Adjusting for Inflation

Q.

From the following data, calculate Gross National Product at Market Price by:
(a) Income method
(b) Expenditure method

$\underset{–}{\begin{array}{ccc}1.& \text{Mixed income of self employed}& 400\\ 2.& \text{Compensation of employeees}& 500\\ 3.& \text{Private final conosumption expenditure}& 900\\ 4.& \text{Net factor income from abroad}& -20\\ 5.& \text{Net indirect taxes}& 100\\ 6.& \text{Consumption of fixed capital}& 120\\ 7.& \text{Net domestic capital formation}& 280\\ 8.& \text{Net exports}& -30\\ 9.& \text{Profits}& 350\\ 10.& \text{Rent}& \\ 11.& \text{Interest}& 150\\ 12.& \text{Government final consumption expenditure}& 450\end{array}}$

OR


Categorise the following as final and intermediate good. Give reasons:
(a) Machine purchased by a household
(b) Machine purchased by a firm
(c) Machine purchased for resale purpose

Q.

Calculate GDP at MP by:

(a) Expenditure method

(b) Income method

$\begin{array}{ccc}\left(i\right)& \text{Net domestic fixed capital formation}& 50\\ \left(ii\right)& \text{Operating Surplus}& 50\\ \left(iii\right)& \text{Subsidies}& 5\\ \left(iv\right)& \text{Mixed income}& 60\\ \left(v\right)& \text{Pvt. Final consumption expenditure}& 120\\ \left(vi\right)& \text{Social security contributions by employees}& 10\\ \left(vii\right)& \text{Net factor income from abroad}& 0\\ \left(viii\right)& \text{Indirect tax}& 30\\ \left(ix\right)& \text{Addition to stocks}& 5\\ \left(x\right)& \text{Compensation of employees}& 70\\ \left(xi\right)& \text{Government final consumption expenditure}& 25\\ \left(xii\right)& \text{Net exports}& 5\end{array}$

Q.

What is real and nominal GDP? Which one is considered a better indicator of economic growth?

Q.

If the Real GDP is Rs 520 and Nominal GDP is Rs 650, calculate the Price Index (base=100).

1. 150

2. 135

3. 125

4. 80

Q.

If Real GDP is Rs 200 and Price Index (with base = 100) is 110, calculate Nominal GDP.

Q.

Explain the concepts of Real GDP and Nominal GDP, using a suitable numerical example.

Q.

Increase in national income implies increase in the flow of goods and services in the economy.

1. True

2. False

Q.

Real national income means:

1. national income at constant prices

2. national income at current prices

3. national income at factor prices

4. national income at average prices of the past 10 years

Q.

Explain how distribution of gross domestic product is its limitation as a measure of economic welfare.

Q.

Find nominal GDP if real GDP=240 and price index=120.

Q.

If Real GDP=600 and nominal GDP=660, find GDP deflator (price index).

Q.

Distinguish between real and nominal gross domestic product.

Q.

Which of the following is a valid criticism of the consumer price index (CPI)?

1. The CPI understates the burden of inflation on households because households can substitute cheaper goods for more expensive goods when prices increase

2. The CPI overstates the actual burden of inflation because people can look around costlessly for cheaper goods when prices increase.

3. The CPI overstates the burden of inflation on households because households can substitute cheaper goods for more expensive goods when prices increase.

4. The CPI understates the actual burden of inflation because the price changes are due to quality improvements.

Q.

Which of the following is true about real GDP?

Statement I: It is adjusted for changes in prices.

Statement II: It is always equal to nominal GDP.

Statement III: It increases whenever aggregate output increases.

1. I only

2. II only

3. III only

4. I and III

Q.

If a country’s nominal GDP increases, it means the country is producing more goods and services. State true or false.

1. True

2. False

Q. If the Real GDP is Rs 520 and Nominal GDP is Rs 650, Price Index (base=100) is equal to .

1. 150
2. 135
3. 125
4. 80

Q.

Real GDP is always larger than real GDP per capita. State true or false.

1. True

2. False

Q.

Which of the following best describes the distinction between real GDP and nominal GDP?

1. Nominal GDP is calculated every year; real GDP is calculated only occasionally

2. Nominal GDP is calculated by deflating real GDP; real GDP is unadjusted for inflation

3. Nominal GDP includes intermediate goods; real GDP excludes intermediate goods

4. Nominal GDP uses current prices; real GDP uses constant prices

Q. Distinguish between real GDP and nominal GDP. Which of these is a better indicator of economic welfare and why?

Q.

Suppose the amount of output doesn’t change in an economy, but the consumer price index (CPI) increases. What happens to nominal gross domestic product (GDP) and real GDP?

Q.

National income at current prices can increase even when the quantum of goods and services produced during the year remains constant.

1. True

2. False

Q.

Current account surplus in balance of payments occurs when the export of visibles is greater than import of visibles. State true or false, and explain.

Q.

(a) How is China's experience different from that of India and Pakistan in industrial development?

(b) What is the key measurement of human development?

Q. MRS (marginal rate of substitution) along an indifference curve tends to diminish.

Q.

What is one potential problem that may result from calculating real GDP using constant prices of products in a base year?

1. When prices do not change over time, the real GDP will not change either

2. When prices decrease and output decreases over time, real GDP will decrease as well

3. When the prices of some goods fall over time, calculating their value in constant prices makes these goods seem like a larger share of GDP than they really are

4. When prices of all goods rise over time, calculating their value in constant prices can understate how much real output increased between years

Q.

Which of the following are the methods of calculating national income?

1. Product Method
2. Income Method
3. All of the above
4. Expenditure Method

Q.

What is the difference between Microeconomics and Macroeconomics?

Q.

The value-added method of calculating national income is also called as:

1. Product method
2. Income method
3. Expenditure method
4. None of the above

Q. State the effect of rise in the price of foreign currency on the Balance of Payments situation.

Q. Give reasons or explain the following statements.

1. All desires are not demand.

2. Increase in demand indicates a rightward shift in the demand curve.

3. Demand curve slopes downward from left to right.

4. Demand for factors of production is derived demand.