1113722, 602 PM Macroeconomics Practice Questions. Macroeconomics Practice Questions Total points 13/31 @ National Income Accounting-Practice Questions Y 1.Assume the government changed welfare to workfare, that is, everyone r iving1/1 government transfer payments now had to work for the government and therefore received a salary, How would GDP be affected? © GDP would increase v © d)GDP would deci c)the change in GDP would depend on whether the salary is greater or less than the transfer © AGP would not change if the payment is the same in both cases Y 2. What is the difference between GDP and GNP? " © a) GNP does not account for depreciation (capital consumption allowances) © »b)GNP includes payments to domestically owned factors of production abroad © ©) GNP includes indirect taxes but GDP does not O 4) GNP does not include government transfer payments but GDP does hitpssdocs. google. comiformsalFAlpQLSddovFBS2XiOlaypbpsbWwPKTyBuKS4DELWGyIW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD_0... 117‘1/3122, 602 PM Macroeconomics Practice Questions Y 3. Which of the following transactions has no direct effect on this year's GDP? 1/1 a) you sell your holdings of Infosys stocks +b) an unemployed worker gets his unemployment benefits ©) you buy a two year old car from your neighbour @ooo 4) none of the above directly affects GDP v 4. Assume a German tourist buys a Mexican beer in a pub in Mumbai. How will 1/1 India’s GDP be affected? a) India’s GDP will be unaffected, since a foreigner buys a foreign product. 1b) India’s GDP will decrease since the beer has to be imported from Mexico ©) India’s GDP will increase by the value added at the Mumbai pub v O@O00 4) India’s GDP will inerease, but only by the sales tax assessed on the beer I= 1,300 - 200 - (-100) = 1,200. hitpssdocs. google. comifermsfalFAlpQLSddovFB62XiOlaypbpsbWwPKTyBuKS4DELWGyIW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD_0... 81171113722, 602 PM Macroeconomics Practice Questions X _13.3.How large is government spending (G)? n Feedback From ¥=C+1+G+#N. Y¥-C-1-NX G = 6,000 - 3,800 - 1,200 - (-100) = 1,100. Or YD = Y-TA+TR==> TA-TR=Y-YD = 6,000- 5,100 ==> TA-TR = 900 From BS = TA-TR- G ==> G = (TA- TR)- BS = 900 - (-200) = 100 X 14.Consider an economy that consists only of those who bake bread and those ~/1 who produce its ingredients. Suppose that this economy’s production is as, Follows: The baker produces 1.2 Million Loaves of bread, of which 1 million Loaves of bread is sold at $ 2 each to consumers. The remaining gets spoiled. The ingredient producers produce 1.2 million pounds of flour (sold at $1 per pound); and 100,000 pounds each of yeast, sugar and salt (all sold at $ | per pound). The flour, yeast, sugar and salt are sold only to bakers, who use them exclusively for the purpose of making bread. There are no inventories at the beginning or end of the year a, What is the value of output in this economy (i.e, nominal GDP?) Feedback a. Since nominal GDP is defined as the market value of all final goods and services currently produced in this country, we can only measure the value of the final product (bread), and therefore we get $2 million (since 1 million loaves are sold at $2 each). Spoiled good is not to be counted (can be considered as a part of production process). hitpssdocs. google. comiformsialFAlpQL SddovFBS2XiOlaypbpsbWwPKTyBuKS4DELWaytW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD 0... 101171113722, 602 PM hitpsdoce. google. comiformsda/FAlpQLSddovF B62XiAla.ypopsoVNwPK7yBuKS4DELIWayt_Afltwiviewscore viewscore=AEDZAGCLPAXD_0. Macroeconomics Practice Questions X_14.b. How much value is added to the flour, Yeast, sugar and salt when the bakers ~-/1 turn them into bread? Feedback An alternative way of measuring GDP is to calculate all the value added at each step of production. The total value of the ingredients (intermediate consumption) used by the bakeries can be calculated as: 1,200,000 pounds of flour ($1 per pound) = 1,200,000 100,000 pounds of yeast ($1 per pound) = 100,000 100,000 pounds of sugar ($1 per pound) = 100,000 100,000 pounds of salt ($1 per pound) = 100,000 ——___= 1,500,000 Since $2,000,000 worth of bread is sold, the total value added at the bakeries is $500,000. (in the answer we assumed that all ingredients are fully utilized. What if there is an inventory of raw materials and final material.) nar1113722, 602 PM Macroeconomics Practice Questions X_ 15.Apple, oranges, and computers are the only items being produced in an n economy, All these items are for the household’s final consumption expenditure only. This is a closed economy with no intermediate consumption. Following are the price and quantity details of the production in the economy, which is also equivalent to consumption basket of the economy as well: [Oranges [Computers a la. P Feedback © https://docs.google.com/... X16. Assume last year's real GDP was $7,000 billion, this year's nominal GDP is ~-/1 $8,820 billion, and the GDP-deflator for this year is 120, What was the growth rate of real GDP? Feedback RGDP(1) = [NGDP(1)/GDP-deflator]*100 = [8,820/120}*100 = 7,350 Since RGDP(0) = 7,000 it follows that the growth rate of RGDP is y= [7,350 - 7,000/7,000 = 0.05 = 5%. hitpssdocs. google. comiformslalFAlpQLSddovFBS2XiOlaypbpsbWwPKTyBuKS4DELWGyIW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD_0... 