Question

Assignment​​​​​​​​​​(15 Marks)

Form the groups of Four to Five Students each and answer the following question:

1. Calculate the GDP by using both formulas, expenditure approach and income approach. Also calculate in each case how much time it will take to double the GDP.

Country A

Consumption ​​​​​​​6,000

Investment ​​​​​​​1,500

Depreciation ​​​​​​  ​ 600

Interest ​​ 300

Corporate Profit ​​​​​​ 600

Exports ​​​​​​​ 500

Compensation of Employees ​​​​​6,300

Government Purchases ​​​​​1,000

Direct Taxes ​​​​​​       800

Saving ​​​​​​​1,100

Imports ​​​​​​​   700

Rent​​​​​​​​   500

Country B

Wages​​​​​​​​3000

Rent​​​​​​​​1000

Interest​​​​​​​​  500

Proprietor’s Income​​​​​​2000

Consumption​​​​​​   2500

Depreciation​​​​​​   200

Investment​​​​​​​1500

Indirect Taxes​​​​​​   300

Government Purchases​​​​​2000

Savings​​​​​​  ​  700

Imports​​​​​​​9000

Exports ​​​​​​   10000

2. Calculate the Unemployment rates and analyze the difference in years. Discuss the implications.

Country: Peace Land	Year 1	Year 2	Year 3
Population	20,000	22,000	21000
Unemployed	7,500	9,000	7000
Employed	11,000	12,000	10000
Labor Fore	?	?	?
Not in Labor Force	?	?	?
Unemployment Rate	?	?	?
Labor Force Participation Rate	?	?	?

3. Calculate the Inflation rates, evaluate the rates during the years and between the years. Discuss the Implications

Year/Month​​June​(CPI)​​December (CPI)​​Inflation Rates

2016 (CPI)​​326.230​​425.672​​​​?

2017 (CPI)​​430.221​​629.601​​?

2018 (CPI)​​550.333​​770.000​​?

Inflation Rates​​?​​   ?

​​​​?​​   ?

4. Define the concepts of aggregate supply and aggregate demand in detail. Describe the effects of policy variables and implications on the movement and shapes of the AD and AS curves.

Page 1 of 3

Answer 1

1. GDP using the expenditure method:

GDP = Consumption + Investment + Government Purchases + Net Export

Country A

GDP = 6000 + 1500 + 1000 + (500 - 700)

= 8300

Country B

GDP = 2500 +1500 + 2000 + (10000 - 9000)

= 7000

GDP using income method:

NDP_FC = Compensation of Employees + Rent and Royality + Interest + Profit + Mixed Income

GDP = NDP_FC + Depriciation + Net Indirect Taxes

Country A

GDP = 6300 + 500 + 300 + 600 + 600

= 8300

Country B

GDP = 3000 + 1000 + 500 + 2000 + 200 + 300

= 7000

To calculate the time taken to double the GDP we use rule of 70 which requires growth rate of GDP but here previous years' GDP is not provided. Thus, we cannot calculate growth rate of GDP. Hence, time taken to double cannot be calculated.