GDP, demand and supply

Question 1

Nominal GDP

Answer 1

Real GDP x Price level

Question 2

GDP per capita

Answer 2

GDP / population

Question 3

GDP at market prices

Answer 3

GDP at factor cost + indirect taxes - subsidies

Question 4

GNP

Answer 4

GDP + net factor income from abroad

Question 5

Limitations of national income statistics

Answer 5

● More leisure time enjoyed which understates the people’s living standard
● There may be less undesirable effects of production (eg. pollution) which understates the people’s living standard
● (nominal GDP only) There may be serious inflation problem which overstates the people’s living standard
● (GDP per capita only) There may be increase in the size of population which overstates the people’s living standard

Question 6

Law of demand

Answer 6

an increase in the price of a good will result in an decrease in the quantity demanded of the good, ceteris paribus

Question 7

Law of supply

Answer 7

an increase in the price of a good will result in an increase in the quantity supplied of the good, ceteris paribus

Question 8

Relative price

Answer 8

● A fixed amount being added to both high-quality and low quality goods
● The relative price of the higher-quality goods in terms of low-quality goods will fall
● The quantity demanded for high-quality goods relative to low-quality goods will increase
● The average quality of goods will increase

Question 9

GDP at market price (Expenditure approach)

Answer 9

C+I+G+NX

Question 10

I in GDP (Gross domestic fixed capital formation is given)

Answer 10

Gross domestic fixed capital formation + Change in inventories

Question 11

I in GDP (Net domestic fixed capital formation is given)

Answer 11

Net domestic fixed capital formation + Depreciation + Change in inventories

Question 12

The more elastic party will have a ___ share of tax burden/ subsidy

Answer 12

Smaller