DEPARTMENT OF ECONOMICS
ECO 112 BASIC MACROECONOMICS
TUTORIAL QUESTIONS
TOPIC-1.0
1. Discuss four (4) main objectives of an economic system
2. What are the two main macroeconomic policies that governments might
use to achieve these objectives?
3. Discuss the functions of the two main players in a closed economy, with
no government.
4. Discuss the role of the government in a three-sector closed economy.
5. What advantages do open economies enjoy as compared to closed ones?
6. Referring to the circular flow diagram indicate what 1-8 and B-D
represents in the diagram below assuming A is households and C is
Business:
7. Describe the activities/flows that take place in the resource market in a
two-sector, closed economy, with no government.
8. Describe the activities/flows that take place in the product market in a
two-sector closed economy, with no government.
9. Distinguish between the resource market and product market in the
circular flow model. In what way are businesses and households both
sellers and buyers in this model? What are the flows in the circular flow
model?
10. What are the three primary measures used in macroeconomics to assess
the performance of an economy?
11. Explain the importance of national income accounting in an economy
12. Distinguish between the income and expenditure approaches to the
measurement of national income
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13. With the aid of clearly drawn and labeled diagrams, explain the circular
flow of incomes and expenditures in a two (2) sector, three (3) sector and
four (4) sector model.
14. Discuss leakages and injections in a two (2) sector, three (3) sector and
four (sector) circular model.
15. By using the circular flow model (for closed economy with no government
participation/spending; and for the economy with government
participation and foreign sector), explain why we can use both the
income and the expenditure approach to measure national output of a
country.
16. What is GDP? Why do we take into account the market value of all final
goods and services produced in the country while computing GDP of a
country?
17. Give examples of purely financial transactions and explain why those
transactions are excluded from the calculation of GDP
18. What does double counting mean? Explain, by giving example, how
double counting is avoided in national income accounting.
19. Make out the distinction between the following:
a) GDP and GNP
b) GDP and NDP
c) National income, Personal Income and Disposable Income
d) Gross Private Domestic Investment and Net Private Domestic
Investment
e) Net foreign factor income earned
f) Consumption of fixed capital/depreciation costs/ replacement
cost
20. An economy is made up of three firms. Firm A produces milk; it sells
P3000 worth of milk to firm and P4000 worth to firm C and it pays
P1000 to its workers (it has no other sales or costs). Firm B makes
cheese and sells P6000 worth of it, paying its workers P2000. Firm C
makes butter, selling P10,000 worth and pay its workers P4000. There
are no transactions between firms B and C. What is the value of the
country’s GDP?
21. If we assume that in the year 2019, the GDP of Botswana was P 125
billion and the NDP was P105 billion. What accounts for this difference?
22. When we say that national income is the income earned and personal
income is the income received, how does this make the difference?
23. Briefly discuss the problems in the preparation of national income
accounts of a country
24. Discuss the problems of using GDP as a measure of nation’s welfare
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25. Below is the list of hypothetical figures relating to domestic output and
income of a country for the year 2015
All figures are in million Pula. Calculate GDP by expenditure and
income method and also derive NDP, National income, Personal
income and Disposable income.
Personal consumption 245
Government consumption 72
Net Private Domestic Investment 33
Exports 32
Imports 21
Consumption of fixed capital/
Depreciation of capital/
Capital replacement cost 27
Indirect Business Taxes/Taxes
on production and imports 18
Net Foreign Factor Income earned 16
Transfer payments 12
Rent 14
Social Security contributions 20
Interest 13
Proprietors’ income 33
Dividends 16
Compensation of employees –Wages 223
Undistributed corporate profits 21
Personal taxes 26
Corporate income taxes 19
Corporate profits (dividends+ corporate
income taxes+ undistributed corporate
profits) 56
Statistical discrepancy 20
26. Define net exports
27. Describe the difference between real GDP and nominal GDP. Which
concept is more useful for measuring change in the economy over time?
Why?
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28. Assume that a painter produces 20 paintings this year and 20
paintings next year. What is the annual change in nominal GPD if the
price of paintings rises from P1,000 this year to P1,500 next year? Can
you conclude that the economy grew from this year to next year based
on your answer? Why?
29. When will the Real GDP be higher than Nominal GDP?
30. (Key Question) The following table shows nominal GDP and an
appropriate price index for a group of selected years. Compute real GDP.
Indicate in each calculation whether you are inflating or deflating the
nominal GDP data.
Nominal Price index Real GDP,
Year GDP, (2000 = 100) Billions
Billions
1974 P663.6 22.13 P ______
1984 1500.0 34.73 P ______
1994 3933.2 67.66 P ______
2004 7072.2 90.26 P ______
2014 11734.3 109.10 P ______