Answers based on table 6.4.

a)GDP=C+I+G+NX
$400,000,000,000+$60,000,000,000+$120,000,000,000+$100,000,000,000-
$120,000,000,000=$560,000,000,000
Therefore, the value of GDP is $560,000,000,000.
b) Net Export= Export-Import  
$100,000,000,000-$120,000,000,000=-$20,000,000,000
Therefore,the value of the net export is a negative $20,000,000,000.
c) NNP is calculated as GNP-depreciation
So,
GNP=GDP+NFIA
NFIA=Factor income received from the rest of the world - factor income paid to
the rest of the world
=$10,000,000,000-$8,000,000,000=$200000000
So,GNP= $560,000,000,000+$20000000000=$580,000,000,000
Therefore, NNP=GNP-depreciation
$580,000,000,000-$60,000,000,000=$520,000,000,000
Therefore, the value of NNP is $520,000,000,000.

1. A similar example of trade between countries can be given. Different counties can
specialize and trade,making both better off. For example, suppose it takes Chinese
workers to make clothes than Nepalese workers and Nepales workers can make alcohol
products more efficiently than Chinese workers. Then Nepal and China can both benefit
if the Chinese workers produce all the clothes and the Nepalese workers produce all the
alcohol based products and they exchange clothes for some alcohol-based products.
2. The cost of skiing instead of working a part time job is the cost of lost wages and the
costs associated with skiing. The cost of skiing instead of going to the library to study the
cost associated with the loss of intellectual knowledge that could have been obtained by
going to the library. Although the cost of going to the library cannot be measured in
monetary terms but can be related to other costs such as the intellectual costs. As in the
case, the cost doesn’t always have to be monetary.

3)a)
Year Cauliflower Broccoli Carrots

2010 $2 $1.50 $0.10

2011 $3 $1.50 $0.20

3)b) If 2010 is the base year, the market basket used to compute the CPI is 100 heads of
cauliflower, 50 bunches of
broccoli, and 500 carrots. We must now calculate the cost of the market basket in each year:
2010: (100 × $2) + (50 × $1.50) + (500 × $.10) = $325
2011: (100 × $3) + (50 × $1.50) + (500 × $.20) = $475
Then, using 2010 as the base year, we can compute the CPI in each year:
2010: $325/$325 × 100 = 100
2011: $475/$325 × 100 = 146
3)c) Using the CPI to calculate the inflation  rate for 2011:(146-100)/100 * 100% = 46%

4)a) The purchase of a new refrigerator will lead to an increase in the GDP consumption
component. Thus the GDP will increase by the amount of refrigerators purchased.
4)b) The buying of a new house may be considered as investment as it has future prospects too
and it is a new addition to the value of the economy, thus will be added.
4)c) Mustang being sold from inventory will be included in GDP. So, it will be a part of
investment in GDP.
4)d) Buying pizza is a part of the consumption component of the GDP. Hence, it is included in
the GDP.
4)e) Paving of highways by government is a government expenditure, thus it is included in the
GDP heading “G”.
4)f) Buying of french wine will be considered as imports and thus will reduce the GDP by the
amount of imports.
4)g) Expansion of factories is an investment by Honda, thus it is included in GDP.
4)h) Purchasing a game from Japanese company in Japan will be considered as an import and
thus will reduce the GDP by the amount of the import.
4)i) The money sent by my brother will be used for my personal purposes hence resulting in an
increase in personal consumption expenditure. So, it is included in the GDP.
4)k) Visiting there requires some amount of my personal money to be spent, hence it results in
an increase in personal consumption expenditure, hence included in the GDP.