Macroeconomics Assignment: GDP, Unemployment, and Inflation

This macroeconomics assignment provides solutions to a range of questions covering key concepts in macroeconomics. The assignment is divided into two parts, with the first part consisting of multiple-choice questions testing the understanding of GDP, national income, and the circular flow model. It also covers topics such as investment, savings, and the factors that influence them, as well as unemployment and inflation. The second part involves more in-depth questions, including calculations and explanations related to GDP, nominal and real GDP, GDP deflator, and GDP per capita. The assignment delves into the measurement of economic growth and the limitations of using GDP as a sole indicator of economic well-being, as well as the effects of inflation and unemployment on the economy. It also includes references to key macroeconomic literature.

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Course ID

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Table of Contents
Part One...........................................................................................................................................5
Question 1....................................................................................................................................5
Question 2....................................................................................................................................5
Question 3....................................................................................................................................5
Question 4....................................................................................................................................5
Question 5....................................................................................................................................5
Question 6....................................................................................................................................5
Question 7....................................................................................................................................5
Question 8....................................................................................................................................5
Question 9....................................................................................................................................5
Question 10..................................................................................................................................6
Question 11..................................................................................................................................6
Question 12..................................................................................................................................6
Question 13..................................................................................................................................6
Question 14..................................................................................................................................6
Question 15..................................................................................................................................6
Question 16..................................................................................................................................6
Question 17..................................................................................................................................6
Question 18..................................................................................................................................6

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Question 19..................................................................................................................................7
Question 20..................................................................................................................................7
Question 21..................................................................................................................................7
Question 22..................................................................................................................................7
Question 23..................................................................................................................................7
Question 24..................................................................................................................................7
Question 25..................................................................................................................................8
Question 26..................................................................................................................................8
Question 27..................................................................................................................................8
Question 28..................................................................................................................................8
Question 29..................................................................................................................................8
Question 30..................................................................................................................................8
Question 31..................................................................................................................................9
Question 32..................................................................................................................................9
Question 33..................................................................................................................................9
Question 34..................................................................................................................................9
Question 35..................................................................................................................................9
Question 36..................................................................................................................................9
Question 37..................................................................................................................................9
Question 38................................................................................................................................10

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Question 39................................................................................................................................10
Question 40................................................................................................................................10
Question 41................................................................................................................................10
Question 42................................................................................................................................10
Question 43................................................................................................................................10
Question 44................................................................................................................................10
Question 45................................................................................................................................10
Question 46................................................................................................................................10
Question 47................................................................................................................................11
Question 48................................................................................................................................11
Question 49................................................................................................................................11
Question 50................................................................................................................................11
Part Two.........................................................................................................................................12
Question 1..................................................................................................................................12
Question a..................................................................................................................................12
Question b..................................................................................................................................12
Question 2..................................................................................................................................14
Question a..................................................................................................................................14
Question b..................................................................................................................................14
Question 3..................................................................................................................................15

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Question a..................................................................................................................................15
Question b..................................................................................................................................15
Question c..................................................................................................................................15
Question d..................................................................................................................................15
Question e..................................................................................................................................16
Question 4..................................................................................................................................16
Question a..................................................................................................................................16
Question b..................................................................................................................................16
Question c ..........................................................................................................................16
Question d..................................................................................................................................17
Question e..................................................................................................................................17
Question 5......................................................................................................................................17
Question 5A...............................................................................................................................17
Question 5B...............................................................................................................................20
References......................................................................................................................................22

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Part One
Question 1
D) It is the income earned by Canadians
Question 2
B) Gross investment, government purchase, consumption and net exports.
Question 3
D) Business buy resources from household and from other businesses
Question 4
C) Income is a flow concept and money is a stock concept.
Question 5
E) A saving account
Question 6
B) The velocity of money is 6.5.
Question 7
D) Leakage
Question 8
B) Investment
Question 9

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D) It has both financial and real flows.
Question 10
A) Income tax
Question 11
B) Transfer payment
Question 12
A) If export increases.
Question 13
D) If exports increase more than import increase
Question 14
D) A mutual fund manager purchases additional stock of General Corporation.
Question 15
B) Consumption expenditures and goods and services.
Question 16
E) Factor payments and factors.
Question 17
A) Imports
Question 18

