ABBE1023 MACROECONOMICS

TUTORIAL 2 – 2017/18
(WEEK 3)

SECTION A: MULTIPLE-CHOICE QUESTIONS

1. Net domestic product (NDP) is the total value of _______________________________.

A. all final goods and services produced within a country's borders in a year.
B. all final goods and services produced within a country's borders in a year minus gross private
domestic investment.
C. only intermediate goods produced within a country's borders in a year plus gross private
domestic investment.
D. all final goods and services produced within a country's borders in a year minus capital
consumption allowance.

2. National income equals ________________________________________.

A. wages + salaries + corporate profits + net income.
B. compensation of employees + proprietors' income + corporate profits + rental income + net
interest.
C. compensation of employees + proprietors' income + indirect business taxes + rental income +
net interest.
D. the monetary value of fringe benefits + tips + wages + profits + salaries.

3. Which of the following statements is true?

A. The main items that comprise indirect business taxes include excise taxes, sales taxes, and
property taxes.
B. Capital consumption allowance is sometimes better known as depreciation.
C. A sales tax is an indirect business tax.
D. a, b, and c

4. Disposable income is ____________________________________.

A. equal to GDP minus the capital consumption allowance.
B. that portion of personal income that can be used for consumption and saving.
C. the sum of all payments to suppliers of the factors of production.
D. the amount of income that individuals actually receive.

5. Which of the following would not be included in the calculation of this year's GDP?
A. a headlight bulb purchased at Joe's Auto Supply by Susan to replace a burnt out bulb in her car
B. a headlight bulb purchased by Ford Motor Co. from a supplier
C. a headlight bulb produced but not sold this year and thus ending up as inventory
D. none of the above.

6. Which of the following best defines national income?

A. income received by households less personal taxes
B. the before-tax income received by households
C. all incomes earned by Malaysian resource suppliers for their current contributions to
production
D. the market value of the annual output net of consumption of fixed capital.

7. GDP differs from NDP in that:

A. GDP is based on gross exports, while NDP is based on net exports.
B. GDP includes, but NDP excludes, indirect business taxes.
C. net investment is used in calculating GDP and gross investment is used in calculating NDP.
D. gross investment is used in calculating GDP and net investment is used in calculating NDP.

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8. Real GDP is the value of all __________ goods and services produced in a given year in
__________ prices.
A. intermediate; that year's
B. intermediate; base-year
C. final; that year's
D. final; base-year

9. Nominal GDP is:

A. the sum of all monetary transactions that occur in the economy in a year.
B. the sum of all monetary transactions involving final goods and services that occur in the
economy in a year.
C. the amount of production that occurs when the economy is operating at full employment.
D. money GDP adjusted for inflation.

10. What does annual economic growth refer to?

A. annual increases in GDP
B. annual increases in consumption spending
C. annual increases in investment spending
D. annual increases in Real GDP

11. A business cycle refers to the __________________________________.

A. recurrent swings (up and down) in Real GDP.
B. period when Real GDP grows at unusually high rates.
C. continued expansion in Real GDP.
D. continued decline in Real GDP.

12. Which of the following is a characteristic of the contraction phase of the business cycle?
A. a decline in Real GDP
B. higher inflation rates
C. lower unemployment rates
D. all of the above

SECTION B: ESSAY QUESTION

1 The table below shows the national income accounting data for a country in the year 2016:

Items RM (Billion)
Consumption expenditures 2,446
Government expenditures on goods and services 4,810
Gross private domestic investment 2,837
Capital consumption allowance 925
Indirect business taxes 146
Exports 4,899
Imports 4,855
Income earned from the rest of the world 1,456
Income earned by the rest of the world 1,628

Using the expenditure approach, calculate the following values:

(i) Gross Domestic Product (GDP); (5 marks)

(ii) Gross National Product (GNP); (4 marks)

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 (iii) National Income (NI). (4 marks)
[Source: Jan Exam, 2017: Q2(a)]

2. The following table shows the national income figures, price indices and population for a
hypothetical country in years 2006 and 2007.

2006 2007
National GDP RM5,000 million RM7,200 million
Price Index (year 2000 = 100) 120 160
Population 10 million 11 million

(i) Calculate the real GDP in years 2006 and 2007. (4 marks)

(ii) Calculate the real GDP per capita in years 2006 and 2007. (4 marks)

(iii) Calculate the rate of economic growth between 2006 and 2007. (4 marks)
[Source: Sept Exam, 2008/09: Q2 (d)]

3. Briefly explain any FIVE (5) reasons why GDP does not necessarily measure the well-being
of a country. (10 marks)
[Source: September Exam, 2014/15: Q2]

4. With the aid of a diagram, briefly describe the FIVE (5) phases of the business cycle.
(12 marks)
[Source: Jan Exam, 2017: Q2 (b)]

5. The table below shows the national income accounting data for the year 2014:

RM (Billion)
Compensation of employees 4821
Rental income 54
Income earned from the rest of the world 250
Capital consumption allowance 230
Indirect business taxes 144
Net interest 163
Corporate profits 689
Income earned by the rest of the world 1471
Proprietors income 230

Using the above data, calculate the following:

(i) National Income (NI); (5 marks)

(ii) Gross National Product (GNP); (4 marks)

(iii) Gross Domestic Product (GDP); (4 marks)

(iv) GDP per capita if the country has a population of 0.2 billion. (3 marks)
[Source: Jan Exam, 2014: Q2 (a)]