MACROECONOMICS (ECO403)

ASSIGNMENT # 1

Part A:
To calculate the nominal interest rate, we can use the formula:
Nominal Interest Rate = Real Interest Rate + Inflation Rate
Given:
Real Interest Rate = 5%
Inflation Rate = 2%
Nominal Interest Rate = 5% + 2% = 7%
Therefore, the nominal interest rate in the economy of Pakistan in the year 2021 is 7%.

Part B:
To calculate the GDP deflator, we can use the formula:
GDP Deflator = (Nominal GDP / Real GDP) * 100

Years Nominal GDP Real GDP GDP Deflator

2019 Rs 25,000 Rs 21,000 119.05
2020 Rs 41,000 Rs 39,000 105.13

Therefore, the GDP Deflator for the given years are as follows:
Year 2019: 119.05
Year 2020: 105.13

Part C:
To calculate national saving, we can use the formula:
National Saving = GDP - Consumption - Government Expenditures
 Items Year-2011 Year-2010
Consumption (C) 10,000 70,000
Government Expenditures
(G) 30,000 20,000
Gross Domestic Product
(GDP) 70,000 50,000
National Saving 30,000 -40,000

Part D:
To calculate the money supply, we can use the formula:
Money Supply = Velocity * Price * Output
Output Velocity
Years (Y) Price (P) (V) Money Supply
2019 3500 10 7 245,000
2020 7000 12 6 504,000