National income macro economics questions

NATIONAL INCOME AND RELATED AGGREGATES

Exercise:

Write 1 word for the following:

1.The movement of income in the form of resource payments from firms to households, and of income in the form of revenue from households to firms.

2.A method of calculating GDP by adding all the incomes earned in the production of final goods and services.

3.The difference between the value of a good that a firm produces and the value of the goods the firm uses to produce it.

4.The value of existing capital stock used up in the process of producing goods and services.

5.The sum of all payments made to resource owners for the use of their resources.

6.An economy’s export to other economies, minus its import from other economies.

7.The market value of all final goods and services in an economy produced by resources owned by people of that economy, regardless of where the resources are located.

STOCK AND FLOW

Exercise:

Classify the following as stock or flow variables:

1. The speed of a motor cycle or a car.

2. The level of water in the tank.

3. Water in reservoir.

4.The amount of capital.

5.The amount of wheat produced or sold.

6. The number of houses in a city.

7. Construction of houses during a year.

8.The amount of bank deposits on 31.3.2010.

9. Changes in the money supply.

10.Total money supply.

11. Income

12. Wealth

13.Bank deposits during 1.4.2009 to 31.3.2010.

14.Spending of money.

15.The distance between Delhi and Lucknow.

16.The amount of water entering into and draining from the tank.

17.Number of people employed in the country.

18.Total number of houses in a city.

19.The quantity of money.

20.Capital formation

21.Water in a river.

22.The amount of wheat stored.

23.Amount of bank deposits as on 31.03.2008

24.Production of cement in the year 2009.

25.Population of India as on 31^st march ,2009

26.Number of literate people as on 31.03.2009

27.National income of a country.

28.Number of persons employed during December.

29.Raw material in warehouse as on 31 Jan, 2009.

Exercise

1. How will you treat the following while estimating domestic product of India? Give reasons.

Rent received by a resident Indian from his property in Singapore.
Profits earned by a branch of an American Bank in India.
Salaries paid to Koreans working in Indian embassy in Korea.
Compensation of employees given to residents of china working in Indian embassy in China.
Profit earned by a company in India, which is owned by a non-resident.
Profit earned by an Indian economy from its branch in Singapore.
Salaries to Indian residents working in American embassy in India.

2. Are the following included in the estimation of National Income of India? Give reasons for each answer.

Profit earned by a foreign company/bank in India.
Compensation of employees given to residents of china working in Indian embassy in China.
Salary paid to Americans working in Indian embassy in America.
Salary paid to Indians working in Indian embassy in America.

ITEMS INCLUDED OR NOT INCLUDED

Exercise:

How following items will be treated while calculating the national income?

