Macroeconomics Assignment 2

1. GDP= TNI + sales taxes + Depreciation + Net foreign factors income

= TNI + ST + D + NFFI with in income approach
GDP=C+G+I+NX
= consumption total government expenditure + investment +NX(
NI=NNP- indirect business tax
NI= GNP-Depression – indirect tax
NI= NDP-indirect tax + net foreign factor income
GNP= GDP + Net income inflow income from overseas – Net income out flow to foreign
countries
GDP= consumption + investment + government expenditure + exports – imports
NNP=Market value of finished goods + market value of finished services – Depreciation
Alternatively
NNP=Gross National product – Depreciation
2. There are many difference between GDP and GNP. The main difference between GDP and
GNP is that GDP refer to the market value of goods or services produced in a country
excluding foreign production in a given period of time, normally a year on the other hand
GNP stands for the same meaning as a GDP but GNP includes the elements of foreign income
by domestic citizens wherever they are living as well.
3. Rule of computing GDP/GNP
I. Combine the value of various goods and services
II. Treatment of used goods
III. The treatment of inventories
IV. Intermediate goods and value added
V. Treatment of housing services and other imputations
4. Disadvantage of GDP
I. Natural Disaster:- the GDP does not take into consideration natural disaster. The GDP
will show the economic benefits of the help given to the victims but not show the
impact to the environment.
II. Quality of goods:- Although the GDP looks at all the products and services, it does
not take the quality of goods into consideration.
III. Debt:- because all the debt money need to be repaid, this money that the country
owes is not represented in the GDP. The longer its debit continues to grow the further
the GDP continues to grow the further the GDP will be from the country’s actual
economic status.
IV. Volunteer Work:- the GDP is like a snapshot of where a country’s economic status is.
Volunteers are not taken into consideration in the GDP, but as jobs transform from
volunteer to paid positions, the GDP will show economic benefits.
5.
I. Income approach
This formula takes the total income generated by the goods and produced services
produced
II. Expenditure approach
 The most commonly used formula which is based on the money spent by various
groups that participate in the economy.
6. There are a few key difference
I. The first is that GDP deflator includes only domestic good and not anything that is
imported the CPL includes anything bought by consumers including foreign goods
II. The second difference is that the GDP deflator is a measure of the prices of all goods
and services while the CPL is a measure of only goods brought by consumers.
7. Business cycles are a type of fluctuation found in the aggregate economic activity of nations a
cycle consists of expansions occurring at about the same time in many economic activities.
 Four phase business cycle
I. Prosperity
II. Recovery
III. Recession
IV. Depression
4 p.b. cycle using graph recession
peak peak
prosperity (expansion)
depression

trough
recovery

8. Philips curve is an economic concept developed by A.W

The Philips curve suggests there is an inverse relationship between inflation and un
employment
Inflation rate

Philips curve

Unemployment rate %
Orun’s law :- is the relation between output, unemployment and inflation.
It shows relationship between real growth and changes in the unemployment
rate
 Growth rate of real GDP(percent)

Change in unemployment rate

9.
A. Nominal GDP
2000= (7*400) + (8*225) + (10*175)=6350
2001 = (8*500) + (7*250) + (12*275) = 9050
2002=(9*950) + (6*275) + (15*275) = 14325
Real GDP
2000= (7*400) + (8*225) + (10*175)=6350
2001 = (7*500) + (8*250) + (10*275) = 9050
2002=(9*950) + (8*275) + (10*275) = 12425
B. RGP= 2002 = (7*950) + (8*275) + (10*275)=11600
C. GDP deflator of = NDP *100
RGD
2000 = 6350 *100 = 100
6350
2001 = 9050 *100 = 109.6
8250
2002 = 14325 *100 = 115.29
12425
D. Y2=y1/y1*100
109.6-100/100*100=9.6% growth rate between 2000 and 2001
Y3-y2/y2*100
=115.29-109.6/109.6*100=15.29% between 2001 and 2002
Inflation between 2001 and 2002
=115.29 – 109.6=5.69%