KSHITIJ EDUCATION

Specialized Institute for Mathematics, Computer Science & Commerce

9810860991, 9910061580,47008740

SPECIAL ASSIGNMENT
1. Gross domestic product in the economy is measured by the
A) total number of goods and services produced in the economy.
B) monetary value of all final goods and services produced in the economy.
C) total number of goods produced in the economy.
D) total number of services produced in the economy.
2. In calculating gross domestic product, the Bureau of Economic Analysis uses the
sum of the market value of final goods and services produced. This means that the
BEA
A) simply counts the total number of goods produced in the market place and then
adds them up.
B) values goods at their market prices, multiplies them by the quantity produced,
and then adds them up.
C) simply counts the total number of goods and services produced in the
marketplace and then adds them up.
D) values goods and services at their market prices, multiplies them by the quantity
produced, and then adds them up.
3. Which of the following goods is directly counted in GDP?
A) the vegetables that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches
4. Suppose, in 2012, you purchased a house built in 2003. Which of the following
would be included in the gross domestic product for 2012?
A) the value of the house in 2012
B) the value of the house in 2003
C) the value of the house in 2012 minus depreciation
D) the value of the services of the real estate agent
5. A car that is produced in 2012 is not sold until 2013. According to the definition
of GDP, in
which year's GDP should it be counted?
A) 2012
B) 2013

Special Assignment Economics

Page 1

KSHITIJ EDUCATION
Specialized Institute for Mathematics, Computer Science & Commerce
9810860991, 9910061580,47008740

C) Half of the sales price will count as part of 2012 GDP and half will count as part
of 2013 GDP.
D) The production cost will count as part of 2012 GDP while the sales price will
count as part of 2013 GDP.
6. Which of the following are not considered part of government purchases?
A) welfare benefits
B) teacher's salaries paid by a local government
C) a tank purchased by the cetral government
D) a bridge purchased by the state government
7. Investment, as defined by economists, would include the purchase of a
A) corporate bond.
B) government bond.
C) share of stock in ExxonMobil.
D) computer by an accounting firm.
8. Investment, as defined by economists, would not include which of the
following? Maruti
A) buys a new robotic machine (from a plant in Delhi) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the India.
D) buys government bonds.
9. The purchase of a new house is included in
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.
10. To calculate GDP by the expenditure method, one must add
A) wages, rents, interest, and profits.
B) consumption spending, investment spending, government spending and net
exports.
C) consumption spending, investment spending, government spending and exports.
D) labor, natural resources, entrepreneurship, and capital.
11. Which component of GDP can have a negative value?
A) consumption
B) investment
C) government spending
D) net exports

Special Assignment Economics

Page 2

KSHITIJ EDUCATION
Specialized Institute for Mathematics, Computer Science & Commerce
9810860991, 9910061580,47008740

12 Assume that between 1995 and 2005, nominal GDP increased from Rs. 7
trillion to Rs. 12 trillion and that the price index rose from 100 to 133.3.
Which of the following expresses GDP for 2005 in terms of 1995 prices?
A) Rs. 7.5 trillion
B)
Rs. 9.0 trillion
C) Rs. 9.5 trillion
D) Rs. 16.0 trillion
13. Gross domestic product understates the total production of final goods and
services because of the omission of
A) intermediate goods.
B) externality.
C) household production.
D) both B and C.
14. A sharp increase in the divorce rate increases the number of lawyers hired to
determine divorce settlements. This will
A) increase GDP and increase well-being in the economy.
B) increase GDP but decrease well-being in the economy.
C) decrease GDP but increase well-being in the economy.
D) decrease GDP and decrease well-being in the economy.
15. Increases in real GDP would understate the well-being of a country over time
if, over that time period, the
A) crime rate increased.
B) percentage of people addicted to illegal drugs increased.
C) amount of pollution decreased.
D) average hours worked per week decreased.
16. If GDP calculations included measurements of pollution and environmental
damage, GDP values would most likely be
A) greater than their values without these measurements.
B) less than their values without these measurements.
C) unchanged from their values without these measurements.
D) meaningless, since GDP values without these measurements would no longer be
of value.
17. Nominal GDP is GDP in a given year
A) adjusted for inflation.
B) adjusted for anticipated inflation.
C) valued in the prices of that year.
D) valued in the prices of the base year.
Special Assignment Economics

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KSHITIJ EDUCATION
Specialized Institute for Mathematics, Computer Science & Commerce
9810860991, 9910061580,47008740

18. Real GDP is GDP in a given year

A) adjusted only for anticipated inflation.
B) adjusted only for unanticipated inflation.
C) valued in the prices of that year.
D) valued in the prices of the base year.
Year