Wheat grown by a farmer but used entirely for family’s consumption. Or Production of goods for self consumption
Family members working free in farm owned by family
Purchase of a truck to carry goods by a production unit. Or Purchase of a refrigerator by a firm for own use.
Payments of fees to a lawyer engaged by a firm.
Interest on loan taken by consumer house hold.
Interest received on loans given to a friend for purchasing a car.
Interest payment on loan taken by an individual to buy a motor cycle. Or Payment of interest by an individual to a bank
Interest received on loan given to a foreign company in India.
Payment of interest on borrowing by general government. Or Interest on public debt Or Interest on national debt
Payment of interest on loan taken by an employee from the employer.
Interest received by an individual from bank. Or Payment of interest by a bank to an individual
Payment of interest by a government firm. Or payment of interest by a firm
Rent-free house given to an employee by an employer.
Earnings of the share holders from sale of shares.
Value of bonus shares received by share holders of a company.
Dividend received by an Indian from his investment in shares of a foreign company.
Profits earned by an Indian bank from its branches abroad. Or profits earned by a branch of an economy bank in Canada.
Capital gains to Indian residents from sale of shares of a foreign company.
Dividend received by a foreigner from investment in shares of an Indian company.\
Financial help received by flood victims.
Money received from sale of second hand goods.
Change in stock of raw materials or additions to stock during a year.
Brokerage payment on sale of shares. Brokerage commission on the sale and purchase of old goods. Commission received by a dealer from the buyer and seller of a house.
Dividends received on shares.
Retirement pension. Pension paid to retired employees
Unemployment allowance.
Old age pension given by the government.
Scholarship given to an Indian student studying in India by a foreign company.
Entertainment tax received by the government.
Expenditure incurred by a household on feeding the beggars.
Money received by a family in India from relatives by son from parents.
Payment of corporate tax.
Pocket money received by son from parents.
Salary to foreign technical socialist.
Income from illegal activities.
Contribution to provident fund by employees.
Windfall gains and capital gains.
Indirect taxes or goods and services tax or payment of Excise duty by a firm.
Salaries paid to Russians working in Indian embassy in Russia.
Salaries received by the Indian Employees working in American embassy in India.
Salaries received by the Indian residents working in Russian embassy in India.
Expenditure on providing police services by the government.
Rent received by Indian residents on buildings rented out to foreign embassies in India.
Imputed rent of self occupied houses. Or services of owner occupied houses.
Electricity consumed by a firm. Or payment of electricity bill by a school.
Purchase of sugar by a restaurant.
Expenditure by government on providing free education. Or free services by the government. Or free treatment of the poor in hospital.
Free meals provided by employer to their employees.
Direct purchase made abroad by government on current account.
Expenditure by a firm on payment of fees to a charted account.
Profit earned by foreign banks in India.
Consultancy fees paid to a foreign expert.
Expenditure on the purchase of a new car.
Earning from a part time job by a student.
Purchase of furniture by a firm.
Payment of bonus paid to employees. Or payment of bonus by a firm.
Purchase of cold drinks by a school canteen from the manufacturer. Or Transport expenses by a firm.
Fees received from students.
Free ration to defence personnel.
Salaries to defence personnel.
Rent free accommodation to employees.
Interest received on debentures.
Entertainment allowance to employees for entertaining business guest.
Interest paid by one firm to another.
Medical facilities by the employer.
Depreciation
Expenditure incurred by a foreign tourist in the country.
Royalty
Free uniforms provided to nurses in a hospital.
Medical expenses of employees borne by employers.
Salaries paid to non residents Indians working in Indian embassy in America.
Profits earned by an Indian bank from its branches abroad.
Expenditure on fertilizers by a farmer.
Expenditure on construction of houses. Or expenditure on adding a floor to the building.
Expenditure of the government on the construction of a flyover
Expenditure on maintenance of building or Expenditure on maintenance by a firm.
Festival gift from an employer.
Purchase of uniforms for nurses by a hospital.
Payment of interest by a household on loan taken from another household
Payment of wages to domestic servants by a household.
Expenditure on the purchase of second hand machinery from abroad
Rent received by an Indian from his building rented out to a foreign bank located in India.
Expenditure on purchase of non factor inputs by a firm.
Expenditure on the purchase of factor inputs by a firm. Or Factor payment made by a firm.
Insurance claim received by a worker at the time of maturity.
Purchase of machinery by a firm.
Purchase of stationery by state bank of India.
Purchase of stationery by AIIMS.
TA/DA paid to sales staff by an employer.
TA/DA paid to staff by an employer.
Caring of old age parents
Export of old machines.
Import of non factor services
Government expenditure on street lighting.
Sale of an old house.
Interest on an AT&T bond
Social security payments received by a retired factory worker
The services of a painter in painting the family home
The income of a dentist
The money received by Smith when she sells her economics textbook to a book buyer
The monthly allowance a college student receives from home
Rent received on a two-bedroom apartment
The money received by Mac when he resells his current-year model Plymouth Prowler to Stan
Interest received on corporate bonds
A 2-hour decline in the length of the workweek
The purchase of an AT&T bond
A $2 billion increase in business inventories
The purchase of 100 shares of GM common stock
The purchase of an insurance policy

GENERAL CONVERSIONS

NUMERICALS

1.Gross National Product at market price is ₨ 4,000 crore, the capital stock is worth Rs. 9,000 crore Depreciation rate of the capital stock is 12.5% Factor income from the rest of the world is Rs. 600 crore, and to the rest of the world is Rs 900 crore. Indirect taxes amount to Rs. 200 crore and subsidies amount is Rs. 50 crore. Calculate (i) NDP at MP and (ii) NDP at FC.

