1. What is difference between GDP and GNP?

GDP:
 Total Economic activity of all the people living within the country
 Does not include the economic activity of the people belonging to the
country but living abroad
 Measures domestic production only
 Shows about the economy of the country
 The scale of operation is local
GNP:
 Total Economic activity of the people belonging to a country no matter
where they live
 Does not include the economic activity of the non-citizens living in the
country
 Measures national production only
 Shows the contribution of the residents of the country to its economy
 Measured on international scale

2. Suppose growth rate of mon0ey supply is 15% and output is growing at 8%.
What would be the nominal interest rate if real interest rate was 4%? Assume
constant velocity for this question?
Given:
%ΔM = 15%
%ΔY = 8%
%ΔV = 0
Real interest rate = 4%
Solution:
%ΔM + %ΔV = %ΔY + %ΔP
15% = 8% + %ΔP
7% = %ΔP
%ΔP = nominal interest rate – real interest rate
7% = nominal interest rate – 4%
Nominal interest rate = 3%

3. Suppose 2010 is the base year. What is the GDP deflator for 2010? (5) 
ANSWER:
Taking base year as 2010 the GDP deflator will be 100. This will be because for
the base year the Nominal and Real GDP remains same and they will cancel out
each hence by using formula for GDP deflator
GDP deflator = (Nominal GDP/ Real GDP)*100
As Real GDP = Nominal GDP
GDP deflator= (Real GDP/ Real GDP)*100
= 100
4. Suppose in an economy there are 1 million employed people, 2 million
unemployed people and a total adult population of 6 million people. Answer the
following:  
a) What is the labor force? (2) 
b) What is the unemployment rate? (2) 
c) What is the labor force participation rate? (1) 

ANSWER:

No of employed people = E = 1 million

Total adult population= T= 6 million
No of unemployed people=U= 2 million

a) Labor force is sum of all employed and unemployed people.

L = E+U
=1+2
 = 3 million

b) Unemployment rate= (No of employed people/ Total population)*100

= (2/3)*100
= 66.66%

c) Labor force participation rate = (Labor force/total population)*100

= (3/6) *100
= 50%