Assignment I Problem 1: 1. Assume that only two goods, butter and guns are produced in an economy.

. The following information pertaining to the economy is available Number of units of Butter produced 1000 1250 Price of butter per unit (Rs.) 40 44 Number of Units of guns produced 50,000 55,000 Price of gun per unit 6 7

Year 1999 2002

Assuming 1999 to be the base year, you are required to calculate: a. Nominal GDP for the years 1999 and 2002 b. GDP deflator for the year 2002 c. Average annual inflation over the period a. Nominal GDP for the years 1999 = (No. of units of butter produced * Price per unit of butter) + (No. of units of guns produced * Price per unit of gun) = (1000*40) + (50000*6) = 340000 Nominal GDP for the years 2002 = (No. of units of butter produced * Price per unit of butter) + (No. of units of guns produced * Price per unit of gun) = (1250*44) + (55000*7) = 440000 b. GDP deflator for the year 2002 = (Nominal GDP2002 / Real GDP2002) * 100 Real GDP2002 = (No. of units of butter produced2002 * price per unit1999) + (No. of units of guns produced * price per unit1999) = (1250 * 40) + (55000 * 6) = 380000 Nominal GDP2002 = 440000 GDP Deflator = (440000/380000) * 100 = 115.79 c. Average annual inflation over the period

Method 1: Total inflation 1999 2002 Method 2: Quantity (Q) 1999 Butter Guns Total Inflation 1000 5000 0 2002 1250 5500 0 Price (P)

= (115.79 100) % = 15.79%

P*Q 199 9 40 6 200 2 44 7

Weight (Price/Total Price) 0.12 0.88

Price Relative (P2002/P1999)*100 110.00 116.67

Price Relative * Weight (2002) 12.94 102.94 115.88

40000 30000 0 34000 0

= ((CPI2002 CPI1999)/ CPI1999)* 100 = ((115.88 100)/100) * 100 = 15.88%

Problem 2: Given below is the data of a nations economy, you have to ascertain the following. 1. GNP at Factor Cost NNP at Factor Cost 2. Net Domestic Product at Factor Cost 3. Net Domestic Product at market prices. Data GNP at Market Prices Net Factor Income from Abroad Capital Consumption Allowance Net Indirect Taxes Solution Given that GNP at Market Price (i) GNP at Factor Cost Rs. 195,006 = GNP at Market Prices Indirect Taxes = Rs. 195,006 - 21,152 = Rs. 173,854 = GNP at Factor Cost Depreciation Value in Million Rupees 195,006 - 402 11,338 21,152

(ii) NNP at Factor Cost

= Rs. 173,854 - 11,338 = Rs. 162,516 (iii) NDP at Factor Cost = NNP at Factor Cost Net Factor Income From abroad = Rs. 162,516 (- 402) = Rs. 162,918 = NDP at Factor Cost + Indirect Taxes = Rs. 162,918 + 21,152 = Rs. 184,070

(iv) NDP at Market Prices

Problem 3: Based on the data relating to a nations economy determine the following. 1. GNP at Market Prices 2. Private Income 3. Personal Income 4. Personal Disposable Income. Data Net Domestic Factor Income from Domestic Product accruing to the Government Sector Net Factor Income from Abroad Indirect Taxes Subsidies Interest on National Debt Transfers from Government Administrative Department Other Current Transfer from other parts of the Globe Corporation Tax Undistributed Corporate Profits Direct Taxes paid by the house holds Consumption of Fixed Capital Solution: 1. GNP at Market Price = Net Domestic Product at Factor Cost + Net Factor Income from abroad + Capital Consumption Allowance or Consumption Fixed Capital + Indirect Taxes Subsidies Value in Million Rupees 162,858 4,666 - 402 25,752 4,600 1,928 3,962 2,542 2,502 928 4,200 11,398

= Rs. 162,858 + (- 402) + 11,398 + 25,752 4.600 = Rs. 195,006 To Calculate Private, Personal and Personal Disposable Income, first we have to ascertain the NNP at Factor Cost and since NDP at factor cost is already provided in the given data. Also the total of Transfer Payments needs to be determined. a) NNP at Factor Cost = NDP at Factor Cost + Net Factor Income from Abroad = Rs. 162,858 + (- 402) = Rs. 162,456 = Rs. 3,962 + 2,542 = Rs. 6,504 = NNP at Factor Cost + Transfer Payments + Interest on Public Debt Social Security Contributions Income from Government Departments Profits and Surplus of Public Corporations = Rs. 162,456 + 6,504 +1,928 4,666 = Rs. 166,222 = Private Income Undistributed Corporate Profit (or Savings of Private Corporate Sector) Corporation Tax = Rs. 166,222 928 2,502 = Rs. 162,792

b) Transfer Payments

2. Private Income

3. Personal Income

4.

