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Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha Anwar

List of Things to DO at your OWN… Topics: National Income, Nominal vs Real GDP, CPI and GDP

Deflator, Economic Fluctuations, Inflation, Unemployment, Fiscal Policy, Monetary Policy

Question # 01: Vocabulary CheckIn your GLOSSARY NOTEBOOK, use each of these terms in a sentence that reflects the term’s meaning. Make sure that you have narrated all the terms given bellow in your GLOSSARY notebook, IF NOT, then elaborate the missed ones. The individual GLOSSARY books will be inspected.

Macroeconomics, national income, net national income, net national product, gross domestic product, gross domestic product per capita, gross national product, personal income, personal disposable income, real GDP, nominal GDP, GDP deflator, GDP Gap, Potential GDP, Actual GDP, business cycle, recession, expansion, peak, trough, inflation, deflation, consumer price index, demand pull inflation, cost push inflation, wage-price spiral, creeping inflation, hyper inflation, stagflation, unemployment, frictional unemployment, structural unemployment, cyclical unemployment, seasonal unemployment, technological unemployment, unemployment rate, labor force, real income, nominal income, fiscal policy, monetary policy, poverty, Lorenz curve, direct tax, indirect tax, transfer payments, imports, exports, trade deficit, trade surplus.

Question # 02: Identifying, Comparing, Contrasting & ApplicationData for the years of 2007 to 2009 is given on prices (in rupees) and quantities (in dozens) for product A, which is a locally manufactured commodity by firm F. There are two possible situations i.e. in table one the prices are assumed to be constant, whereas, in table two the quantities are treated as constant.

Table: 01Year Price Quantity Nominal GDP Real GDP GDP Deflator2007 2 1002008 2 2002009 2 300(Hint: prices remain the same in given three years whereas quantity fluctuates.)

Table: 02Year Price Quantity Nominal GDP Real GDP GDP Deflator2007 2 1002008 4 1002009 6 100(Hint: prices fluctuate whereas quantity remains the same in given three years.)GDP Deflator =( Nominal GDP / Real GDP) * 100a. What is GDP deflator? For which purpose it is used?b. Differentiate between nominal GDP and real GDP.c. For both tables, compute nominal GDP, real GDP and GDP deflator for

each year, using 2007 as a base year.d. Compare and comment on the results of nominal GDP, when prices are

constant and when quantities are treated as constant.e. Compare and comment on the results of real GDP, when prices are

constant and when quantities are treated as constant.f. Compare and comment on the results of GDP deflator, when prices are

constant and when quantities are treated as constant.g. Highlight the variable which is influential for the change in GDP deflator.

Thursday, December 19, 2012… of 10

Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha AnwarQuestion # 03: Idea IllustrationHighlight the trend of economic variables during various phases of business cycle by using the following diagram.

Question # 04: Critical ThinkingMake use of following table to answer 1 to 4 only.Country Current real GDP /

personCurrent Growth Rates

USA $ 16648 1.98 (%)UK $ 14238 2.03 (%)India $ 65250 3.12 (%)Pakistan $ 1162 0.61 (%) Which country is richest? How you come to know? Which country is advancing most quickly? How you come to know? Which country has a potential to grow most quickly? List some reasons

why it may not be living up to the potential? If real GDP per person in Pakistan next year is $ 1224, what is the annual

growth rate?

Question # 05: Economic ApplicationIf the problems of unemployment and recession persist in the economy then, being a policy maker, which policy will you opt in order to put an end to these problems (hint: tight monetary policy or soft monetary policy).

Question # 06: Idea Illustration


Business Cycle

Peak

Recession

Depression

Recovery

Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha Anwar1 Money serves as:

a. medium of exchange

b. unit of account

c. store of value

d. all of the above

2 Currency in circulation plus demand deposits is called:a. M1 b. M2 c. M3 d. M4

3 Transaction and precautionary demand for money is positively related with:a. investment b. rate of

interestc. savings d. income

4 When money supply decreases then, as a reaction, the interest rate will:a. increase b. decrease c. no effect d. both a & b

5 The rate at which state bank give loan to other commercial banks is called:a. reserve ratio b. interest rate c. discount rate d. rate of return

6 When state bank buy securities, lower discount rate & reserve ratio then monetary policy will be:a. tight MP b. easy MP c. tight fiscal

policyd. soft fiscal policy

7 With an increase in investment spending, the aggregate demand curve will:a. decrease b. increase c. no change d. both a & b