2.Gross National Product at market price of an economy is Rs 1, 30,000 crore. The capital stock of an economy is valued at Rs 2, 20,000 crore, which depreciates at the rate of 10 % per annum. Indirect taxes amount to Rs. 8,000 crores and subsidies amount to Rs. 2000 crore. Calculate national income of the economy.

3.Calculate GNP and FC

S. No	Items	(Rs. crore)
i.	NDP_MP	75,000
ii.	Net factor income from abroad	(-)300
iii.	Depreciation	5,100
iv.	Subsidies	1,900
v.	Indirect tax	10,500

4. Calculate the domestic income

S. No	Items	(Rs. crore)
i.	Gross national product at market price	58,350
ii.	Indirect tax	2,590
iii.	Subsidies	1,540
iv.	Depreciation	1,625
v.	Net factor income from abroad	(-)240

5. Find out NDP from given data:

S. No	Items	(Rs. crore)
i.	GNP_MP	97,503
ii.	Net factor income from abroad	(-)201
iii.	Net indirect taxes	10,576
iv.	Consumption of fixed capital	5,699

6.Suppose the GDP at market price of a country in a particular year was Rs. 1,500 crores. Net factor income from abroad was Rs.150 crores. The value of indirect taxes-subsidies amount was Rs. 250 crores and national income was RS 1200 crores. Calculate aggregate value of depreciation.

7.The net domestic product at market price of an economy is Rs 4,500 CRORES. The capital stock is worth Rs4,000 CRORES and it depreciates at the rate of 10 % per annum. Indirect taxes amount to Rs. 150 CRORES and to rest of the world is Rs 600 CRORES. Find out the gross national product at factor cost.

VALUE ADDED METHOD

Numerical

VALUE ADDED METHOD

1.Calculate value of output from the following data:

S. No	Items	Rs. (in lakh)
i.	Subsidy	10
ii.	Intermediate consumption	150
iii.	Net addition to stocks	(-)13
iv.	Depreciation	30
v.	Excise duty	20
vi.	Net value added at factor cost	250

2.Calculate sales from the following data:

S. No	Items	Rs. (in lakh)
i.	Net value added at factor cost	300
ii.	Intermediate consumption	200
iii.	Indirect taxes	20
iv.	Depreciation	30
v.	Change in stock	(-)50

3.From the following data about a firm X, calculate net value added at factor cost by it.

S. No	Items	Rs. (in lakh)
i.	Sales	500
ii.	Opening Stock	30
iii.	Closing Stock	20
iv.	Purchase of Intermediate products	300
v.	Purchase of machinery	150
vi.	Subsidy	40

4.Calculate Gross Value Added at factor cost from the following data:

S. No	Items	Rs. (in lakh)
i.	Sales tax	20
ii.	Sales	400
iii.	Purchase of raw materials	250
iv.	Excise duty	30
v.	Change in stocks	(-)40
vi.	Import of raw material	12
vii.	Depreciation	9

5.From the following data about a firm estimates the net value added at factor cost by the firm.

S. No	Items	Rs. (in thousands)
i.	Domestic sales	2000
ii.	Subsidies	40
iii.	Purchase of raw materials	560
iv.	Export	500
v.	Depreciation	100
vi.	Import of raw material	60
vii.	Change in stock	200
viii.	Net indirect taxes	60

6.Calculate Gross Value Added at factor cost:

i.	Units of output sold (Units)	1000
ii.	Price per unit of output (Rs.)	30
iii.	Depreciation (Rs.)	1000
iv.	Intermediate cost (Rs.)	12000
v.	Closing stock (Rs.)	3000
vi.	Opening stock (Rs.)	2000
vii.	Excise (Rs.)	2500
viii.	Sales tax (Rs.)	3500

7.Find Gross Value Added at factor cost:

i.	Units of output sold (Units)	2000
ii.	Price per unit of output (Rs.)	20
iii.	Depreciation (Rs.)	2000
iv.	Change in stock (Rs.)	(-)500
v.	Intermediate cost (Rs.)	15000
vi.	Subsidy (Rs.)	3000

8.Calculate the value added by firm A and firm B from the following data:

S. No	Particulars	Rs. (in lakh)
i.	Purchase by A from the rest of the world	30
ii.	Sales by firm B	90
iii.	Purchase by firm A from firm B	50
iv.	Sales by firm A	110
v.	Export by firm A	30
vi.	Opening stock of firm A	35
vii.	Closing stock of firm A	20
viii.	Opening stock of firm B	30
ix.	Closing stock of firm B	20
x.	Purchase by firm B from firm A	50

9.An economy has only two firms A and B. on the basis of the following information about these firms, find out:

(a). Value added by firms A and B

(b). Gross domestic product at market price.

