ECO 112 Tutorial set-1-solutions PDF

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ECO 112 TUTORIAL SET- 1 – SOLUTIONSTopic 1.7. a) GNP is higher than GDP since income earned byforeign factors in Botswana is less than whatBotswana factors earned in other countriesb) NDP = GDP – Consumption of fixed capital (CFC)NDP = 50 - 5 = 4510. GDP by expenditure methodGDP= C+ Ig + G + (X-M) o...

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ECO 112TUTORI ALSET-1–SOLUTI ONS Topi c1. 0 7.

10.

a)

GNP i s hi gher t han GDP si nce i ncome ear ned by f or ei gn f act or s i n Bot swana i s l ess t han what Bot swanaf act or sear nedi not hercount r i es

b)

NDP=GDP–Consumpt i onoffixedcapi t al( CFC) NDP=50-5=45

GDPbyexpendi t ur emet hod GDP=C+I g+G +( XM)orXn=388 I g=CFC +Netpr i vat eDomest i ci nvest ment Xn= XM( Expor t s-I mpor t s) ;andXn can beposi t i ve ornegat i ve GDPbyi ncomemet hod GDP=Wages+r ent +i nt er est +CFC+I ndi r ectbusi ness t axes+ Pr opr i et or s’ i ncome + Cor por at e Pr ofit s ( Di vi dends+undi st r i but edCor por at ePr ofit s+Cor por at e i ncomet axes)+Netf or ei gnf act ori ncomeear ned =388 NDP=GDP-CFC =38827=361 NI = NDP-( I BT+NFFI )=339 PI = NI–( Soci alsecur i t ycont r i but i ons+cor por at ei ncome t axes+ undi st r i but ed cor por at e pr ofit s) + Tr ansf er payment s =339-48=291 DI=PI–per sonalt axes=291-26=265

1

Topi c1. 1Q.2 Lev e lofout putand Cons umpt i on Savi ngs I nc ome GDP=DI P240 P244 P4 260 260 0 280 276 4 300 292 8 320 308 12 340 324 16 360 340 20 380 356 24 400 372 28

APC

APS

MPC

MPS

1. 01 1. 00 0. 98 0. 97 0. 96 0. 95 0. 94 0. 93 0. 92

0. 01 0. 00 0. 02 0. 03 0. 04 0. 05 0. 06 0. 07 0. 08

1 0. 8 0. 8 0. 8 0. 8 0. 8 0. 8 0. 8

0 0. 2 0. 2 0. 2 0. 2 0. 2 0. 2 0. 2

Topi c1. 1-Q. 7 Nat i onal i nc ome

Di s pos Con. Expen abl e t ur e i ncome di

100 200 300 400 500 600 700 800 900 1000 1100

0 100 200 300 400 500 600 700 800 900 1000

50 130 210 290 370 450 530 610 690 770 850

I nv est m ent Expendi t ur e 50 50 50 50 50 50 50 50 50 50 50

Gov er nment Expendi t ur e

Expor t s I mpor t s Agg. Exp. I Agg. Exp.I I

50 50 50 50 50 50 50 50 50 50 50

100 100 100 100 100 100 100 100 100 100 100

50 50 50 50 50 50 50 50 50 50 50

200 280 360 440 520 600 680 760 840 920 1000

A)De t er mi ne t he mar gi nal pr opensi t yt o c onsume and t he mar gi nal pr opensi t yt osave .MPC =80/100=0. 80;MPS=20/100=0. 20 B)Fi l li n al lt heot herbl anks ,and usi ngt hee xpendi t ur ei nc omeme t hod, de t er mi net heequi l i br i um l ev e lofi nc omeandgr aph i t .Al soexpl ai n why al lot heri ncomel ev e l sar enotequi l i br i um i nc omes. Equi l i br i um Y =600

8. A)whati st hesi gni ficanceofamul t i pl i eri nanec onomy? 2

240 320 400 480 560 640 720 800 880 960 1040

As sumet hati nv est ments pendi ngi nc r e asesbyP40bi l l i on f r om t heP50 bi l l i on i n ques t i on 7. What wi l l be t he new equi l i br i um i ncome ? New Equi l i br i um Y =800 B) De t er mi net hesi z eoft hei nv est mentmul t i pl i erf r om t heabov ec hange . Mul t i pl i er=Changei n Y/Changei n I=800600/9050=200/40=5 9.

As sumet hec onsumpt i onsc hedul ef oranope nec onomyi s C=100+0. 75Y. As sume f ur t her t hat pl anned i nves t ment ( I g) ne t expor t s ( Xn) and gov er nment( G)s pendi ngar ei ndependentofnat i onali nc omeand c ons t ant at :I g=35;Xn=15,G=100. Usi ngAl gebr a,c al c ul at et heequi l i br i um l ev elofi nc omeandc onsumpt i on.

Y =C+I g+G+Xn =100+0. 75Y+35+100+15 =250+0. 75Y Y =250/( 10. 75) =250/0. 25=1000 C =100+0. 75X1000=850

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