Indian Institute of Technology Kanpur

Department of Economic Sciences

ECO101A Introduction to Economics (2019-20-II/Even)

Instructor: Prof. Praveen Kulshreshtha

PRACTICE PROBLEM SET (PPS) # 2

Note:
 There are 4 questions in this problem set, to be discussed in the tutorial class.
 As far as possible, complete answers should be given.
 ‘Quality of reasoning provided’ is very important.
 Make all necessary mathematical derivations to support your reasoning.
 Draw graphs, if necessary.
 Show all of your steps and work (including calculations) clearly.

1. Which of the following activities/transactions are included in: (i) GNI/GNP, (ii) GDP,
(iii) NNI/NNP and (iv) NDP. Provide reasoning in each case.
(a) A mother’s teaching of her son.
(b) A maid servant’s work in her employer’s house.
(c) A vegetable vendor’s profit.
(d) Direct sale of an old car by Mohan to Ramesh.
(e) Depreciation of machines and equipment due to wear, tear and obsolescence.
(f) An excise duty.
(g) A subsidy received by producers of a product.
(h) Profits of a multinational company (MNC).
(i) Pension payments to the retired employees.
(j) Money received by cricketer Sreesanth from a bookie.
(k) Pratibha’s receipt of Rs. 10,000 from the selling of her holdings of Infosys shares.
(l) Earnings of a share broker.
(m) An Ipod received by a child as a birthday gift from his/her parents.

2. Define and discuss the concepts of Household Income, i.e. (i) Private Income (Pvt. I),
(ii) Personal Income (PI) and (iii) Personal Disposable Income, or Disposable Income
(PDI, or DI).

3. Suppose the Swadesh economy produces only three final commodities, namely A, B
and C. Its production and price data for three years (base year = 2005) are as follows:

Year PA QA PB QB PC QC
2005 10 100 100 50 30 200
2010 15 120 80 70 40 250
2011 20 130 90 60 50 300

(a) Compute the GDP deflators for 2010 and 2011, as well as the rate of inflation for
2011.
(b) Compute the Laspeyre’s Indices for 2010 and 2011, as well as the rate of inflation
for 2011.
(c) How do the rates of inflation obtained in parts (b) and (c) above compare? Discuss.
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4. Which price indices in India contain the prices of the following?
(a) Commodities.
(b) Services.
(c) Intermediate goods and raw materials.
(d) Imported goods.
(e) New products.

ENJOY!