S. No	Particulars	Rs. (in lakh)
i.	Export by firm A	30
ii.	Import by firm A	60
iii.	Sales to households by firm A	100
iv.	Sales to firm B by firm A	50
v.	Sales to firm A by firm B	40
vi.	Sales to households by firm A	80

10.In an imaginary economy described below.

(A, B and C are the three industries)

A imports goods worth Rs.100 crores and export goods worth Rs.60 crores and sells for Rs.20 crores to B. B sells goods for Rs.80 crores to C and for Rs.60 crores to consumers. C export goods worth Rs.120 crores and sells goods for Rs.50 crores to government. Find the value added by industry of origin.

11.Calculate (a) GDP at MP and National Income.

S. No	Items	Rs. (in crore)
i.	Value of output of primary sector	1,600
ii.	Value of output of secondary sector	400
iii.	Value of output of tertiary sector	600
.	Indirect taxes paid by all sectors	50
x.	Subsidies paid by all sectors	20
xi.	Value of intermediate consumption of a) Primary sector b) Secondary sector c) Tertiary sector	800 400 200
xii.	Depreciation of all sectors	80
xiii.	Factor income received from rest of the world	10
xiv.	Factor income paid to non-residents	20

12.On the basis of the following data, calculate (a) Gross value added at MP by primary, secondary, tertiary sectors and (b) National income

S. No	Items	Rs. (in crore)
i.	Value of output of: a) Primary sector b) Secondary sector c) Tertiary sector	800 200 300
ii.	Value of intermediate inputs purchased by: a) Primary sector b) Secondary sector c) Tertiary sector	400 100 50
iii.	Indirect taxes paid by all sectors	50
iv.	Consumption of fixed capital	80
v.	Factor income received by residents from rest of the world	10
vi.	Factor income paid to non-residents	20
vii.	Subsidies paid by all sectors	20

13.Calculate “Sales” from the following data :

S. No	Items	Rs. (in lakh)
i.	Intermediate costs	700
ii.	Consumption of fixed capital	80
iii.	Change in stock	(-)50
iv.	Subsidy	60
v.	Net value added at factor cost	1,300
vi.	Exports	50

14.With the help of the following data relating to a firm, calculate its net value added at factor cost :

S. No	Particulars	(Rs. In crore)
i	Opening stock	20
ii.	Purchases	40
iii.	Wages	90
iv.	Operating surplus	40
v.	Indirect taxes	30
vi.	Depreciation	20
vii.	Unsold stock	25
viii.	Sales	215

15. Calculate net value added at factor cost from the following data:

S. No	Particulars	(Rs. In crore)
i.	Sales	2200
ii.	Used for sell-consumption by the owners	300
iii.	Opening stock	350
iv.	Purchase of raw materials	1050
v.	Electricity charges	80
vi.	Consumption of fixed capital	130
vii.	Excise duty	60
viii.	Income tax	30
ix.	Closing stock	100

INCOME METHOD

NUMERICALS

INCOME METHOD

1.Calculate the operating surplus:

S. No	Items	(Rs. In crore)
i.	Value of output	65,000
ii.	Purchase of raw material	16,000
iii.	Net indirect tax	2,500
iv.	Wages and salaries	20,000

2.Calculate the operating surplus from the following data:

S. No	Items	(Rs. In crores)
i.	Value of output	800
ii.	Intermediate consumption	200
iii.	Compensation of employees	200
iv.	Indirect taxes	30
v.	Depreciation	20
vi.	Subsidies	50
vii.	Mixed income	100

3.Find out compensation of employees from the following data :