8 If state bank wish to decrease the money supply then reserve ratio will be:a. decreased b. increased c. remains the

samed. all of the above


Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha Anwar9 Speculative demand for money is function of:

a. investment b. rate of interest

c. savings d. income

10

If money supply increases then investment spending will:

a. decrease b. increase c. no change d. both a & b

11

In order to cope up the situation of inflation, the state bank will follow:

a. tight MP b. easy MP c. tight fiscal policy

d. soft fiscal policy

12

In the period of recession the state bank will follow the:



13

If transaction demand for money is function of rate of interest then the money demand curve will be:a. horizontal curve

b. vertical curve

c. positively sloped

d. negatively sloped

14

With a decrease in rate of interest, the demand for money:

a. increase b. decrease c. no effect d. both a & c

15

If unemployment persists in the economy then state bank will opt:



Question # 07: Describing the Main IdeaWhat do you mean by fiscal policy? Outline the tools of fiscal policy.

Question # 08: Critical ThinkingIf the problems of unemployment and recession persist in the economy then, being a policy maker, which policy will you opt in order to put an end to these problems (hint: fiscal policy)?

Question # 09: Main Idea DescriptionWhat do you mean by expansionary fiscal policy?

Question # 10: Determining Cause and EffectSuppose the economy is in recession then how the policy maker will make an effective use of monetary policy in order to cope with this situation? Explain.

Question # 11: Critical Thinking SkillsWhat do you mean by monetary policy? Out line the basic tools of monetary policy. Which policy options (i.e. soft monetary policy or tight monetary policy) will be implemented by the State Bank of Pakistan (SBP) in case of recession and inflation?

Question # 12: InferringHow inflation distort spending behavior?

Question # 13: Using GraphsGraphically explain the phases of economic fluctuations.

Question # 14: Main Idea DescriptionExplain why GDP is important to economists?

Question # 15: Inferring


Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha AnwarIn the calculation of GDP why we take “market value” of goods and services rather “amount” of goods and services?

Question # 16: Critical ThinkingWhat would be the effects of declining GDP?

Question # 17: Economic ApplicationCPI in January of one year is 199.9, and it was 190.4 exactly one year earlier. How would you find the percentage change?

Question # 18: Critical ThinkingHow inflation reduced purchasing power?

Question # 19: Identifying & Sequencing InformationUse a graphic organizer like the one below to identify the steps in measuring inflation.

Steps Details

Question # 20: Main Idea DescriptionDescribe the main types of inflation in detail.

Inflation

Demand Pull Cost Push Wage-Spiral Excessive Money Supply

Question # 21: Main Idea DescriptionHow unemployment rate is determined in any society?

Question # 22: Critical ThinkingWhy is structural unemployment a more difficult problem for the economy and for individual workers than other types of unemployment?

Question # 23: Main Idea DescriptionHow inflation encourages speculation and disturbs income distribution?

Question # 24: Economic ApplicationGive examples of individuals caught in each of the five types of unemployment. Find new examples.

Question # 25: InferringIn the calculation of GDP why we take “final” of goods and services rather “intermediate” goods and services?

Question # 26: Math PracticeSuppose there are two commodities A and B, for which prices and production is given in the table. Calculate GDP from the given data.Year Price of A Quantity of Price of B Quantity of GDP



A B2009 10 100 20 502010 20 150 30 1002011 30 200 40 150

Question # 27: Main Idea DescriptionDescribe the five major kinds of unemployment by using a graphic organizer like the one below.

UnemploymentType Description ExampleFrictionalStructuralCyclicalTechnologicalseasonal

Question # 28: SynthesizingWhat sort of inflation and unemployment is prevailing in Pakistan?

Question # 29: Main Idea DescriptionThink about the differences between the different measures of National Income.

National Income

GDP GNP PI PDI

Question # 30: Critical ThinkingConsider a situation when production raises over the years but prices remains the same. What would be happened with nominal GDP, real GDP and GDP deflator? Use the following data to answer this question.Year Price Quantity2009 10 2002010 10 3002011 10 400

Question # 31: Main Idea DescriptionUse a graphic organizer like the one below to describe the three tools of monetary policy.

Tool Description

Question # 32: Critical ThinkingConsider a situation when production remains the same over the years but prices increases. What would be happened with nominal GDP, real GDP and GDP deflator? Use the following data to answer this question.Year Price Quantity2009 20 300


Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha Anwar2010 40 3002011 60 300

Question # 33: Determining Cause and EffectHow would a 10 percent inflation rate affect both lenders and borrowers? Why?

Question # 34: Economic AnalysisSeveral causes of inflation exist, but an increase in allowance would probably not have a large impact. Which explanation does the father in the cartoon use?