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C) Savings
Question 19
D) Exports
Question 20
E) None of the above
Question 21
C) The depreciation exceeds gross investment by $5.8 billion
Question 22
D) It will be necessary to add the additional inventory to aggregate expenditure to obtain this
year’s GDP.
Question 23
C) +20
Question 24
National income=Personalincome−Government transfer payment +Undistributed corporate profits+Corporate
¿ 327−103+59+38+17
¿ 338
C) 338
Question 25
B) If the increase in production was in the form of a non-market activity

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Question 26
B) GDP would rise
Question 27
B) It could be called economic growth.
Question 28
D) The value of GDP in terms of prices prevailing in a given base year.
Question 29
Nominal GDP= ( 22× $ 105 )+ ( 110 × $ 6 )+ ( 11× $ 540 )
¿ $ 2310+$ 660+$ 5940
¿ $ 8910
E) $8910
Question 30
Real GDP∈ year 2= ( 22 × $ 100 ) + ( 110 × $ 5 ) + ( 11 × $ 500 )
¿ $ 2200+$ 550+$ 5500
¿ $ 8250
D) $8250
Question 31
B) 100

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Question 32
GDP deflator= Nominal GDP
Real GDP ×100
¿ 8910
8250 ×100
¿ 108
C) 108
Question 33
B) Real GDP divided by population
Question 34
C) The increase in real GDP per capita divided by previous year’s real GDP per capita times 100
Question 35
C) They understate economic welfare by not taking into account increase in leisure.
Question 36
B) If the quality of products and services, leisure time and environmental conditions all do not
change.
Question 37
C) The percentage of labor force which is unemployed.
Question 38
E) All of the above

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Question 39
E) A retired schoolteacher who is seeking a part-time job at the local library.
Question 40
D) All of the above
Question 41
B) GDP will understate the level of economic activity
Question 42
B) It is associated with the level of GDP
Question 43
C) It would remain unchanged.
Question 44
C) They may cause the official unemployment rate to understate the real amount of
unemployment.
Question 45
B) 2%
Question 46
C) The GDP gap is $21 billion.
Question 47

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Inflation rate= CPI ∈2004−CPI∈2003
CPI ∈2003 ×100
¿ 126−120
120 ×100
¿ 6
120 ×100
¿ 5 %
B) 5%
Question 48
C) It fell by 2%
Question 49
B) 11%
Question 50
B) If the number of people in the labour force increased more than the number of people
employed.

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Part Two
Question 1
Question a
National income refers to the value of all the products and services that a nation produces
in a given financial year. National income estimate therefore represents all the economic
activities of a country in a given period expressed in monetary terms. Given the uncertainties
related to computation of national income it is often interchangeably used with national
expenditure or national output (Heijdra 2017). A common measure used to trace national output
or national expenditure is “Gross Domestic Product (GDP)”. Technically, GDP is a
comprehensive measure for market value of all goods and services within a country in a given
year. This is similar to national income which captures flow of all commodities and services in
the productive system of a country used by end users. Therefore, despite some technical
adjustment that needs to be made to derive national income from GDP, from the view of
aggregate output or economic growth these two are conceptually the same.
Question b
GDP per capita is a widely used measure for comparing living standard between two
nations. However, comparing living standard using only per capita GDP may be misleading
because of exclusion of some vital aspects related to the well-being of a nation. There is a
difference in perception off people regarding growth of GDP per capita and improvement in
quality of living. The discrepancy arises due to the fact that the measure of per capita GDP is
mostly based on the population mean (Uribe and Schmitt-Grohe 2017). There are many countries
in the world where income inequality is growing rapidly inflating the amount of wealth

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perceived from theoretical average reflected in measured GDP per capita. In reality however
people in the nation experiences little or no increase in their wealth. During 1999-2008, GDP in
US rose significantly. Despite this, most people experienced a fall in income when adjustment is
made in terms of inflation. Example of another extreme case is Bermuda which is considered as
a tax haven country has the highest per capita GDP in the world. A significant portion of
population in Bermuda however engaged in the small fishing industry and earn a smaller wage.
Another problem that GDP per capita encounters is that it only include economic transactions
that are marketed and have a clear price and clear quantity. In reality however there are some
transactions that are not clear and involved in day to day activities of people. One such example
is household production. It though takes significant amount of time and effort especially sacrifice
of leisure time however is measured in per capita GDP estimation. Service now account a major
share in total production and employment (Guilmi, Gallegati and Landini 2017). However, given
the nature of services, there are huge variations across quality of services which make is
increasingly difficult to assign specific quantity and therefore includes in GDP. In most of poor
countries, informal activities plays an important role in the economy. GDP however excludes
activities that take place in the informal sector. GDP per capita helps to make comparison
between two countries considering true measures of quality of life such as health, education level
and others. At its best, per capita GDP measures wellbeing of the population as consumers which
in turn is arbitrarily taken as a proxy measure of quality of life. At its worst, it is however
nothing more than simple average which does not exist in reality (Thong 2019). Countries with
higher GDP per capita often experience a decline in their quality of living making it an
inappropriate measure of well-being.