S. No	Items	(Rs. In crores)
i.	Rent	15
ii.	Interest	10
iii.	Profit	5
iv.	Gross domestic product at factor cost	176
v.	Consumption of fixed capital	15

4.Calculate compensation of employees from the following data :

S. No	Items	Rs. (in lakh)
i.	Rent	40
ii.	Interest	70
iii.	Profit	30
iv.	Consumption of fixed capital	100
v.	Gross domestic product at factor cost	500
vi.	Mixed income of self-employed	100

5.Calculate compensation of employees from the following data :

S. No	Items	Rs. (in lakh)
i.	Value of output	500
ii.	Net indirect taxes	20
iii.	Interest	50
iv.	Rent and profit	150
v.	Intermediate consumption	200
vi.	Consumption of fixed capital	10

6.Estimate the operating surplus from the following data :

S. No	Items	Rs. (in crores)
i.	Undistributed profit	120
ii.	Royalty	25
iii.	Corporation tax	100
iv.	Interest	350
v.	Rent	320
vi.	Mixed income	485
vii.	Dividends	250
viii.	Indirect tax	180

7.Calculate the value of “Rent” from the following data :

S. No	Particulars	Rs. (in crores)
i.	Gross Domestic Product at market price	18,000
ii.	Mixed income of self-employed	7,000
iii.	Subsidies	250
iv.	Interest	800
v.	Rent	?
vi.	Profit	975
vii.	Compensation of Employees	6,000
viii.	Consumption of Fixed Capital	1000
ix.	Indirect Tax	2000

8.Given the following data find the values of operating surplus and net exports.

S. No	Particulars	Rs. (in crores)
i.	Wages and Salaries	2,400
ii.	National income	4200
iii.	Net exports	?
iv.	Net Factor Income from Abroad	200
v.	Gross Domestic Capital Formation	1,100
vi.	Mixed Income of Self Employed	400
vii.	Private Final Consumption Expenditure	2,000
viii.	Net Indirect Taxes	150
ix.	Operating surplus	?
x.	Government Final Consumption Expenditure	1,000
xi.	Consumption of Fixed Capital	100
xii.	Profits	500

EXPENDITURE METHOD

MIXED NUMERICALS

1.Calculate GNP_FC by income method and expenditure method from the following data:

S. No	Particulars	Rs. (in lakh)
i.	Rent	40
ii.	Private final consumption expenditure	800
iii.	Net exports	20
iv.	Interest	60
v.	Profit	120
vi.	Govt. final consumption expenditure	200
vii.	Net domestic capital formation	100
viii.	Compensation of employees	800
ix.	Compensation of fixed capital	20
x.	Net indirect taxes	100
xi.	Net factor income from abroad	(-)20

2.From the following data, calculate Gross national Product at market price by (i) income method and (ii) expenditure method

S. No	Particulars	Rs. (in crores)
i.	Net domestic capital formation	375
ii.	Compensation of employees	600
iii.	Net indirect taxes	150
iv.	Profits	450
v.	Rent	200
vi.	Private final consumption expenditure	1,100
vii.	Consumption of fixed capital	115

3.Find out- (a) net domestic product at factor cost by expenditure method and (b) gross domestic product at market price by income method from the following data :

S. No	Particulars	Rs. (in crore)
i.	Government final consumption expenditure	150
ii.	Private final consumption expenditure	1,020
iii.	Compensation of employees	490
iv.	Rent, interest and profits	190
v.	Exports	100
vi.	Imports	110
vii.	Indirect taxes	180
viii.	Net fixed capital formation	180
ix.	Net factor income from abroad	(-)5
x.	Mixed income of the self- employed	560
xi.	Government current transfers to households	20
xii.	Change in stocks	60
xiii.	Consumption of fixed capital	80
xiv.	Subsidies	20

4.From the following data calculate NDP_MP and NNP_FC by income and expenditure method:

S. No	Particulars	Rs. (in crore)
i.	Personal consumption expenditure	610
ii.	Wages and salaries	230
iii.	Employers’ contribution to social security Schemes	200
iv.	Gross business fixed investment	180
v.	Profits	50
vi.	Gross residential construction investment	120
vii.	Government purchases of goods and services	95
viii.	Gross public investment	60
ix.	Rent	70
x.	Inventory investment	55
xi.	Exports	50
xii.	Interests	60
xiii.	Imports	60
xiv.	Net factor income from abroad	(-)5
xv.	Mixed income	380
xvi.	Depreciation	40
xvii.	Subsidies	10
xviii.	Indirect taxes	90

