1. a) Explain how the four uses of Output help us to
determine the GDP.
b) Calculate the GDP using only those numbers that
may be relevant from the following numbers
Consumption $60B
Government purchases $10B
Taxes $15B
Private Sector Gross
Investment $10B
Savings $10B
Imports $6B
Exports $8B
c) Explain
why Real GDP is more relevant for comparing the trends in GDP than a Nominal
GDP?
2. a) Describe using examples the three types of unemployment
we generally come across and which of these are included in the definition of
natural unemployment.
b) Is there a relationship between potential GDP and
Natural unemployment rate? Explain.
c) The unemployment rate in November 2011 came down
to 8.6% from 9.0% in the previous month. What could be a possible reason for
the decrease in the unemployment rate even when many new jobs were not being
created in the economy at that time?
3. a) What are the factors that contribute to the
growth in the economy?
b) How can we attain a faster growth rate in the
economy in the future?
c) The size of the Chinese economy currently is
about half the size of the US economy. But if the Chinese economy continues to
grow at 10% annually while the US economy grows at 3% (our historic average
growth over past many years!), using the Rule of 70 what can we say about the
two economies in the future?
4. a) Show graphically how the AS and AD graphs help to
determine the equilibrium in the economy.
b) Explain using the AS-AD graphs how an increase in
government expenditure will change the equilibrium in the economy. Do it in two
stages. First show how the graph changes with the initial increase in government
expenditure and then what happens after the multiplier process works through
the economy.
c) What is likely to be the effect of such increase
in consumption expenditure on the budget balance for the government?
5. a) What are the three functions money should be able
to perform and how is such money currently created in our economy?
b) Explain the various ways the Federal Reserve can
change the money supply in the economy?
c) If the Federal Reserve is following a restrictive
monetary policy by lowering the money supply in the economy, what will be its
effect on the equilibrium outcome in the economy? Explain using AS-AD analysis.
