Read the following paper:
Elwood, K. (1974). An analysis of the historical and political factors that influenced the development of Canada’s premier petrochemical complex, The Greek Review of Social Research, 21-22, pp. 232 – 237. Retrieved from http://dx.doi.org/10.12681/grsr.229
(The page linked to above is in Greek. Click on the small ‘PDF (English)’ button to download the article, or search for the full article title in Google Scholar for a direct link.)
1. what is the three main concept of the article.(each 15 words)
2.What is the economy story of the article.(50 words).
2. [Group Discussion Question] Treaty 3 , signed between the Canadian government and the Salteaux tribe in 1871, reads in part as follows:
“And further, that Her Majesty’s Commissioners shall, as soon as possible after the execution of this treaty, cause to be taken an accurate census of all the Indians inhabiting the tract above described, distributing them in families, and shall in every year ensuing the date hereof, at some period in each year to be duly notified to the Indians, and at a place or places to be appointed for that purpose within the territory ceded, pay to each Indian person the sum of five dollars per head yearly.”
This payment of $5 yearly is fixed in nominal terms and has not been adjusted for inflation. Treaty Indians are still being paid five Canadian dollars per person, per year .
In this question, you will adjust $5 CAD in 1871 for inflation, and see what the annuity payments would have been in 2019 if they had been constant in real terms, instead of nominal terms.
The usual way to adjust for inflation is to use the CPI. Unfortunately, Canada’s official CPI series only goes back to 1914, so we’ll have to be creative. You will adjust for inflation three ways: taking advantage of the fact that Canada was on a gold standard in 1871, using 10 kg of flour as a ‘CPI basket’, and finally, keeping annuities as a share of nominal per capita GDP constant.
a. (4 marks) In 1871, the value of the Canadian currency was fixed in terms of gold.
• One gold sovereign (a British coin) was, by definition, equal to $4.8666 CAD .
• In 1871, a British gold sovereign contained 7.322 grams of pure gold .
• The annuity was fixed at $5 per year, which is more than 1 sovereign.
• On June 16, 2019, the price of 1 gram of gold was $57.84 CAD .
Using this information, calculate what the value of the annuity should be today, if it had been held constant in terms of gold. (To do this, find out how much gold was in $5 CAD in 1871, then find the price of that amount of gold in 2019.) Show your work.
Value of Annuity in 2019 (Constant Gold): $_____________________________________
b. (4 marks) In 1871, flour cost about 5 cents ($0.05 CAD) per pound in Victoria . In June of 2019, a 10 kilogram bag of Robin Hood brand all-purpose flour sells for $14.99 CAD. There are about 0.4536 kilograms in a pound.
Using this information, calculate what the value of the annuity should be in 2019, in order to buy the same amount of flour in 2019 that $5 could buy in 1871. (I recommend you start by calculating the cost of 10 kg of flour in 1871.) Show your work.
Value of Annuity in 2019 (Constant Flour Purchasing Power): $___________________________
c. (4 marks) There is a case to be made that Treaty annuity payments should go up with (nominal) GDP per capita. As Canada becomes wealthier (in nominal terms), Treaty Indians should share in that wealth.
Suppose, for example, that GDP per capita was $10 in 1871. Then the $5 annuity would have been equal to 50% of per capita GDP. If in 2019, GDP per capita were $100, then $5 would only be 5% of per capita GDP. To keep the annuity constant as a share of per capita GDP, it should be $50, which is 50% of $100.
• GDP per capita = GDP / Population
• In 1871, Canada’s (nominal) GDP was $382,553,000.
• In 1871, Canada’s population was estimated to be 3,689,000.
• In 2019, Canada’s (nominal) GDP is estimated to be $2,444,263,770,000.
• In 2019, Canada’s population is estimated to be 37,644,600.
Using this information, calculate what the value of the annuity should be in 2019, in order to keep the share of per capita GDP equal to what it was in 1871. Show your work. (Find per capita GDP in 1871 and in 2019. Divide $5 by per capita GDP in 1871 to find the share you need to keep constant. Multiply this share by per capita GDP in 2019 to obtain the desired result.)
Value of Annuity in 2019 (Constant share of GDP per capita): $___________________________
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