Q.

MCQS

1. Which of the following is NOT a component of Gross Domestic product?

A. Investment.

B. Consumption.

C. Tax

D. Government Expenditure

The correct option is C (Tax)

2. ………… is the market value of all final goods & services produced within a country in a
given period of time.

A. Inflation

B. Multiplier

C. Gross Domestic Product

D. Gross National Product

The correct option is C (GDP)

3. ………………... refers to the measure of the overall cost of the goods and services
bought by a typical consumer.

A. Producer price index

B. Nominal interest rate

C. Consumer price index

D. Inflation

The correct option is C (CPI)

 4. The below table include data regarding two goods that are produced in 2019 and 2020 in
Germany. Use this data to answer the below question:

The nominal GDP in year 2019 is……………

A. $102

B. $860

C. $1280

D. $960

The correct option is B ($ 860)

Work

Nominal GDP in year 2019 is

=10*50+12*30=860

5. Which of the following is not considered a commodity money?

A. Gold coin

B. Silver coin

C. US dollar

D. All the answers are wrong

The correct option is C (US dollar)

Q. 2

True and false

1. Nominal GDP is normally not corrected by the inflation rate. (True)

2. PPI (Producer price index) measures the cost of basket bought by firms. (True)
3. A correction for inflation is especially important when looking at data on interest rate.
(True)
4. Unpaid workers in a family business are normally considered as unemployed. (False)
 5. Frictional unemployment has a long-term nature. (False)
6. It is a must to have a double coincidence of wants between buyers and sellers to apply
barter. (True)
7. Commodity money refers to money without intrinsic value. (False)
8. Central bank is an institution that oversees the banking system and regulates the money
supply. (True)

Q. 3

1. Demand deposit  d are balances in bank accounts that depositors can access
on demand by writing a check.

2. Money supply c is the quantity of money available in the economy. It can

be measured by using Monetary Aggregates.

3. Central bank b The institution that oversees the banking system and
regulates the money supply is the

4. Gold a  is an example of “Commodity Money"

Q. 4

Nominal interest rate:

Nominal interest rate is the amount charged by the lender without including the inflation rate or
any compounding amount in the percentage implied.  Nominal interest rate in normally implied
during the period of recession by the central or federal banks to implicate a lower interest rate in
the economy and thereby encouraging the economy to borrow money from the banks in increase
the money supply in the economy to overcome the recessionary situation. In inflation the set a
higher nominal rate to avoid any borrowing in the economy.

The formula to calculate nominal interest rate is:

r=m×[(1+i)1/m/−1]
Where, 

r = Interest rate.

i = effective rate.

m = number of compounding period. 

Nominal interest rate creates a base for real interest rate and effective interest rate to manage the
economy efficiently.

Q. 5.1
Labor force participation signifies proportion of civil population that is either employed or
searching for new job vacancies.
Part 1

Computing labor force:

Labor force= No. of employed+No. of unemployed 

Labor force=48.8+6.7  

Labor force = 55.5
Hence, labor force is 55.5 million.

Part 2

Computing unemployment rate:

 Number of unemployed
Unemployment rate = × 100 
Labour force

6.7
Unemployment rate = ×100
55.5

Unemployment rate = 12.072

So, the unemployment rate is 12.072%.

Part 3

Computing Population:

Population = Labor force + Not in labor force 

Population = 55.5 + 15.6 

Population = 71.1

Thus, the population is 71.1 million.

Part 4

Computing labor force participation rate:

Labor force
Labor force participation rate = × 100
Population

55.5
= ×100
71.1
=78.059

Thus, labor force participation rate is 78.059%.

Q. 5.2

Money in most simple words defined as a medium of exchange. It has been divided into various
forms like M1, M2, M3 and M4. Where M1 is narrow money which include only circulation
Money, M4 is broad money or high powered money. All the forms of money and there
components has been mentioned here.

M1=Currency in circulation+Traveler's Check's +Checkable deposits +Demand Deposits

M1=$3,300,000+$1,800,000+$800,000+$1,300,000

M1=$7,200,000

M2=M+Savings Deposit 

M2=$7,200,000+$3,000,000

M2=$10,200,000

M3 = M1+Time Deposits+Small Time Deposits

M3=$7,200,000+$7,750,000+$2,400,000

M3=$17,350,000