Guns

2005
2011

80
90

Produced price Butter

of guns
Rs.5
40
Rs.6
60

Produced price
of Butter
Rs.4
Rs.10

Consider the following data for Tyrovia, a country that produces only two
products: guns and butter.
19. Refer to the above table. Real GDP for Tyrovia for 2011 using 2005 as the base
year equals
A) Rs.1,140.
B) Rs.880.
C) Rs.690.
D) Rs.560.
20. Refer to the above table. Nominal GDP for Tyrovia in 2011 equals
A) Rs.1,140.
B) Rs.880.
C) Rs.690.
D) Rs.560.
21. If the quantity of goods and services produced in the economy decreases,
A) it may be possible for real GDP to increase.
B) real GDP would certainly increase.
C) it may be possible for nominal GDP to increase.
D) nominal GDP would certainly increase.
22. Which of the following could cause nominal GDP to decrease, but real GDP to
increase?
A) The price level rises and the quantity of final goods and services produced rises.
B) The price level falls and the quantity of final goods and services produced rises.
C) The price level rises and the quantity of final goods and services produced falls.
D) The price level falls and the quantity of final goods and services produced falls.
Special Assignment Economics

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KSHITIJ EDUCATION
Specialized Institute for Mathematics, Computer Science & Commerce
9810860991, 9910061580,47008740

23. Which of the following could cause nominal GDP to increase, but real GDP to
decrease?
A) The price level rises and the quantity of final goods and services produced rises.
B) The price level rises and the quantity of final goods and services produced falls.
C) The price level falls and the quantity of final goods and services produced rises.
D) The price level falls and the quantity of final goods and services produced falls.
24. Real GDP will increase
A) only if the price level rises.
B) only if the price level falls.
C) only if the quantity of final goods and services produced rises.
D) if either the price level rises or the quantity of final goods and services
produced rises.
25. The GDP deflator is the
A) difference between real GDP and nominal GDP multiplied by 100.
B) difference between nominal GDP and real GDP multiplied by 100.
C) ratio of real GDP to nominal GDP multiplied by 100.
D) ratio of nominal GDP to real GDP multiplied by 100.
26. The GDP deflator is a measure of the
A) total production of the economy adjusted for inflation.
B) total production of the economy unadjusted for inflation.
C) average level of prices of final goods and services in the economy.
D) average level of prices of intermediate goods and services in the economy.
27. The GDP deflator in year 2 is 105, using year 1 as the base year. This means
that, on
average, the cost of goods and services is
A) 5% higher in year 2 than in year 1.
B) 105% higher in year 2 than in year 1.
C) 5% higher in year 1 than in year 2.
D) 105% higher in year 1 than in year 2.
28.If Real GDP = Rs. 200 billion and the price index= 200, Nominal GDP is
a.
Rs. 4 billion
b. Rs. 400 billion
a. Rs. 200 billion
d.Rs. 2 billion

Special Assignment Economics

Page 5

KSHITIJ EDUCATION
Specialized Institute for Mathematics, Computer Science & Commerce
9810860991, 9910061580,47008740

29.If your nominal income rises 4 percent and your real income falls 1 percent, by
how much did the price level change?
a.5% decrease
b. % increase c. 3% increase
d.3% decrease
e.5% increase
30. The GDP deflator is designed to adjust nominal GDP
a. for changes in the unemployment rate.
b. for changes in prices.
c. for problems that arise because of externalities.
d. for changes in interest rates.
Use the table below to answer the following questions.
Nominal GDP
Year(billions) GDP deflator
2000 600
100.0
2005 1,000
133.3
31. Between 2000 and 2005, the general level of prices increased by
approximately
a. 16.7 percent.
b.
33.3 percent.
c. 66.7 percent.
d.
133.3 percent.
32.
a.

Measured in terms of 2000 prices, real GDP in 2005 was

600.
b.
750.
c.
900 d.
1,333.

