MACROECONOMICS TUTORIAL 1

NIA (Module 1) and AGGREGATE EXPENDITURE (Module 2)

1. National income accounting:

a. Provides a set of rules for determining macroeconomic policy.
b. Provides a set of rules and definitions for measuring economic activity in the aggregate
economy.
c. Is a useful tool for microeconomists.
d. Can be used to measure a nation's output but not its production or consumption.

2. How is nominal GDP calculated?

a. Sum the quantity of all final goods and services produced in an economy in a year.
b. Sum the quantity of all goods and services sold in an economy in a year.
c. Weight the output of each final good and service produced in an economy in a year by its
price that year and then sum the result.
d. Weight the output of each good and service produced in an economy in a year by its
price in that year, and then sum the result.

3. Which of the following is an example of an intermediate product?

a. A pair of sport shoes sold by a sporting goods retailer to a cricketer.
b. A share of Infosys stock.
c. The plywood produced by Centurion and sold to a builder of new houses.
d. An antique car sold to the highest bidder.

4. Which of the following is an example of a final good or service?

a. Unemployment compensation.
b. A smartphone purchased as a gift.
c. Steel used in the production of appliances.
d. Vegetables purchased by local restaurants to make soup.

5. If we counted the value of autoworkers' salaries, wheels, tires, steel, body parts, and
final car sales in calculating GDP, then we would be
a. Understating GDP by overlooking car dealers' profits
b. Ignoring the contribution of capital to output
c. Overstating GDP through double counting
d. Using the value-added technique for calculating GDP
e. Calculating GDP correctly only if we excluded any imported cars
6. Are these activities included in GDP? If yes, then under which head?
a) Mrs Murthy picks flowers in her garden.
b) Fruits are sold on the market.
c) Patients, hurt in a car accident, are treated in a hospital.
d) Pensioners do community work for free.
e) A garage buys spare tyres to sell them to customers next year.
7. For each, indicate the dollar value that each contributes to each component of GDP.
Assume that everyone in society gets paid a wage of $10 per hour for their market labour.
If an item does not contribute to GDP, write “none”:
C I G X M
a) Households spend 10,000 hours 20,000
taking care of children. Of these, 8,000
hours are parents taking care of their
own children, and 2,000 hours are
spent on outside child care.
b) Workers spend 12,000 hours on 20,000
cleaning. Of these, 7,000 hours are
spent cleaning their own homes, 2,000
hours are spent cleaning other
people’s homes and 3,000 hours are
spent cleaning businesses.
c) The government hires 4,000 hours 40,000
of law enforcement personnel.

d) Domestic businesses spend $10,000 25,000 10,000

on imported asparagus. They sell the
asparagus to households for $25,000.

e) The government collects $50,000 in 10,000

taxes. Of this, $40,000 is spent on
subsidies programs and $10,000 is
used to pay tax collectors as salary.

f) Firms import $10,000 of copper. 5000 20,000 10,000

They use half to make electronics,
which they sell to the government for
$20,000, and the other half is stored
for next year.

g) Better technology reduces time NONE

spent cooking at home by 4,000 hours.

billions of
dollars
Consumption 4,900
Investment 1,300
Transfer payments 1,050
Government expenditures 1,200
Exports 1,050
Imports 950
Net foreign factor income 20
 8. Use the table above to calculate GDP.
a. 6,200.
b. 7,400.
c. 7,500.
d. 8,450.

9. Use the table above to calculate net exports.

a. -100.
b. 100.
c. 950.
d. 1050.

10. Use the table above to calculate GNP.

a. 6220
b. 8470
c. 7520
d. 7480

11. Use the following information to answer the question. There are three firms in an
economy: X, Y, and Z. Firm X buys $200 worth of goods from Y, and $300 worth of goods
from firm Z, and produces 250 units of output at $4 per unit. Firm Y buys $150 worth of
goods from firm X, and $250 worth of goods from firm Z, and produces 300 units of output
at $6 per unit. Firm Z buys $75 worth of goods from firm X, and $50 worth of goods from
firm Y, and produces 500 units at $2 per unit. Given this information, what is the
economy’s GDP? Hint: remember that part of each firm’s production is used by one of the
other firms as a production input (an intermediate product).
a. $1825.
b. $2700.
c. $2775.
d. $3800.

12. You are given the following data on nominal GDP and the real GDP for 2002 and
2003:
2002 2003
Nominal GDP $150 billion $151 billion
Real GDP (base year 1992) $148 billion $146 billion

Calculate the GDP deflator for 2002 and 2003 and also calculate the annual inflation rate
in the GDP deflator.

13. The economy of Pandora produces three goods: Apples, Boxes and Candles. The
accompanying table shows the output and prices for years 2006 and 2007. (Hint: GDP, in
its most basic form, is P x Q. You take the quantity of output and multiply by the price of
output.)
 Apples Boxes Candles
Year Price Quantity Price Quantity Price Quantity
2006 $100 1 $10 8 $5 4
2007 $110 1 $12 10 $4 5

i) Calculate the nominal GDP for:

ii) Compute the percentage of growth in nominal GDP from 2006 to 2007.

iii) Using 2006 as the base year, calculate the real GDP for 2007.

iv) What is the GDP deflator for 2007?

v) Compute the real rate of output growth from 2006 to 2007.