LOVELY PROFESSIONAL UNIVERSITY

ASSIGNMENT 1
Name of the Student : Arpit Bajaj

Course Title : MACRO ECONOMICS

Course No : ECO 121

Class : B.com (Prof)

Term : 2ND

Section : S-1009

Batch : 2010 – 2013

Max. Marks : 15

Date of Alottment : 21/01/11

Date of Submission : 31/01/11

Date: Sig. of Faculty member

Remarks by HOD (Mandatory)

Sig. of HOD
with date
Remarks by HOS (Mandatory)

Sig. of HOS with date

Q1: If you woke up in the morning and found that nominal GDP had doubled overnight,
what statistic would you need to check before you began to celebrate?
Ans: Yes, ill definite check thoroughly before celebrating. When we talk about GDP at current
prices or nominal GDP it consists of two factors:
• Prices of the commodities.
• Production of goods and services.
Now since nominal GDP is doubling in overnight which is only possible in one case that prices
increase at a very high rate. The production of goods and services cannot be increased at such a
high level in overnight. And as the prices are increasing it is called as inflation which is very fatal
for an economy.

Q2: Per capita Income is just an average and is affected by extreme values. Therefore it
cannot be taken as an indicator of standard of living of people of the country. Give logic in
support of your answer.
Ans: The concept of Per Capita Income is very useful as it is the single most commonly used
measure of the Average income and the standard of living of the people of a nation. At the same
time it is not a very reliable measure because it is a simple arithmetic mean, hence the extreme
values dominate. Due to inequalities in the distribution of national income of any nation a major
portion of the income goes to the richer sections of the society and thus income received by the
majority may be lower than the Per Capita Income.

Q3: National income does not necessarily refer to income produced within the borders of a
country. In the context to this statement explain the difference between GNP and GDP?
Ans:
GDP- Market value of goods and services produced bt the residents in the country
Plus- Income earned locally by foreigners
Minus- Income received by the national residents living in abroad.
GNP- Market value of final goods and services (including both consumer and capital)
Plus- income earned by the national residents in foreign countries.
Now when we talk about Gross National Product, it means we are not only taking the money value
of goods and services produced in the domestic territory but also we have to take the income
coming from abroad to the people of India residing outside India.

Q4: For the purposes of assessing an economy’s growth performance which is the more
important statistic-Real GDP or Nominal GDP.
Ans: Real GDP measures changes in the physical output in an economy, between different time
periods by valuing all goods produced in the two periods at the same prices.
Real GDP is arrived at by dividing nominal GDP by the GDP deflator.
GDP deflator is the ratio of nominal GDP in a year to real GDP of that year.
So GDP at constant prices or real GDP shows the actual growth of economy as it is based on
constant prices.
Q5: There are many difficulties in measuring National income, yet no country can afford not
to measure National income. Discuss.
Ans: There are many difficulties in measuring national income. But National income is the most
necessary tool of measuring the growth and many other thing of the country. However there are
some difficulties given below:
• Non Monetized Transactions: There are numerous incidents of exchange of goods and
services, like services rendered out of love, courtesy or kindness, which have no monetary
payments as such. These services have an economic value but no money value.
• Unorganized sector.
• Multiple sources of earning.
• Categorization of goods and services.
• Inadequate data: Lack of adequate reliable data is a major hurdle in the measurement of
National Income.

Q6: Suppose in our country, everyone decides to take life a little easier and length of the
average work per week falls by 25%. How will it affect GDP? How will it affect economic
welfare? Support your answer by suitable examples.
Ans: As we all know GDP can only increase when the production of goods and services increases
in an economy of a country. Now only people are going to contribute to this increase of GDP. Now
when the working hours will be reduced it will indirectly lead to less increase in the GDP of the
country. And if the GDP is not increasing at a nice pace, then the economic welfare will suffer.

Q7:
Lakh Rs.
Corporation Taxes 250
Undistributed profits 460
Personal consumption expenditure 7500
Personal income tax 700
Personal saving 800
Interest on national debt 425
Net current transfer from abroad -20
NFIA -60
current transfer from govt 75
Income from domestic product accruing to 2500
govt.

From given information find+

a. NDP at factor cost= Income from domestic product accruing to govt.+ Personal
consumption expenditure
b. Personal disposable income
Q8: Prices were much higher in India in 2008 than in 2000. Does this fact mean that people
were economically better off in 2000? Why or Why not.
Ans: The above statement can be taken into 2 ways. When the prices were less but production is
more then it will lead to a better economy. Now as the prices are increasing as well as the
production of goods and services the economy will rise. It doesn’t matter that the prices were high
or less, we just have to take the amount of production increasing. So it does not matter that the
prices were higher in india in 2008 than in 2009. All wat matters is production of goods and
services in a year.

Q9: What is the difference between intermediate and final goods and services? In which of
these categories do capital goods, such as factories and machines, fall? Why is the
distinction between intermediate and final goods important for measuring GDP?
Ans: Intermediate consumption refers to value of non-factor inputs (all inputs other than factor
inputs of land, labour, capital and entrepreneurship). Primarily, it includes value of raw material
used in the process of production. If we ignore this term there can be a problem of double
counting. As we have already taken the money value of raw material into consideration so we cant
take the money value of final goods and services again. We have to subtract the value of raw
material or there will be double counting problem and the national income will be shown wrong.

Q10: State in case of each of the following items whether they are included in GNP, NNP
and personal income:
a. Depreciation: It is included in GNP.
b. Old age pensions: it will be included in both GNP as well as NNP.
c. Unemployment Allowance: It will also be included in GNP and NNP.
d. Social security payments: These will be included in personal income.
e. Excise revenue: It will be included in GNP and NNP.
f. State sales tax revenue: It will be included in GNP and NNP
g. Salary of the govt. officials: It will be treated as Govt. expenditure so will be included in
GNP and NNP.