12/171113722, 602 PM hitpsdoce. google. comiformsda/FAlpQLSddovF B62XiAla.ypopsoVNwPK7yBuKS4DELIWayt_Afltwiviewscore viewscore=AEDZAGCLPAXD_0. Macroeconomics Practice Questions X__17.Assume that both nominal and real GDP in 2000 was $7,000 billion (2000 is --/1 the base year, so nominal and real GDP will be exactly same: think of this). Nominal GDP in 2004 was $8,316 billion, and the GDP-deflator has increased from 100 to 110 between 2000 and 2004. What is the average annual growth rate ofreal GDP from 2000 to 2004? Do you think the welfare of all people in the country has increased during that time? Why or why not? Feedback RGDP = (NGDP/deflator)*100 = (8,316/110)*100 = 7,560 Growth rate of GDP = (7,560 ~ 7,000)/7,000 = 560/7,000 = 0.08 = 8% Therefore real GDP hhas grown 8% in four years, or at an average annual growth rate of 2%. if estimated precisely it would be 1.924% An increase in a country's GOP is not a good measure of an increase in the economic welfare of its people. For example, nominal GDP can change solely due to inflation, and real GDP has to grow faster than the population for real income per capita, and thus living standards, to increase. But real GDP per capita still does not take into account changes in the distribution of income, changes in environmental quality, or changes in leisure, all of which influence peoples’ economic welfare. However, keeping all other things constant, the rise in per capita GDP is likely to improve the welfare. san71113722, 602 PM hitpsdoce. google. comiformsda/FAlpQLSddovF B62XiAla.ypopsoVNwPK7yBuKS4DELIWayt_Afltwiviewscore viewscore=AEDZAGCLPAXD_0. x Macroeconomics Practice Questions 18,Assume a Hyundai dealership in USA bought 30 Hyundai cars from Korea at “/1 a cost of $15,000 per car in September of 2006. By December 31, 2006 they had sold 20 of the Hyundai cars at a price of $18,000 each. The remaining Hyundai cars were sold in January of 2007 at a price of $16,000 each. How exactly does this affect the GDP in the USA in 2006 and 2007, and which categories of GDP (C, I, G, or NX) are affected? Feedback 2006: ANX = - (30*15,000) = - 450,000 AC = + (20*78,000) = + 360,000 Al= + (10*15,000) = + 150,000 ‘AGDP = + 60,000 Check: The value added in 2006 is 20*3,000 = 60,000. 2007: AC = + (10*16,000) = + 160,000 l= (10*15,000) =- 150,000 AGDP = + 10,000 Check: The value added in 2007 is 10*1,000 = 10,000, san1113722, 602 PM Macroeconomics Practice Questions XX 19.Calculate the values for government purchases (G), private domestic saving ~/1 (SH), and private domestic investment (1) from the following information (all variables are in billions of dollars). national income Y = 5,200 budget deficit BuD = 150 disposable income YD = 4,400 trade deficit TD = 110 consumption C = 4,100 Feedback 300 - From ¥=C+1+G+NX = 5200- 4,100 - 260+ 110 = 950 Or BuD = 6 + (TR- TA) 150 = 6 + 600 G=950 Y 20.1f the government succeeds in tuning a budget deficit into a budget surplus, 1/1 which of the following can happen? a) private domestic saving can decrease b) private domestic investment can increase ©) net exports can increase @ooo0o 4) all of the above v hitpssdocs. google. comiformsalFAlpQLSddovFBS2XiOlaypbpsbWWwPKTyBuKS4DELWGytW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD 0... 18/171113722, 602 PM Macroeconomics Practice Questions Y 21. Ifnominal GDP is $10,406 billion and the GDP-deflator is 110, then real GDP 1/1 is about a) $11,450 billion +b) $10,516 billion ¢) $10,296 billion @ooo0o 4d) $9,460 billion v KM 22. The GDP-deflator and the CPI differ from each other since w a) the GDP-deflator does not include services but the CPI does ) the GDP-deflator includes imported goods but the CPI doesn't ) the CPI measures a fixed market basket but the GDP-deflator doesn't v O@O00 d) the CPI includes more goods than the GDP-deflator does K 23. Which of the following is NOT true? Ww a) the GDP-deflator is a lagging indicator b) the WPI measures the cost of a given market basket of goods ©) biases in the CPI can affect the Social Security system @ooo 4) the CPI does not include imported goods v hitpssdocs. google. comiformsialFAlpQLSddovFB62XiOlaypbpsbWwPKTyBuKS4DELWGytW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD_0... 16/17‘1/3122, 602 PM Macroeconomics Practice Questions Y 24.Which of the following national income accounting identities is WRONG? 1/1 O »s- @ db) YD=yY-TA-1R v G+TR-TA)+NX O ©oBS=TA-TR-G O @1+G+NX=S+TA-TR This form was created inside of Indian Institute of Management Indore Google Forms hitpssdocs. google. comiformsa/FAlpQL SddovFBS2XiOlaypbpsbWNwPKTyBuKS4DELWaytW_AlliQuiviowscore?viowscore=AEOZAGCLPAXD_0... 17/17