Module 1

Test Your Understanding

Prof. Vandana Singhvi Patel

Please note that the questions below are not indicative of questions in Quiz 1, Quiz 2 or
Final Exam. Use these questions to test your understanding of concepts introduced in
Module 1 and readings suggested on Moodle.
1.

What is GDP? What is included in its measurement? What is excluded? What

are its limitations as a measure of economic activity?

2.

Distinguish between the following terms:

i. GDP & GNP
ii. NDP & GDP
iii. real GDP & nominal GDP
iv. GDP at market price & GDP at factor price
v. GDP at current price & GDP at constant price (2004-05).
Provide examples to illustrate your answer

3.

Explain how a loaf of bread can be considered both a final good and an
intermediate good. What about steel?

4.

Is the purchase of a home included in the calculation of GDP? If yes how and
under what conditions? If not, why not? How does activity in real estate sector
contribute to GDP?

5.

Determine if the following items are included in the expenditure method of

calculating GDP and under what component - C, I, G, X or M?
i.
Juhi buys newly issued shares of stock in a publicly traded firm Tristar
Motors.
ii.
Raaj buys a new pair of jeans at Cottonworld
iii.
Jai gets a hair cut at the local hair salon.
iv.
Rita buys an antique chest at an auction house.
v.
Vibha buys a used car and replaces the tyres
vi.
Priya grows herbs on her apartment balcony and shares them with her
friends
vii.
Mohit travels to France and buys French wine.
viii.
Javed, a stay-at-home dad, takes care of his 4 year old twins.
ix.
Madhu sends her 3 year old to pre-school.
x.
Rashmi volunteers at a homeless shelter.
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Module 1
Test Your Understanding
Prof. Vandana Singhvi Patel

xi.
xii.
xiii.
xiv.
xv.
xvi.
xvii.
xviii.
xix.

Government pays farmers a Rs 10 per unit subsidy on pesticide bought

Flipkart.com buys books from a publisher
Mayur buys a book from a publisher
Madhuri buys a book from flipkart.com
Tata Motors builds a car in Jamshedpur and ships it to Indonesia for sale.
Mayank bets Rs. 5000 on an IPL game.
You buy land to build a home.
You buy a new apartment on Bannerghatta road
Arun buys a 12 year old apartment, renovates the kitchen (new
appliances, etc)

Year
1
2
3

Good A
Qty
2000
2400
2600

Price/Unit
0.1
0.15
0.25

Qty
75
60
75

Good B
Price/unit
1
1.1
1.2

6.

Using the data above where possible calculate nominal GDP, Real GDP (use
year 1 as base year), growth rates in real GDP and Nominal GDP, inflation rate
using GDP deflator.

7.

What would happen in a country in which the value of depreciation is larger than
the value of gross investment?

8.

Why do we calculate GDP in Rupee instead of computing GDP in kg or units

produced?

9.

When would NX be a negative number and what implication does this have for
the computation of GDP?

10. Why do we have to subtract imports in the calculation of GDP? Hint: We could
simply not add M into GDP = C+I +G +X. But why do we have to subtract them
from the above calculation as in GDP = C + I + G + X M?

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Module 1
Test Your Understanding
Prof. Vandana Singhvi Patel

11. What would be the effect on GDP with legalization of use of marijuana, child

labour and gambling?

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