Weak 3rd - Econ-100



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 Check

In 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 & Application

Data 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: 01

|Year |Price |Quantity |Nominal GDP |Real GDP |GDP Deflator |

|2007 |2 |100 | | | |

|2008 |2 |200 | | | |

|2009 |2 |300 | | | |

(Hint: prices remain the same in given three years whereas quantity fluctuates.)

Table: 02

|Year |Price |Quantity |Nominal GDP |Real GDP |GDP Deflator |

|2007 |2 |100 | | | |

|2008 |4 |100 | | | |

|2009 |6 |100 | | | |

(Hint: prices fluctuate whereas quantity remains the same in given three years.)

GDP Deflator =( Nominal GDP / Real GDP) * 100

a. 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.

Question # 03: Idea Illustration

Highlight the trend of economic variables during various phases of business cycle by using the following diagram.

[pic]

Question # 04: Critical Thinking

Make use of following table to answer 1 to 4 only.

|Country |Current real GDP / person |Current 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 Application

If 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

|1 |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 interest |c. 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 policy |d. 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 same |d. all of the above |

|9 |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: |

| |a. tight MP |b. easy MP |c. tight fiscal policy |d. soft fiscal policy |

|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: |

| |a. tight MP |b. easy MP |c. tight fiscal policy |d. soft fiscal policy |

Question # 07: Describing the Main Idea

What do you mean by fiscal policy? Outline the tools of fiscal policy.

Question # 08: Critical Thinking

If 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 Description

What do you mean by expansionary fiscal policy?

Question # 10: Determining Cause and Effect

Suppose 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 Skills

What 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: Inferring

How inflation distort spending behavior?

Question # 13: Using Graphs

Graphically explain the phases of economic fluctuations.

Question # 14: Main Idea Description

Explain why GDP is important to economists?

Question # 15: Inferring

In the calculation of GDP why we take “market value” of goods and services rather “amount” of goods and services?

Question # 16: Critical Thinking

What would be the effects of declining GDP?

Question # 17: Economic Application

CPI 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 Thinking

How inflation reduced purchasing power?

Question # 19: Identifying & Sequencing Information

Use a graphic organizer like the one below to identify the steps in measuring inflation.

|Steps |Details |

| | |

| | |

| | |

| | |

| | |

Question # 20: Main Idea Description

Describe the main types of inflation in detail.

| | | |

| |Inflation | |

| | |

|Demand Pull |Cost Push |Wage-Spiral |Excessive Money Supply |

| | | | |

| | | | |

| | | | |

| | | | |

| | | | |

Question # 21: Main Idea Description

How unemployment rate is determined in any society?

Question # 22: Critical Thinking

Why is structural unemployment a more difficult problem for the economy and for individual workers than other types of unemployment?

Question # 23: Main Idea Description

How inflation encourages speculation and disturbs income distribution?

Question # 24: Economic Application

Give examples of individuals caught in each of the five types of unemployment. Find new examples.

Question # 25: Inferring

In the calculation of GDP why we take “final” of goods and services rather “intermediate” goods and services?

Question # 26: Math Practice

Suppose 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 A |Price of B |Quantity of B |GDP |

|2009 |10 |100 |20 |50 | |

|2010 |20 |150 |30 |100 | |

|2011 |30 |200 |40 |150 | |

Question # 27: Main Idea Description

Describe the five major kinds of unemployment by using a graphic organizer like the one below.

|Unemployment |

|Type |Description |Example |

|Frictional | | |

|Structural | | |

|Cyclical | | |

|Technological | | |

|seasonal | | |

Question # 28: Synthesizing

What sort of inflation and unemployment is prevailing in Pakistan?

