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?