ASSIGNMENT NO.

2: Principles of Macroeconomics (BS-ECO 2K19-A)

STUDENT NAME:________________________REG.NO._________________TOTAL MARKS: 30

INSTRUCTIONS: ANSWER THE FOUR (4) QUESTIONS ON THE FOLLOWING SHEETS:

1. The Assignment is an Individual Assignment.

2. The Assignment has to be handwritten.

3. No Assignment will be accepted after the Deadline has passed.

4. DEADLINE: November 26, 2019 TUESDAY (To be collected in the beginning of Lecture)

Q-1 To the right is a list of domestic output and national income figures for a certain
year. All figures are in billions. The questions that follow ask you to determine the major
national income measures by both the expenditures and the income approaches. The
results you obtain with the different methods should be the same.

Personal consumption expenditures $245

Net foreign factor income 4
Transfer payments 12
Rents 14
Statistical discrepancy 8
Consumption of fixed capital (depreciation) 27
Social Security contributions 20
Interest 13
Proprietors’ income 33
Net exports 11
Dividends 16
Compensation of employees 223
Taxes on production and imports 18
Undistributed corporate profits 21
Personal taxes 26
Corporate income taxes 19
Corporate profits 56
Government purchases 72
Net private domestic investment 33
Personal saving 20

Q. Using the above data, determine GDP by both the expenditures and the income
approaches. (05)

1
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Ans-1

2
Q-2 a) Why do economists include only final goods and services in measuring GDP for a
particular year? (02)
b) Why don’t they include the value of the stocks and bonds bought and sold? (02)
c) Why don’t they include the value of the used furniture bought and sold? (01)
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Ans-2 a)

b)

c)

3
Q-3 Assume a simple economy produces only two goods, corn and wheat. In the first
year 100 bushels of corn are produced, and sold for $3 a bushel. Also in the first year, 50
bushels of wheat are produced, and sold for $5 a bushel. In the second year, 110 bushels of
corn are produced, and sold for $3.50, while 55 bushels of wheat are produced, and sold for
$5.50.
a. Calculate the nominal GDP in year 1 and 2.
b. Calculate the growth rate of nominal GDP between years 1 and 2.
c. Using the constant-dollar approach:, calculate the real GDP in year 1 and 2. Take year 1 as
the base year.
d. Calculate the growth in real GDP between years 1 and 2 (with year 1 as the base year).
e. What is the growth rate of prices (inflation rate) from the first to the second year?
(10)
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Ans-3

4
Q-4 Determine which of the following would be counted in the spending approach of
GDP, and which would not be counted. Identify the category under which it would
fall (C, I, G, NX, or not counted). (Put your answers/categories inside Brackets). First
part is answered for the students.

a. The housecleaning services of a stay-at-home mom. (Example): (Not Counted NC)

b. The housecleaning services of the “Merry Maids” company. ( )
c. The babysitting services of a babysitter whose earnings are kept “off the books” and
not reported to the tax authorities. ( )
d. A brand new house built and sold this year. ( )
e. A new car made by Ford in the U.S., and sold to a household in the U.S. ( )
f. A new car made by Ford in the U.S, and sold in Mexico. ( )
g. A 2002 used Ford car. ( )
h. 3 shares of Ford Motor Company stock ( )
i. A new car made by Ford in the U.S. but not sold by the end of the year. ( )
j. A new car added to the fleet of taxis of Mr. Taxi Company. ( )
k. A new bridge to accommodate all the new and used cars and taxis on the road.( )
(10)

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