Personal Disposable = Personal Income Direct Taxes paid by Income Households = Rs. 162,792 4,200 = Rs. 158,592

Problem: 4: The below tablet is presented with the data of information regarding a nations income. You are required to ascertain the following. 1. Net National Product at Market Prices 2. Disposable Personal Income Data Net Domestic Product at Factor Price Income from Domestic Product accruing to the Government Sector Interest on National Debt Value in Million Rupees 30,960 280 340

Transfer Payments by Government Net Private donations from abroad Net earned income from abroad Indirect Taxes Direct Taxes Subsidies Taxes on Corporate profits Undistributed Profits of Corporations Solution 1. Net National Product NNP is calculated as follows NDP at Factor Price (+) Net Earned Income from Abroad NNP at Factor Cost (+) Indirect Taxes (- ) Subsidies NNP at Market Price Rs. 30,960 Rs. 160 Rs. 31,120 Rs. 2,660 Rs. 33,780 Rs. 200 Rs. 33,580

480 60 160 2660 670 200 444 210

First, in order to compute the Disposable Personal Income, we have to determine the private and personal incomes. (a) Private Income NNP at Factor Cost (+) Transfer Payments by Government (+) Net Private Donations from abroad (+) National Debt Interest (-) Income from Domestic product accruing to government Private Income (b) Personal Income Private Income (- ) Taxes on Corporate Profits (- )Undistributed Profits of Corporations Personal Income 2. Disposable Personal Income is calculated as follows Rs. 31,720 Rs. 444 Rs. 210 Rs. 31,066 Rs. 31,120 Rs. 480 Rs. 60 Rs. 340 Rs. 32,000 Rs. 280 Rs. 31,720

Private Income (-) Direct Taxes on Persons Disposable Personal Income

Rs. 31,066 Rs. 670 Rs. 30,396

Problem 5: Table below shows National income statistics of country X. Find 1. National Income, 2. GNPMP, 3. NNPMP, 4. Personal Income, 5. Personal Disposable Income and 6. Personal Saving Data Proprietors Income Corporate Dividends Social Security Contributions Personal Taxes Interest Paid by Consumers Interest Paid by Government Government and Business Transfers Personal Consumption Expenditures Capital Consumption Allowance Compensation of Employees Business Interest Payments Indirect Business Taxes Rental Income of Persons Corporate Profits Value in Million Rupees 120.3 66.4 253.0 402.1 64.4 105.1 374.5 1991.9 356.4 1866.3 264.9 266.3 34.1 164.8

1. GNPMP = Business interest + compensation of employees + indirect business tax + rental income + corporate profit + proprietors income + depreciation = 1866.3 + 264.9 + 266.3 + 34.1 + 164.8 + 120.3 + 356.4 = 3073.1 2. NNPMP = GVPMP Depreciation = 2716.7

3. National income

= NNPFC =NNPMP Net indirect tax = 2450.4

4. Personal income = NI - Corporate Profits - Social Security Contributions + Corporate Dividends + Interest Paid by Government + Government and Business Transfers = 2450.4 164.8 253 + 66.4 + 105.1 + 374.5 = 2578.6 5. Personal = PI Personal taxes disposable income = 2578.6 402.1 64.4 = 2112.1 6. Personal saving = PDI consumption = 2111.1 1991.9 = 120.2

Problem 6: Table given below shows the national income accounts of country X in Rs. Crores Using the information given in table calculate 1. GDPMP, 2. NNPMP, 3. NI, 4. Personal income, 5. Personal disposable income Particulars GDP at factor cost Indirect taxes Subsidies Net factor income from abroad Savings of non departmental public enterprises Income from property and entrepreneurship accruing to Govt. administrative dept. Consumption of fixed capital Interest on public debt Current transfers from govt. Other current transfers from rest of the world Corporate tax Value in Million Rupees 2570 850 125 -5 15 100 290 60 245 310 190

Saving of private corporate sector Direct taxes paid by households

85 500

1. GDPMP

= GDPFC + indirect tax subsidies = 2570 + 850 125 = 3295 = GDPFC + indirect taxes subsidies consumption of fixed capital + net factor income from abroad = 2570 + 850 125 -290 -5 = 3420 420 = 3000 = NNPFC = NNPMP indirect tax + subsidies = 3000 850 +125 = 2275 = NNPFC + interest on public debt + current transfers from the rest of the govt. and rest of the world saving of non departmental public enterprises income from property and entrepreneurship accruing to the govt. Administrative department = 2275 + 60 + 245 + 310 15 100 85 190 = 2500 = PI personal taxes = 2500 500 = 2000

2. NNPMP

3. NI

4. Personal income

5. Personal disposable income