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DBA3301 Economics
│Tutorial 8B│
Lecture 8B: National Income
Answer Sheet
1.
The following table shows the gross domestic product (GDP) figures of an economy during the past few years.
$ Million
2004
2005
2006
2007
GDP at current market price
490,811
558,859
641,136
742,582
GDP at constant market price
253,223
262,688
273,686
287,399
a.
Calculate the GDP deflator for each year (round to the nearest integer). (Hint: 2004 GDP deflator is 194)
b.
With reference to the trend of change of the GDP deflator, name the economic problem faced by the economy during this period.
c.
Which of the above two groups of data would be a better indicator for the changes in the living standard of the general public in that economy? Explain your answer.
Answer:
a.
GDP deflator = Nominal GDP / Real GDP x 100
Year
2004
2005
2006
2007
GDP deflator
194
213
234
258
b.
Inflation
c.
Real GDP would be a better indicator because an increase in nominal GDP at current market price is the result of increase in both prices and output, but real GDP have removed the effect of changes in prices. So, an increase in real GDP is only caused by an increase in output which can reflect the actual purchasing power of the general public in the economy.
Tutorial 8B
© Vocational Training Council, Hong Kong
1
2.
The table below gives hypothetical values of items in the national income accounts of
Country A for the year 2008. Expenditures are measured at market prices.
Items
$ million
Personal Consumption Expenditure
1,350
Government Purchases of goods and services
Gross domestic fixed capital formation
250
Value of physical increase in stocks
-20
Exports of goods and services
450
Imports of goods and services
400
Depreciation
a.
500
300
Explain why the purchase and sale of used goods are not included in the calculation
│Tutorial 8B│
Lecture 8B: National Income
Answer Sheet
1.
The following table shows the gross domestic product (GDP) figures of an economy during the past few years.
$ Million
2004
2005
2006
2007
GDP at current market price
490,811
558,859
641,136
742,582
GDP at constant market price
253,223
262,688
273,686
287,399
a.
Calculate the GDP deflator for each year (round to the nearest integer). (Hint: 2004 GDP deflator is 194)
b.
With reference to the trend of change of the GDP deflator, name the economic problem faced by the economy during this period.
c.
Which of the above two groups of data would be a better indicator for the changes in the living standard of the general public in that economy? Explain your answer.
Answer:
a.
GDP deflator = Nominal GDP / Real GDP x 100
Year
2004
2005
2006
2007
GDP deflator
194
213
234
258
b.
Inflation
c.
Real GDP would be a better indicator because an increase in nominal GDP at current market price is the result of increase in both prices and output, but real GDP have removed the effect of changes in prices. So, an increase in real GDP is only caused by an increase in output which can reflect the actual purchasing power of the general public in the economy.
Tutorial 8B
© Vocational Training Council, Hong Kong
1
2.
The table below gives hypothetical values of items in the national income accounts of
Country A for the year 2008. Expenditures are measured at market prices.
Items
$ million
Personal Consumption Expenditure
1,350
Government Purchases of goods and services
Gross domestic fixed capital formation
250
Value of physical increase in stocks
-20
Exports of goods and services
450
Imports of goods and services
400
Depreciation
a.
500
300
Explain why the purchase and sale of used goods are not included in the calculation