Unit-5

numerical
1. calculate GNP at MP from the following data.
GDP at MP =Rs. 5,000 crore
Net factor Income from abroad = Rs 1000 crore.
Solution,
calculate GNP at MP = GDP at MP + Net factor income from abroad
=
3.calculate the GDP deflator when real GDP is rs 3000 crore and
nominal GDP is rs 3300 crore
Solution,
GDP deflator=
6 consider the following hypothetical national income data and answer the following
questions.
Items Rs in million
Private consumption expenditure 5,000
Gross private investment 2500
Government expenditure 1500
Export 500
Import 1500
Depreciation 900
Net factor income from abroad 2000
Indirect tax 1000
Subsidies 500

a. Calculate GDP at MP
b. Calculate GNP at MP
c. Calculate NI
a. Solution,
GDP at MP =Private consumption expenditure +Gross private investment +Government expenditure
+(Export –Import)

b. Solution,
GNP at MP= GDP at MP +Net factor income from abroad(NFIA)

c. solution,
Calculate NI= GNP at MP- Indirect tax - Depreciation
9 calculate real GDP from the following hypothetical data.
Year Nominal GDP GDP Deflator Real GDP
2019/20 18000 112.25 -
2020/21 20000 115.75 -
2021/22 25000 122.55 -

Solution,
Real GDP =*100
Real GDP for the year 2019/20=
 Part b
1. if C=Rs150 billion and Y= Rs 200 billion. Calculate the value of APC.
Solution,
Given,
• C=Rs150
• Y= Rs 200
• Average Propensity to Consume (APC)=
4. find out value of MPS when MPC is 0.75
Solution
• MPC= 0.75
• We know that,
• MPS= 1-MPC
=1-0.75
= 0.25
• 1. consider the following table and answer the given question.
Y dc/dy C S APC MPC APS MPS
0 50
100 125
200 200
300 275
400 350
500 425
600 500

a. Complete the above table Y C S =Y-C APC=C/Y MPC= APS =S/y MPS
dc/dy =dS/dY
0 50 -50 - - - -
100 125 -25 1.25 0.75 -0.25 0.25
200 200
300 275
400 350
500 425
600 500
b. Explain the relationship between APC and MPC from the above table
Solution,
- APC is decline
- MPC is constant.
- The causes of decline APC and constant MPC is constant slope of
consumption function.
3. Let saving function (s) = -80+20Y and investment function (I) = 50 +0.1Y.
a. compute the equilibrium national income, saving and investment.
b. what will be the effect on equilibrium income, saving and investment when saving function increased
by 20 units?
a. solution,
Given ,
S= -80+0.2Y
I= 50+0.1Y
For the equilibrium national income,
S=I
-80+0.2Y= 50+0.1Y
Y= 1300
Equilibrium national income (Y)= Rs. 1300
Putting the value of Y in saving and investment function,
S= -80+0.2Y
= -80+(0.2*1300)
= -80+ 260
= 180
again,
• I= 50+ 0.1Y
• I=180
• Hence saving (S) =Rs.180
• Investment (I)= Rs 180.
b. When saving function increased by 20 units the new saving function will be
S=-80+0.2Y+20
S= -60 +0.2Y
For equilibrium
S=I
-60 0.2Y=50+ 0.1Y
Y= 1100
Putting the value of Y in new saving function,
S= -60+0.2Y
Putting the value of Y in investment function
I= 50+0.1Y
8 consider the following table
a. Complete the table at MPC=0.8 and also compute APC and APS.
b. Derives linear consumption and saving functions.
c. Draw a graph showing the saving curve and explain APS and MPS .
Period t1 t2 t3 t4 t5 t6
Yd 0 100 200 300 400 500
C 200
S

a. solution, consumption of t2= 200-0.8*100 =120

We know that, consumption of t1 =120-0.8*100 =40
MPC= consumption of t3 = 200
dc= MPC*dY consumption of t4= 200+ 0.8*100 =280
Again, consumption of t5 = 280 + 0.8*100 =360
Ct= Ct-1 +MPC*dY consumption of t6 = 360 + 0.8*100 =440
Similarly
Ct-1=Ct –MPC*dY
Time Y C S APS MPS
T1 0 40 -40 - -
T2 100 120 -20 -0.5 0.2
T3 200 200 0 0 0.2
T4 300 280 20 0.06 0.2
t5 400 360 40 0.1 0.2
t6 500 440 60 0.12 0.2

b. At zero income consumption is 40,so autonomous income (a) =40

b or MPC = 0.8
we know that,
consumption function
C=a+by
C= 40+0.8Y
again
we know that ,
saving function
S=Y-C
S=Y-(40+0.8Y)
S= -40 +0.2Y
• From the above table it is clear that APS is negative below the income
crore.
• At income 200 rs 200 crore APS is zero .
• MPS is constant at all level of income
 Part c
1.If PIN for all goods was increased from 124.5 in 2015-16 to 131.5 in
2016-17. find the inflation rate.
Solution,
Rate of inflation = *100

5.from the following table compute GNP deflator and rate of inflation.
Year Nominal GDP Real GNP CPI
2015-16 4414 13759 128
1016-17 5158 14535 151
• Solution,
• CPI=GNP Deflator
• GNP deflator (2015-16)=128
• GNP deflator (2016-17)= 151
• Rate of inflation = * 100
• = *100
• = 17.97%
1.the value of nominal and real GNP are given below.
Year Nominal gnp Real GNP GNP Rate of
deflator(%) inflation (%)
1015-16 470,269 208,481
1016-17 542,691 209,621
1017-18 618,961 220,489
2018-19 719,548 233,805
2019-20 843,294 249,903

• Derive the value of GNP deflator and rate of inflation

Solution
GNP Deflator =*100
GNP deflator (2015-2016)=
Rate of inflation = *100
• 4.construct CPI number for the year 2013 from the data given below. Find the
inflation rate.
Commodity Base year Price in 2013
Price (Po) Quantity (qo)
Orange 12 15 16
Mango 15 10 18
Apple 17 8 19

• Solution,
We