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Question 2
Question a
Given the national income, GDP can be computed by using the following adjustment
GDP=National Income−Net foreign factor income+ Indirect tax+Depriciation
¿ 600−10+50+20
¿ 660 billion taka
Question b
Government spending=GDP−Consumption−Gross Invstment −Net Export
Gross Investment =Net Investment + Depriciation
¿ 40+ 20
¿ 60 billion take
Net export=Export −Import
¿ 65−25
¿ 40 billion taka
Government spending=GDP−Consumption−Gross Invstment −Net Export
¿ 660−420−60−40
¿ 140 billiontaka

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Question 3
Question a
Consumption=Disposableincome−Personal saving
¿ 500−100
¿ 400 dollar billion
Question b
GDP=Consumption+Grossinvestment + Government spending on goods∧services+ ( Export−Import )
¿ 400+ ( 60+100 ) +380+ ( 120−160 )
¿ 400+ 160+380−40
¿ 900 billion dollar
Question c
NDP=GDP−depriciation
¿ 900−100
¿ 800 billion dollar
Question d
National Income=GDP+ Net foreign factor income−Depriciation−Indirect tax
¿ 900−40−100−160
¿ 600 billion dollar

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Question e
Personal Income=National income+Transfer Payment−Corporate profit tax
¿ 600+140−50
¿ 690 billion dollar
Question 4
Question a
Nominal GDP∈2004= ( 210× $ 85 ) + ( 520 × $ 5.25 )
¿ $ 17850+$ 2730
¿ $ 20580
Value of nominal GDP in 2004 is $20580.
Question b
Real GDP∈2004= ( 210 × $ 80 ) + ( 520 × $ 5 )
¿ $ 16800+$ 2600
¿ $ 19400
Question c Real GDP∈2005= ( 215× $ 80 ) + ( 600 × $ 5 )
¿ $ 17200+$ 3000
¿ $ 20200

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Question d
GDP deflator∈2004= Nominal GDP∈2004
Real GDP∈2004 ×100
¿ 20580
19400 ×100
¿ 106.08
Question e
Nominal GDP∈2005= ( 215 × $ 90 )+ ( 600× $ 6.00 )
¿ $ 19350+$ 3600
¿ $ 22950
GDP deflator∈2005= Nominal GDP∈2005
Real GDP∈2005 × 100
¿ 22950
20200 ×100
¿ 113.61
Question 5
Question 5A
a)
Labor force=Number of employed + Number of unemployed
¿ Number of full time employment +Number of part timeemployment + Number of people unemployed

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¿ 39.5+6.1+2.4
¿ 48
Unemployment rate= Number of unemployed
¿ the labor force × 100
¿ 2.4
48 × 100
¿ 5 %
b)
Labor force participation rate= Labor force
Working age population × 100
¿ 48
60.0 ×100
¿ 80 %
c)
Inflation= CPI ∈current year −CPI ∈base year
CPI ∈base year × 100
¿ 112.5−100
100 × 100
¿ 12.5 %

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Question 5B
a)
2013 2014 2015
Nominal GDP $560 $598 $644.3
Real GDP $500 $520 $546
GDP deflator 112.0 115 118.0
Population (in millions) 25 25.5 26
Real GDP per Capita $20,000 $20,392 $21,000
b)
Inflation rate∈2015= GDP deflator∈2015−GDP deflator ∈2014
GDP deflator∈2014 ×100
¿ 118.0−115
115 × 100
¿ 3
115 ×100
¿ 2.6 %
c)
Growth∈real GDP per capita∈2014= Real GDP per capita∈2014−Real GDP per capita∈2013
Real GDP per capita∈2013 ×100
¿ $ 20392−$ 20000
$ 20000 ×100

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¿ $ 392
$ 20000 ×100
¿ 1.96 2.0

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References
Guilmi, C.D., Gallegati, M. and Landini, S., 2017. Interactive Macroeconomics. Cambridge
Books.
Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.
Thong, B., 2019. Introduction To Macroeconomics. World Scientific Book Chapters, pp.221-256.
Uribe, M. and Schmitt-Grohe, S., 2017. Open economy macroeconomics. Princeton University
Press.