5.Calculate (a) Gross Domestic Product at market price and (b) Factor income to abroad from the following data :

S. No	Particulars	Rs. (in crore)
i.	Profits	500
ii.	Exports	40
iii.	Compensation of employees	1500
iv.	Gross national product at factor cost	2800
v.	Net current transfer from rest of the world	90
vi.	Rent	300
vii.	Interest	400
viii.	Factor income to abroad	120
ix.	Net indirect taxes	250
x.	Net domestic capital formation	650
xi.	Gross fixed capital formation	700
xii.	Change in stock	50

6.Given the following data, find the values of “Gross Domestic Capital Formation” and “Operating Surplus”

S. No	Particulars	Rs. (in crore)
i.	National Income	22,100
ii.	Wages and Salaries	12000
iii.	Private Final Consumption Expenditure	7,200
iv.	Net Indirect Taxes	700
v.	Gross Domestic Capital Formation	?
vi.	Depreciation	500
vii.	Government Final Consumption Expenditure	6,100
viii.	Mixed Income of Self- Employed	4,800
ix.	Operating Surplus	?
x.	Net Exports	3,400
xi.	Rent	1,200
xii.	Net Factor Income from Abroad	(-)150

7.From the following data, calculate (a) Gross Domestic Product at Factor Cost and (b) Factor Income To Abroad

S. No	Particulars	Rs. (in crore)
i.	Compensation of employees	800
ii.	Profits	200
iii.	Dividends	50
iv.	Gross national product at market price	1,400
v.	Rent	150
vi.	Interest	100
vii.	Gross domestic capital formation	300
viii.	Net fixed capital formation	200
ix.	Change in stock	50
x.	Factor income from abroad	60
xi.	Net indirect taxes	120

REAL VS NOMINAL GDP

EXCERCISE

NUMERICALS

1.Suppose that a very simple economy produces three goods: pizzas, haircuts, and backpacks. Suppose quantities produced and their corresponding prices for 2002 and 2006 are shown in the table above. Use the information to compute GDP in the year 2002 and 2006. Assume that 2002 is the base year. Is output higher in 2006 or 2002? Why?

Particulars	2002		2006
Product	Quantity	Price	Quantity	Price
Pizzas	100	$10	120	$12
Haircuts	50	$15	45	$20
Backpacks	200	$40	210	$45

2.Calculate the GDP Deflator for the year 2011-2012, if the nominal GDP or current price is Rs. 250,000 and that of the real or constant price is Rs. 125,000.

3.If nominal GDP rises we can say that

Production has fallen and prices have risen.

Production has risen and prices remain constant.

Production has risen or prices have risen or both have risen.

Prices have risen and production remains constant.

4.The measure of production that values production using current prices is called

A) underground GDP, B) nominal GDP C) real GDP D) value added GDP

MULTIPLE CHOICE QUESTIONS

1) Gross domestic product is a measure of the total value of all

Consumer income in an economy over a period of time.
Capital accumulation in an economy over a period of time.
Sales in an economy over a period of time.
Final goods and services produced in an economy over a period of time.

2) If Nike, an American corporation, produces sneakers in Thailand this would

Add to neither U.S. GDP nor Thailand’s GDP.
Add to Thailand’s GDP but not to U.S. GDP.
Count as part of U.S. GDP since it is a U.S. Corporation
Count for both Thailand’s GDP and U.S. GDP.

3) In 2009, Ozzie purchased a 1999 Ford Escort from his neighbour for his son, purchased a 1999 “one owner” Camry from Larchmont Toyota for his wife, bought a 2009 new Ford for himself, and sold his 1993 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2009?

Only the purchase of the Ford
The purchase of the Ford and the Caravan
All four transactions
All three purchase but not the sale

4) Intermediate goods are excluded from GDP because

They represent goods that have never been purchased so they cannot be counted.
Their inclusion would understate GDP
Their inclusion would involve double counting.
The premise of the question is incorrect because intermediate goods are directly included in calculating GDP.