Question # 29: Main Idea Description

Think about the differences between the different measures of National Income.

| | | |

| |National Income | |

| | |

|GDP |GNP |PI |PDI |

| | | | |

| | | | |

| | | | |

| | | | |

| | | | |

Question # 30: Critical Thinking

Consider 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 |Quantity |

|2009 |10 |200 |

|2010 |10 |300 |

|2011 |10 |400 |

Question # 31: Main Idea Description

Use a graphic organizer like the one below to describe the three tools of monetary policy.

|Tool |Description |

| | |

| | |

| | |

Question # 32: Critical Thinking

Consider 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 |Quantity |

|2009 |20 |300 |

|2010 |40 |300 |

|2011 |60 |300 |

Question # 33: Determining Cause and Effect

How would a 10 percent inflation rate affect both lenders and borrowers? Why?

Question # 34: Economic Analysis

Several 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 Skills

Why is structural unemployment a more difficult problem for the economy and for individual workers than other types of unemployment?

Question # 36: Synthesizing Information

Describe structural and technological unemployment and give an example of each. Why are these kinds of unemployment serious problems for an economy?

Question # 37: Economics Analysis

During 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?

[pic]

Question # 38: Main Idea Description

How do economists measure the economic cost of instability?

Question # 39: Main Idea Description

Explain the difference between a depression and a recession.

Question # 40: Critical Thinking

If 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 Thinking

Describe the costs and benefits of outsourcing.

Question # 42: Critical Thinking

How does the cartoon below relate to what you have learned in chapter related to inflation?

[pic]

Question # 43: Economics Analysis

Calculate nominal GDP, real GDP and GDP deflator from the given data set.

|Year |Price of A |Quantity of A |Price of B |Quantity of B |

|2009 |1 |100 |2 |50 |

|2010 |2 |150 |3 |100 |

|2011 |3 |200 |4 |150 |

Question # 44: identification and Math skills

If 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 skills

If 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 skills

With 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 GDP |Price Index |Real GDP |Rate of inflation |

| |Billions | | | |

|2000 |500 |22 |? |--------------- |

|2001 |900 |26 |? |? |

|2002 |2000 |48 |? |? |

|2003 |4500 |80 |? |? |

|2004 |8700 |103 |? |? |

|2005 |11000 |110 |? |? |

Question # 47: identification and Math skills

Pakistan 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 period

b) All goods and services exchanged in an economy during a year

c) All final goods and services exchanged in an economy during a year

d) All final goods and services produced in domestic economy during a year

ii. Net National product equal:

a) National income plus indirect business taxes

b) GDP less depreciation

c) National income plus depreciation

d) GDP less indirect business taxes

iii. Which of the following statement is false:

a) GDP is greater than personal income

b) Personal disposable income is greater than personal income

c) GDP is greater then national Income

d) National income is greater than personal disposable income

iv. The natural rate of unemployment exits when there is only:

a) Frictional and structural unemployment

b) Frictional and cyclical unemployment

c) Structural and cyclical unemployment

d) Frictional unemployment

v. If C=20+.090Yd, predicts that consumption is:

a) 90 when disposable income is 100

b) 100 when disposable income is 90

c) 110 when disposable income is 100

d) 180 when disposable income is 200

vi. During inflation Govt. will adopt:

a) expansionary fiscal policy

b) contractionary fiscal policy

c) all of above

vii. frictional unemployment exists when:

a) there is fall in aggregate demand

b) workers are seasonally unemployed

c) workers lack the necessary skills to be employed

viii. cost-push inflation exist when

a) consumers increase the demand

b) resource owners increase prices of resources

c) personal income comes down

x. Economics is a Science of wealth is the:

a) Classical View

b) Neo-classical View

c) Keynesian View

d) None of above

xi. Macro economics is concerned with:

a) level of output

b) general level of prices

c) growth of income

d) both b & c

e) all of above

xii. Calculation of GNP includes;

a) gross private investment

b) net private investment

c) both of above

d) None of Above

xiii. Real GDP can be calculated as:

a) GDP Deflator/nominal GDP x 100

b) Nominal GDP/

c) GDP Deflator x 100

d) 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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Business Cycle

Peak

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2.

3.

4.

Recession

1.

2.

3.

4.

Depression

1.

2.

3.

4.

Recovery

1.

2.

3.

4.

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