Key
1. B
2. D
3. C
4. D
5. A

6. A
7. D
8. D
9. B
10. B

11. D
13. D
12. B
14. B
15. C

Special Assignment Economics

16. B
17. C
18. D
19. C
20. A

Page 6

21. C
22. B
23. B
24. C
25. D

26. C
27. A
28. B
29. E
30. B

31.B
32.B

(National Income Accounting)

Growth rate of GDP per person = Growth rate of Real GDP Growth rate of
population
%Change in Real GDP per capita = %Change in Real GDP - %Change in
Population
Q. During a given year nominal national income increased by 14 percent while the
real national income increased by only 6 percent. Population increased by 2
percent. What has caused the difference between nominal income and real income?
What is real per capita income?Short answer type questions (2 marks)
Ans Change in nominal income over a year is on account of (a) change in quantity
of goods and services and (b) change in price level. However, change in real
income refers to change in quantity of goods and services only. Therefore, a
change of 14 percent in nominal income over the year is partly on account of 6
percent change in quantity of goods and services and the remaining 8 percent must
be on account of rise in general price level.
Real per capita income rise = Rise in real national income - Rise in population
= 6-2 = 4 percent
1. What is the difference between intermediate goods & final goods and services?
2. Why are the imports subtracted when GDP is calculated in expenditure
approach?
3. If you woke up in the morning & found that nominal GDP has doubled
overnight, what statistic would you need to check before you began to
celebrate: Why?
4. What does the consumer price index measure?
5. What are the principal difference between government purchases of goods &
service and transfer payments?
6. Why are interest payments by the government considered part of personal
income but not part of national income?
7. What do you mean by inventory investment?
8. Why the national income is measured at factor prices and not at market prices?
9. Define GDP deflator as a measure of inflation.
10.Explain why we cannot calculate the national product simply by adding up the
production of all firms.
11.Why do the economists use real GDP rather than nominal GDP to gauge
economic well-being?

12.Why do you think households purchase of new housing is included in the

investment components of GDP rather than the consumption component?
Long answer type questions:
1. Discuss the three approaches of measuring national income? Show that these
three approaches give identical result.(Explain through circular flow of
income)
2. Discuss critically GDP as a measure of economic welfare.
3. Identify which of the following purchases is counted as a part of NI:
a) Tata motors purchases tire from Good year to equip new Indica.
b) Tata motors purchases tires from Good year to replace worn tires on
executives company cars.
c) An individual purchases 50 shares of Microsoft.
d) You purchased a laptop from USA.
e) Indian Statistical Institute gives Scholarship to the students.
f) Employee contributes to retirement plan.
g) Maruti sells Zen from its inventory.
4. How each of the following events is likely to affect GDP?
a) Environmental laws prohibit the firms from emitting pollution
b) Strikes by trade unions.
c) Discovery of new seed increases farm harvest.
Numerical Problems:
1. A farmer grows a bushel of wheat & sells it to a miller for Rs. 1.00. The miller
turns the wheat into flour & then sells the flour to a baker for Rs.3.00. The baker
uses the flour to make bread & sells the bread to households for RS. 6.00. The
households eat the bread. What is the value added in each stages of production?
What is GDP?
2. Consider an economy that consists only of those who bake bread and those who
produce its ingredients. Suppose that this economys production is as follows:
1 million loaves of bread (sold at Rs. 2.00 each); 1.2 million pounds of flour (sold
at Rs. 1.00 per pound) and 100,000 pounds each of yeast, sugar & salt (all sold at
Rs. 1.00 per pound).
The flour yeast, sugar & salt are sold only to bakers, who use them exclusively for
the purpose of making bread.
a) Calculate the total income of the economy.
b) How much value is added to the flour, yeast, sugar & salt when the bakers turn
into bread?
3. Consider an economy that produces only three types of fruit: apples, oranges &
bananas. In the base year the production & price data are as follows:
Fruit
Quantity
Price

Apples
3000 Unit
Rs. 2 per unit
Bananas
6000 Unit
Rs. 3 per unit
Oranges
8000 Unit
Rs. 4 per unit
In the current year the production & price data are as follows:
Fruit
Quantity
Price
Apples
4000 Unit
Rs. 3 per unit
Bananas
14,000 Unit
Rs. 2 per unit
Oranges
32,000 Unit
Rs. 5 per unit
a) Find nominal GDP in the current year & in the base year. What is the
percentage increase since base year?
b) Find real GDP in the current year & in the base year. By what percentage does a
real GDP increase from the base year to current year?
c) Find the GDP deflator for the current year & the base year. By what percentage
does the price level change from the base year to current year?
Government Budget
1. If Capital Expenditure is Rs.5000, Revenue Expenditure is Rs.3500 and
fiscal deficit is equal to revenue deficit then find Capital Receipts.
2. Find Revenue Receipts & Interest Payment Obligations from the
following data
a. Capital Receipts
3600
b. Total Budgeted Expenditure
6000
c. Borrowing Requirements
600
d. Primary Deficit
0
3. 20% of an economys revenue expenditure is spent on interest payments
which are Rs. 6000 crores. The revenue deficit of the economy is Rs.
4000 crores and fiscal deficit is Rs. 500 crores. What is the revenue
deficit & primary deficit?
4. An economy has revenue surplus of Rs. 1000 crores and fiscal deficit of
Rs. 2000 crores. Find out the excess of capital expenditure over non debt
capital receipts.
Money and Banking
1. Calculate maximum money supply in an economy where LRR is 25%. The
currency issued by the central bank is Rs. 20,000 crores. The currency held
with public is Rs. 12,000 crores. The demand deposits with bank are Rs.
5000 crores.

