Micro Economics
National income accounting deals with the aggregate measure of the outcome of economic activities. The most common measure of the aggregate production in an economy is Gross Domestic Product (GDP). The table below provides Country’s national income accounting. Use this data to answer the following questions.
Suppose people consume 3 different goods. The following table shows the prices and quantities of each good consumed in 2006, 2007, and 2008.
| Transfer Payments | $ 54 |
| Interest Income | $ 186 |
| Depreciation | $ 36 |
| Wages | $ 67 |
| Gross Private Investment | $ 124 |
| Business Profits | $ 274 |
| Indirect Business Taxes | $ 74 |
| Rental Income | $ 75 |
| Net Exports | $ 18 |
| Net Foreign Factor Income | $ 12 |
| Government Purchases | $ 156 |
| Household Consumption | $ 304 |
Calculate the GDP by using the Expenditure Approach Method (1Mark)
Calculate the GDP by using the Factor Payment Approach or the Income Approach Method. (1 Mark)
| Year | Price of Pizza | Quantity of Pizza | Price of Burger | Quantity of Burger | Price of coffee | Quantity of Coffee |
| 2006 | $ 4 | 200 | $ 6 | 125 | $ 8 | 100 |
| 2007 | $ 6 | 350 | $ 8 | 200 | $ 9 | 175 |
| 2008 | $ 7 | 600 | $ 9 | 350 | $ 12 | 250 |
Calculate nominal GDP in each of the three years. (1.5 Marks)
Calculate Real GDP in each of the three years, using 2006 as the base year. (1.5 Marks)
Calculate the rate of inflation for 2007 and 2008 using the GDP deflator as your price index. Assume that 2006 is still the base year. (2 Marks)
Using the quantities from 2006 for your market basket, and 2006 as your base year, calculate the CPI for 2006, 2007 and 2008. (2 Marks)
Using the CPI calculate the rate of inflation. (1 Mark)