“... but if daddy raised your allowance he’d be hurting the economy by stimulating inflation. You wouldn’t want him to do that would you?”

Question # 35: Economics Thinking SkillsWhy is structural unemployment a more difficult problem for the economy and for individual workers than other types of unemployment?

Question # 36: Synthesizing InformationDescribe structural and technological unemployment and give an example of each. Why are these kinds of unemployment serious problems for an economy?

Question # 37: Economics AnalysisDuring the 1920s, inflation in Germany reached such levels that banknotes in denominations of “100 Billionen Reichsmark” (the equivalent of 100 trillion) circulated. How is hyperinflation defined?

Question # 38: Main Idea DescriptionHow do economists measure the economic cost of instability?

Question # 39: Main Idea Description


Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha AnwarExplain the difference between a depression and a recession.

Question # 40: Critical ThinkingIf we were to enter a period of recession, what would likely happen to the unemployment rate? The inflation rate? The poverty rate? Explain your answers.

Question # 41: Critical ThinkingDescribe the costs and benefits of outsourcing.

Question # 42: Critical ThinkingHow does the cartoon below relate to what you have learned in chapter related to inflation?

Question # 43: Economics AnalysisCalculate nominal GDP, real GDP and GDP deflator from the given data set.Year Price of A Quantity of A Price of B Quantity of B2009 1 100 2 502010 2 150 3 1002011 3 200 4 150

Question # 44: identification and Math skillsIf the population of a country is 2000, the labor force is 1500 and 120 people are unemployed, then what will be the unemployment rate in the country?

Question # 45: identification and Math skillsIf the value of CPI is 200 in year 5 and 210 in year 6, then calculate inflation rate for the year 6.

Question # 46: identification and Math skillsWith the help of the following data compute Real GDP and considering Year 2000 as base year calculate rate of inflation from year 2001 to 2005: (4)Year Nominal

GDPBillions

Price Index

Real GDP Rate of inflation

2000 500 22 ? ---------------2001 900 26 ? ?2002 2000 48 ? ?2003 4500 80 ? ?



2004 8700 103 ? ?2005 11000 110 ? ?

Question # 47: identification and Math skillsPakistan economy’s annual percentage growth rate and inflation rate in 2009 was 4.2% and 14% respectively. In how many years growth rate and price level will be doubled.Hint: use rule 70

i. Gross Domestic Product is the market value of:a) All transactions in an economy during a one year periodb) All goods and services exchanged in an economy during a

yearc) All final goods and services exchanged in an economy during

a yeard) All final goods and services produced in domestic economy

during a year

ii. Net National product equal:a) National income plus indirect business taxesb) GDP less depreciationc) National income plus depreciationd) GDP less indirect business taxes

iii. Which of the following statement is false:a) GDP is greater than personal incomeb) Personal disposable income is greater than personal incomec) GDP is greater then national Incomed) National income is greater than personal disposable income

iv. The natural rate of unemployment exits when there is only:a) Frictional and structural unemploymentb) Frictional and cyclical unemploymentc) Structural and cyclical unemploymentd) Frictional unemployment

v. If C=20+.090Yd, predicts that consumption is:a) 90 when disposable income is 100b) 100 when disposable income is 90c) 110 when disposable income is 100d) 180 when disposable income is 200

vi. During inflation Govt. will adopt:a) expansionary fiscal policyb) contractionary fiscal policyc) all of above

vii. frictional unemployment exists when:a) there is fall in aggregate demandb) workers are seasonally unemployedc) workers lack the necessary skills to be employed


Econ – 100 (A, B, G) … SPRING 2013 Instructor: Ayesha Anwarviii. cost-push inflation exist when

a) consumers increase the demandb) resource owners increase prices of resourcesc) personal income comes down

x. Economics is a Science of wealth is the:a) Classical Viewb) Neo-classical Viewc) Keynesian Viewd) None of above

xi. Macro economics is concerned with: a) level of outputb) general level of pricesc) growth of incomed) both b & ce) all of above

xii. Calculation of GNP includes;a) gross private investmentb) net private investmentc) both of aboved) None of Above

xiii. Real GDP can be calculated as:a) GDP Deflator/nominal GDP x 100b) Nominal GDP/c) GDP Deflator x 100d) Nominal GDP/CPI x 100

xiv. The output-expenditure Model states that:a) C+I+G+ (X-M)b) C-I-G-(X-M)c) C+I+G+(X+M)d) C+I+G-(X+M)

Best of Luck…


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