Macroecomic Questions : The Structure of the British Economy
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(Adapted from June 1989 Part A, Q.15.)

An economy has three sectors - government, companies and households - and also trades and invests overseas. All capital formation is carried out by companies. The government’s budget is balanced. The following national accounting data are available, but three items from the complete accounts are missing (gross trading profits of companies, transfer payments from the government to households, and dividends and interest paid by companies to households). Assume no changes in the value or volume of stocks and works-in-progress.

(i)  From the data calculate:

(a)   National income;

(b)  Gross trading profits of companies;

(c)   Personal savings.

(ii)   Show that the financial deficits of some sectors are offset by the surpluses of others.

               Imports of Goods and Services                                                         4000

               Incomes from Self-Employment                                                          2000

               Direct Taxes on Companies                                                              1000

               Government Expenditure on Goods and Services                          3000

               Gross Undistributed Profits                                                                1000

               Consumers Expenditure                                                                       7000

               Capital Consumption                                                                             500

               Net Property Income from Abroad                                                      500

               Exports of Goods and Services                                                         5000

               Direct Taxes on Persons                                                                      3000

               Indirect Taxes (Net of Subsidies)                                                       1000

               Gross Capital Formation                                                                      2000

               Income from Employment                                                                    7000

               Rent                                                                                                          500

2.             How has the structure of the U.K. economy, changed in the post-war period? Does it matter that the UK now employs only one fifth of the workforce in Manufacturing?

3.             What is meant by a ‘deficit’ or ‘surplus’ in the balance of payments. What has been the recent position of the British balance of payments? What policies can be adopted to cure a deficit?

4.             Have women benefited more than men from the changes in the structure of the British economy over the last two decades?