces and municipalities located north of the river; whereas the South represents all provinces and municipalities situated south of the river.

HYPOTHETICAL 2003 DATA FOR THE NORTH AND SOUTH CHINA (Million Renminbi) Sales and Purchases North South AGRICULTURE Sales of goods and services to other sectors to agriculture 92500 54655 to industry 294492 107980 to construction 1226 620 to transport 18 7 to commerce and services 18232 9640 Sales of final goods to personal consumption 351276 90691 to public consumption 237 127 to net exports (exports minus imports) 2589 6976 as investment (accumulation) 24677 15279 Adjustment -2633 -1498 INDUSTRY Sales of parts and semi-finished goods to agriculture 102766 59541 to industry 1343487 636435 to construction 197068 108730 to transport 68919 25625 to commerce and services 336511 145889 Sales of final goods to personal consumption 452196 114553 to public consumption 25932 9507 to net exports (exports minus imports) 3547 10579 as investment (accumulation) 244237 141979 Adjustment 8423 4792 NEW AND MAINTENANCE CONSTRUCTION Sales of semi-finished goods and services to other sectors to agriculture 82 44 to industry 1117 562 to construction 2375 1202

HYPOTHETICAL 2003 DATA FOR THE NORTH AND SOUTH CHINA (Million Renminbi)

Sales and Purchases North South CONSTRUCTION (Continued) to transport 271 101 to commerce and services 12414 7075 Sales of final goods and services to personal consumption 0 0 to public consumption 0 0 to net foreign trade (Exports-imports) 0 0 as investment (accumulation) 319958 190003 Adjustment 61 35 TRANSPORT Sales of goods and services to other sectors to agriculture 6640 3546 to industry 53886 32108 to construction 15329 6228 to transport 2847 1326 to commerce 68279 36811 Sales of final goods and services to personal consumption 44651 8593 to public consumption 306 164 to net foreign trade (Exports-imports) 4516 15679 as investment (accumulation) 2259 1330 Adjustment 1120 637 COMMERCE AND SERVICES Sales of goods and services to other sectors to agriculture 29731 18344 to industry 285042 148596 to construction 35663 19544 to transport 18413 9132 to commerce and services 137136 73462

HYPOTHETICAL 2003 DATA FOR THE NORTH AND SOUTH CHINA (Million Renminbi) Sales and Purchases North South COMMERCE AND SERVICES (continued) Sales of final goods and services to personal consumption 199610 46831 to public consumption 272829 136005 to net foreign trade (exports-imports) -2985 -11225 as investment (accumulation) 39461 24602 Adjustment 3643 2073 DEPRECIATION (Consumption of capital) in agriculture 13278 7091 in industry 122595 63760 in construction 8142 4121 in transport 26296 9823 in commerce and services 63340 38714 LABOR COMPENSATION from agriculture 331435 191658 from industry 194205 102797 from construction 66904 35356 from transport 29813 13390 from commerce and services 196421 108486 NET TAXES from agriculture 15163 8098 from industry 161139 81177 from construction 9454 4785 from transport 9483 3543 from commerce and services 22561 12009 OPERATING SURPLUS from agriculture 31679 16918 from industry 238607 120204 from construction 18898 9565 from transport 45151 16867 from commerce and services 182884 97345

Appendix B THE BOSTON GLOBE * SATURDAY, JANUARY 26, 1991 ASK THE GLOBE Q. How is the term "Gross National Product" defined? - D.E., Somerville A. Barron's Dictionary of Finance and Investment Terms defines the Gross National Product (GNP) as the total value of goods and services produced in the United States over a particular period of time (usually a year). It is made up of consumer and government purchases, private, domestic and foreign investments in the United States and the total value of exports. Figures on an annual basis for the GNP, the primary indicator of the status of the economy, are released every quarter, as is an inflation-adjusted version, called "the real GNP."