UNIVERSITY OF GUYANA
FACLTY OF SOCIAL SCIENCES
ACADEMIC YEAR 2019/2020 (Semester II)
DEPARTMENT OF ECONOMICS
ECN 1200- INTRODUCTION TO MICROECONOMICS
Week Five Exercise Sheet
Question 1
The table below shows the various output from various sectors of the Darth’s economy
(US $Billion)
Consumption expenditure 4900
Investment expenditure 1300
Transfer payments 1050
Government expenditure 1200
Exports 1050
Imports 950
Net foreign factor income 20
Depreciation 10
1. Calculate GDP using the national income approach
2. Calculate and comment on net exports
3. Calculate Gross National Output(GNP)
4. Calculate Net National Product (NNP)
Question 1.1
Define the following terms: DO NOT USE WIKIPEDIA.COM
National Income:
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Employee Compensation:
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Proprietors’ Income:
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Corporate Profits:
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Net interest:
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Rental Income:
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Indirect Business Taxes:
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Subsidies:
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Net Factor Payments to ROW:
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Personal Consumption Expenditures (C):
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Durable Goods:
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Non-durable Goods:
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Services:
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Gross Private Investment (I):
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Non-residential Investment:
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Residential Investment:
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Change in business inventories:
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Government Consumption and Investment:
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Net Exports:
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Gross Investment:
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Net Investment:
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Question 2
How do we calculate Gross Domestic Product (GDP) using the following methods.
1. Product Approach
Calculating the value of final goods and services that are produced in an economy over a
given period of time. The key take away from this approach to calculating GDP is to
recognize that in order to come up with the value of GDP we sum up the value added at
each stage of production process.
2. Income Approach
The income approach to calculating GDP involves measuring the payments to the factors of
production during a given period of time. In this method we sum up all the payments. These
payments include : Wages + rent + profit + interest.
3. Expenditure Approach
Is a method used to calculate GDP by adding up the expenditure on all final goods and
services during a given period of time.
Question 3
(a) Calculate the Gross Domestic Product
Stages of production Value of sales Value added
Oil drilling $0.50 $0.50
Refining $0.65 $0.15
Shipping $0.80 $0.15
Retail Sales $1.00 $0.20
Total GDP $1.00
(b) Calculate the Gross Domestic Product using the expenditure Approach.
Components Amount ($US Million)
Durable goods 659.3
Non-durable goods 1592.0
Services 3234.5
Non-residential investment 846.9
Residential Investment 327.2
Changes in business inventories 68.4
Capital Expenditure 523.8
Recurrent captial expenditure 928.9
Imports 1058.1
Exports 957.1
Question 4
Discuss some limitations of using GDP statistics as a measure of standard of living.
1. GDP does not take into account environmental degradation:
(i) Increases in production do create negative externalities …..pollution, oil spills etc.
2. Underground economy …… sometimes Black Markets
Economic activity goes unreported. This means that these businesses are not paying taxes.
3. Per capita GDP -. Since GDP does not give a good idea of the well being of citizen, per capita GDP
or GNP figures are used. However, these figures themselves cannot give an idea of the
distribution of an economy’s income but are making international comparisons.
4. GDP does not take into account “DO IT yourself activities.
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