5) Which of the following is NOT a final good?

A purse sold to a foreign visitor
A new computer sold to an NYU student
A hot dog sold to a spectator at a Chicago Bears football game
A new car sold to Avis for use in their fleet of rental cars

6)The base – year method of calculating real GDP compared

Quantities produced in different years using prices from a year chosen as a reference period.
Quantities produced in different years with the prices that prevailed during the year in which the output was produced.
The quantities of goods produced in consecutive years using prices in both years and averaging the percentage changes in the value of output.
Prices at different points in time using a sample of goods that is representative of goods purchased by households.

7) Economists distinguish real GDP from nominal GDP to

Determine whether economic welfare has changed.
Determine whether real production has changed.
Measure the change in nominal interest rates.
Determine whether the government sector is growing.

8) In years with inflation, nominal GDP increases ___________ real GDP

At the same rate as
Faster than
Slower than
Sometimes faster, sometimes slower, and sometimes at the same rate as

9) In any year, real GDP

Might be greater or less than potential GDP.
Will always be greater than potential GDP because of the tendency of nations to incur inflation.
Always equals potential GDP.
Must always be less than potential GDP.

10) Real GDP can be criticized as a measure of economic welfare because it

Does not include the value of products produced in the household.
Does not include leisure time available to a society.
Does not take account of the degradation of environmental quality.
All the above answers are correct.

11) A country that has a large real GDP per person might not necessarily have a high level of economic welfare because it may have

Environmental problems.
Little leisure time.
Very little political freedom.
All the above answers are correct.

12) In calculating GDP, household production is

Included as part of consumption.
Ignored because it is not a large amount.
Include under employee compensation.
Not included because there is no market transaction.

13) In the post World War II period, considerable growth in total production took place in the U.S. but at the same time, businesses were dumping their waste into the Great Lakes with minimal cost to themselves, significantly polluting the bodies of water as a result. This occurrence is an example where

The pollution counts as a final good.
Investment would have been a better measure of total production.
Real GDP gives an overly negative view of economic welfare.
Real GDP gives an overly positive view of economic welfare.

14) The use of purchasing power parity prices

Weakens the validity of cross comparisons of economic welfare.
Increases the amount by which U.S. GDP is larger than of any nation.
Accounts of differences in the prices of the same goods in different countries when measuring real GDP.
Decreases the real GDP per person statistics published by the International Monetary Fund

15)

Product	Quantity	Price per Unit
Coke	10,000	$2
iPods	2,000	$150
Backpacks	4,000	$25
Hershey bars	8,000	$1

Consider the table of production and price statistics for a small economy in 2008. If the economy only produces the four goods listed below, what is the GDP for 2008?

$428,000
$24,000
$267,000
$1,424

16) Between 2007 and 2008, if the economy’s exports rise by $8 billion and its import fall by $8 billion, by how much will GDP change between the two years, all else equal?

The change in net exports will increase GDP by $8 billion.
The increase in exports is offset by the decrease in imports, so there is no change in net exports and no effect on GDP.
The change in net exports will decrease GDP by $8 billion.
The change in net exports will increase GDP by $16 billion.

17)

	2004	2005
Nominal GDP	$10,000	$12,000
Real GDP	$9,500	$10,500

Given the information above, what can we say has happened in the economy from 2004 and 2005?

The price level has remained constant.
The price level has risen.
The price level has fallen.
Not enough information is available to determine what has happened to prices.

18)

Particulars	2002		2007
Product	Quantity	Price	Quantity	Price
Movies	20	$6	30	$7
Burgers	100	$2	90	$2.50
Bikes	3	$1,000	6	$1,100

Suppose that a very simple economy produces three goods: movies, burgers, and bikes. Suppose the quantities produced and their corresponding prices for 2002 and 2007 are shown in the table above. What is nominal GDP in 2007?

