Tutorial 2 (Macro)
Section A: MCQ
1. D
2. B
3. D
4. B
5. B
6. C
7. D
8. D
9. A
10. A
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)
GDP
= Consumption expenditure + Gross private domestic investment + Government
expenditure on goods and services + (Exports - Imports)
= RM2446 B + RM2837 B + RM 4810 B + (RM4899 B - RM4855 B)
= RM 10137 B
(ii) Gross National Product (GNP) (4 marks)
GNP
= GDP - Income Earned by The Rest of The World +Income Earned From The Rest
of The World
= RM 10137 B - RM 1628 B + RM 1456 B
= RM 9965 B
(iii) National Income (NI) (4 marks)
NI = GNP - Capital consumption of the allowance - Indirect business taxes
= RM 9965 B - RM 925 B - RM 146 B
= RM 8894 B
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 RM5000 million RM7200 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)
Real GDP in year 2006
= (GDP / Chain weighted price index) x 100
= (RM 5000m / 120) x 100
= RM 4166.67m
Real GDP in year 2007
= (GDP / Chain weighted price index) x 100
= (RM 7200m / 160) x 100
= RM 4500m
(ii) Calculate the real GDP per capita in years 2006 and 2007. (4 marks)
Real GDP per capita in year 2006
= Real GDP for year 2006 / population for year 2006
= 4166.67/10
= RM 416.67 per person
Real GDP per capita in year 2007
= (Real GDP for year 2007 / population for year 2007)
= 4500/11
= RM 409.09 per person
(iii) Calculate the rate of economic growth between 2006 and 2007. (4 marks)
Rate of economic growth
= [ (Real GDP in year 2007- Real GDP in year 2006) / Real GDP in year 2006 ] x
100%
= [ (RM 4500- RM 4167)/ RM 4167] x 100%
= 8%
3. Briefly explain any FIVE (5) reasons why GDP does not necessarily measure
the well-being of a country. (10 marks)
- Certain nonmarket goods and services are not transacted over the market. If a family
hires a person to cook and clean, the service is counted in GDP. If family members
perform the same tasks, however, their services are not counted in GDP. For example,
the dinner prepared by mum.
- GDP does not adjust for the bad, for example, pollution, that sometimes
accompanies the production. For example, producing cars, furniture and steel often
generates air and water pollution, which most people consider as bad, GDP only
counts the goods and services.
- Leisure is not counted in GDP because it is too difficult to be quantified. Leisure is
good in much the same way that cars, houses and shoes are goods.
- There is no legal record for some of the underground legal activities because they
want to keep from government notice and tax evasion. For example, a person legally
buys or sells gardening services, but the transaction might not be recorded if one or
both parties do not want it to be.
- The underground illegal activities are not counted in GDP because no records exists
of the transaction. For example, there are no written records of illegal drug sales,
illegal gambling and illegal prostitution.
4. With the aid of the diagram, briefly describe the FIVE (5) phases of the
business cycle. (12 marks)
Peak - At the peak of the business cycle,Real GDP is at a temporary high.Peak phase
refers to the phase in which the increase in growth rate of business cycle achieves its
maximum limit.In peak phase, the economic factors such as production, profits, sales,
and employment are higher, but do not increase further.
Contraction - A decline in the Real GDP, if it falls for two or more consecutive
quarters, it is said to be in a recession. Recession is a significant decline in activity
spread across the economy. Lasting more than a few months, visible in industrial
production, employment, real income, and wholesale retail trade.
Trough - The low point of the GDP, just before it begins to turn up. During the
trough phase, the economic activities of a country decline below the normal level.
Recovery - When the GDP is rising from the trough and ends at the initial peak. Once
the economy touches the lowest level, its happens to be the end of negativism and
beginning of positivism. This leads to reversal of the process of business cycle.
Expansion - When The GDP expands beyond the recovery. In the expansion phase,
there is an increase in various economic factors, such as production, employment,
output, wages, and sales.In addition, in the expansion phase, the prices of factor of
production and output increases simultaneously.
5. Differentiate between Gross Domestic Product (GDP) and Real Gross
Domestic Product (RGDP). (6 marks)
Gross Domestic Product Real Gross Domestic Product
It measures the total market value of all It measures the value of the entire
final goods and services produced output produced annually within a
annually within a country’s border. country’s border.
It has not adjusted for price change It has adjusted for price change
(inflation) (inflation)
The expenditure approach, income It is calculated by multiplying the
approach, and value-added approach can quantity of the good produced in a
be used to calculate GDP. given year by the price of the good in
the base year.
Real GDP= ⅀(Base-year prices x
current-year quantities)
6. The table below shows the national income accounting data for a particular country
for the year 2017:
ITEMS RM million
Net Interest 36
Corporate profit 50
Indirect Business tax 15
Proprietors’ income 45
Compensation of employees 560
Consumption of fixed capital 6
Rental Income 27
Income earned by the rest of the world 10
Income earned from the rest of the world 15
Statistical discrepancy 5
Using the income approach, calculate the following values:
(i) National Income (NI) (4 marks)
National income
= Compensation of employees + Proprietors’ income + Corporate profit +Rental
Income + Net Interest
=RM 560m + RM 45m + RM 50m + RM 27m + RM 36m
=RM 718m
(ii) Gross National Product (GNP) (4 marks)
Gross National Product
= National income + indirect business taxes + consumption of fixed capital +
statistical discrepancy
= RM 718m + RM 15m + RM 6m + RM 5m
= RM 744m
(iii) Gross Domestic Product (GDP) (4 marks)
Gross domestic product
= National income - Income earned from the rest of the world + Income earned by the
rest of the world + Indirect Business tax + Consumption of fixed capital +
Statistical Discrepancy
= RM 718m - RM 15m + RM 10m+ RM 15m + RM 6m + RM 5m
= RM 739m
(iv) GDP per capita if the population for the year is 5 million (3 marks)
GDP per capita
= GDP / Population
= 739m / 5m
= RM 147.8 per person