2. Find the effect of the following on money supply

a. Deposit of Rs.5000 in savings account.
b. A loan given by bank to a producer.
c. Decrease in cash reserve ratio.
d. Increase in direct taxes by Government.
Balance of Payments
1. Classify as autonomous and accommodating transactions, current/capital
account transactions
a. Gifts received from abroad
b. Borrowings from European union in dollar terms
c. Payment of fee in a foreign university.
d. Spending of an Indian consumer on petrol.
e. Online buying from an USA website.
f. Buying land in Nepal.
g. Grants received from IMF to sort out foreign exchange problem.
h. Purchase of an imported vehicle.
i. Purchase of shares of a foreign company.
j. Tata Motors purchasing a foreign company.
k. Airtel buying the share of its foreign partner.
l. Foreign Direct Investment received by India
2. Calculate Balance of Payment Deficit if the excess of accommodating
receipts over accommodating payments is Rs. 3000 crores and borrowings
from abroad is Rs. 1500 crores.
3. How does a country meets its current account deficit in BOP account ?Give
two examples
Sl.
1

ITEMS
Salaries to the government
employees.

CATEGORY
Revenue
Expenditure
Revenue
Expenditure
Revenue
Expenditure
Revenue
Expenditure

Pension

Grants

Subsidies

Interest Payment

Revenue Receipts

Direct Taxes

Revenue Receipts

REASON
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability

Indirect Taxes

Revenue Receipts

Dividend

Revenue Receipts

Profits

Revenue Receipts

10

External grants

Revenue Receipts

11

Commercial Revenue

Revenue Receipts

17

Borrowing of the
government from RBI
Disinvestment of public
sector
Recovery of loans
Borrowings and other
liabilities from foreign
government
Receipts from sale of shares
of Public Sector
Undertaking
Borrowings from Publics

18

Corporation Tax

12
13
14
15
16

19
20

Dividend on investment
made by government
Sale of Public Sector
Undertaking

21

Grants given to state govt.

22

Repayments of loans

23
24
25

nor create assets

Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets

Capital Receipts

It create liability

Capital Receipts

It reduces assets

Capital Receipts

It reduces assets

Capital Receipts

It create liability

Capital Receipts

It reduces assets

Capital Receipts

It create liability
Neither reduces liability
nor create assets
Neither reduces liability
nor create assets

Revenue Receipts
Revenue Receipts
Capital Receipts

It reduces assets

Revenue
Expenditure

Neither create assets nor

leads to reduction of
liabilities.

Capital
Expenditure
Construction of school
Capital
building
Expenditure
Expenditure on subsidies of Revenue
food and fertilizers
Expenditure
Expenditure on Power
Capital

It reduces the liabilities.

It leads to creation of
assets
Neither reduces liability
nor create assets
It leads to creation of

26
27
28

generation
Purchase of defence
equipments
Receipts from sale of shares
of a public sector
Undertaking.
Loan to state government

Expenditure
Revenue
Expenditure

assets
Neither reduces liability
nor create assets

Capital Receipts

It reduces assets

Capital
Expenditure

It leads to creation of
assets

Microeconomics
1. A firm employs 20 workers (labour is the only variable input) at wage rate
Rs.60. The average product of labour is 30. The firm has produced 12 units of
additional output from the last worker employed. The total fixed cost is Rs.3600/-.
a) What is the value of MC ?
b) What is the value of AVC ?
c) How much output is produced ?
d) What is the value of AC ?
2. Show ed varies from zero to infinity along a linear demand curve.
3. Consider a competitive market for wheat. What would be the impact of a
price support programme (price floor) on the quantity demanded and
supplied?
4. Define maximum price legislation. Explain the idea by using a suitable
diagram. Trace out the welfare effects of such an exercise.
5. Explain the idea of minimum price legislation. Discuss the idea by
considering the labour market. Calculate the welfare effects of such an
exercise.
6. Why cant the AFC curve touch either axis ?
7. Explain why AFC curve is downward sloping ?
8. Why does AFC curve has the shape of a rectangular hyperbola ?
9. Explain why AC and AVC come closer and closer to each other as output
rises but they never meet ?
10.