$7,035
$6,360
$3,320
$3,690

19) The difference between GDP and GNP is that

GDP measures what is produced and earned by a nation’s people and property and GNP measures what is produced and earned in the domestic economy.
GDP emphasizes ownership and GNP emphasizes location.
GDP measures what is produced and earned in the domestic economy and GNP measures what is produced and earned by a nation’s people and property.
GDP is always larger than the GNP

20) All of the following are examples of transfer payments except

Government retirement benefits
Unemployment insurance benefits
Social Security benefits
Rental income

THEORY QUESTIONS

1 mark questions

1. What do you mean by final goods?

2. Expand CPI

3. Expand GDP_MP.

4. How do you get net value added?

5. Give the meaning of GDP.

6. Give the meaning of Intermediate goods.

7. What is Depreciation?

8. How do we get personal Disposable income?

9. Write the equation of GVA at market prices/

10.What is GDP deflator?

3 marks questions

1.What are the four factors of production? Mention their rewards.

2. Distinguish between stock and flow. Give example.

3. What is the difference between consumer goods and capital goods?

4. Mention 3 Methods of measuring GDP (National Income).

5. What do you mean by externalities? Mention its two types.

6. Write the equation of GDP_MPand GDP_FC.

7. Write the difference between nominal and real GDP.

4 marks questions

1. Write the short note on the concept of final goods.

2. Explain the circular flow of income of an economy.

3. Write a note on externalities.

HOTS

1. How do the expenditure approaches to measuring GDP relate to the circular flow methods?

2. Real GDP indicates the economic performance of the country whereas per capita GDP indicates the economic prosperity. Comment.

3. Does rise in GDP necessarily mean rise in welfare of the people?

Test 1

1. Define real flow? (1 marks )

2. Circular flow is of_____________ types (1 marks )

(a) Four

(b) Two

(d) All of these

3. What is circular flow of income? Mention its three phases. (1+2marks )

4. What do you mean by the terms? (3 marks )

(a) Leakages

(b) Injections

5. Between investment and capital which one is a stock concept? Explain with reasons. (4 marks )

6. ’Money flows are opposite to real flows. Explain? (4 marks )

7. Explain the importance of circular flow of income? (6 marks )

8. Describe the circular flow of income in a two-sector economy? (6 marks )

Test 2

1.Define money flow? (1 marks )

2. Real flow is also known as: (1 marks )

(a) Normal flow

(b) Physical flow

(d) Both (a) and (b)

3. Discuss briefly the circular flow of income in a two sector economy with the help of suitable diagrams? (3 marks )

4. What do you mean by leakages? How do they affect the circular flow of income? (3 marks )

5. Why should the aggregate final expenditure in an economy be equal to the aggregate factor payments? Explain. (4 marks )

6. State two basic principles of circular flow of income and product? (4 marks )

7. What is meant by circular flow of income? Distinguish between real flow and money flow? (6 marks )

8. Explain the three phases of circular flow of income? (6 marks )

Test 3

1.Define macroeconomics? (1 marks )

2. Who are normal residents of India? (1 marks )

(a) Border worker of Nepal who daily cross the border to work in India

(b) WHO located in India?

(d) Indian officials working in Indian embassy in China.

3. Explain the concept of value added by using an example. (3 marks )

4. Can a good be a final as well as an intermediate good? Explain by giving an example. (3 marks )

5.” Bread is always a consumer good”. Defend or refute. (4 marks )

6. Giving reasons, classify the following into stock and flow. (4 marks )

(a) Depreciation (b) Production

7. Distinguish between factor income and transfer income by giving suitable examples? (6 marks )

8. Distinguish between intermediate goods and final goods. Give an example of each? (6 marks )

Test 4

1.Define expected obsolescence? (1 marks )

2. A car, purchased by a taxi operator, is a ; (1 marks )

(a) Capital good (b) Intermediate good

3.’Machine purchased is always a final good’ Do you agree? Give reason for your answer (3 marks )

4. How is macroeconomics different from microeconomics? (3 marks )

5. Giving reasons, Classify the following into intermediate goods and final goods? (2+2 marks )

(a) Mobile acts purchased by a dealer,

(b) Car purchased by a household.

6. Classify the following into factor income and transfer income: (2+2 marks )

(a)Bonus

(b)Festive gifts by an employer to his/her employees

7. Distinguish between stocks and flown by giving suitable examples. (6 marks )

8. Distinguish between consumer goods and capital goods. Which of these are final goods? (6 marks )

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