Chapter 16 Measurement of Economic Performance (II)

Economics Inquiry for HKDSE Macroeconomics 1 Chapter 16 Measurement of Economic Performance (II)
Multiple Choice Questions |!|EM42001|!| Which of the following statements about GNP is CORRECT? A. B. C. D. Nominal GNP is always larger than real GNP. Per capita GDP is always larger than per capita GNP. Net factor income from abroad can be positive or negative. GNP is always larger than GDP.
## C Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory When the factor income earned by residents outside the economic territory is larger than the factor income earned by non-residents within the economic territory, net factor income from abroad will be positive. When the factor income earned by residents outside the economic territory is smaller than the factor income earned by non-residents within the economic territory, net factor income from abroad will be negative. Option A is incorrect. Real GNP = Nominal GNP (Price index of the base year / Price index of the current year) Whether nominal GNP is larger than real GNP depends on the price index of the base year and the current year. Option B is incorrect. Whether per capita GDP is larger than per capita GNP depends on the difference between GDP and GNP. Option D is incorrect. GNP = GDP + Net factor income from abroad Whether GNP is larger than GDP depends on the value of the net factor income from abroad. ##
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|!|EM42002|!| Which of the following can explain the difference between GDP and GNP? (1) GNP includes net exports but GDP does not. (2) GNP includes indirect taxes and subsidies but GDP does not. (3) GNP includes net factor income from abroad but GDP does not.
A. B. C. D.
(1) only (3) only (2) and (3) only (1), (2) and (3)
## B GNP = GDP + Net factor income from abroad Therefore, only GNP includes net factor income from abroad. (1) is incorrect. Both GDP and GNP include net exports. (2) is incorrect. Both GDP and GNP include indirect taxes and subsidies. ##
|!|EM42003|!| According to the Census and Statistics Department, which of the following is/are regarded as residents of Hong Kong? (1) a Canadian artist who worked in Hong Kong on a six-month contract (2) a company that was established in Hong Kong in 1984 (3) an American who worked in Hong Kong for 3 years
A. B. C. D.
(1) only (1) and (2) only (1) and (3) only (2) and (3) only
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## D (2) is correct. For organisations, residents refer to those which ordinarily operate in the economic territory. (3) is correct. For individuals, residents refer to those who normally stay in the economic territory of the economy for at least 12 months, or intend to do so, irrespective of their nationalities. (1) is incorrect. The artist is not a resident of Hong Kong because he stayed in Hong Kong for fewer than 12 months. ##
|!|EM42004|!| Which of the following should be included in the net factor income from abroad of Hong Kong? A. B. C. D. the expenditure of an American tourist on accommodation services in Hong Kong the revenue earned by a Hong Kong resident from selling toys to the USA the interest paid to a foreigner for his savings deposit in a bank in Hong Kong the dividend received by a Hong Kong resident from holding shares of a company listed in Great Britain
## D Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory The dividend received by a Hong Kong resident from holding shares of a company listed in Great Britain is the factor income earned by residents outside Hong Kong and should be included in net factor income from abroad of Hong Kong. Options A and B are incorrect. They are exports of goods and services of Hong Kong and therefore should not be included in the net factor income from abroad of Hong Kong. Option C is incorrect. The interest paid to a foreigner for his savings deposit in a bank in Hong Kong is the factor income earned by non-residents within Hong Kong and should not be included in the net factor income from abroad of Hong Kong. ##
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|!|EM42005|!| Which of the following should NOT be included in the net factor income from abroad of Hong Kong? (1) the salary earned by a Hong Kong resident who works for a Chinese company in Beijing (2) the rent received by a Hong Kong resident who owns premises in New Zealand (3) the payment made by a Hong Kong resident to a Japanese company for buying a new handbag
A. B. C. D.
(1) only (3) only (1) and (2) only (2) and (3) only
## B Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory Since the handbag was an imports of goods, its value should not be included in the net factor income from abroad. (1) and (2) are incorrect. The salary earned by a Hong Kong resident who works for a Chinese company in Beijing and the rent received by a Hong Kong resident who owns premises in New Zealand are factor income earned by residents outside Hong Kong. Therefore, they should be included in the net factor income from abroad. ##
|!|EM42006|!| If gross national product (GNP) is larger than gross domestic product (GDP), this implies that net factor income from abroad A. B. C. D. is increasing. is decreasing. is positive. is negative.
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## C GNP = GDP + Net factor income from abroad If GNP is larger than GDP, the net factor income from abroad must be positive. Options A and B are incorrect. The question does not mention any change in GDP or GNP. ##
|!|EM42007|!| If the net factor income from abroad is negative, gross national product (GNP) will be _____________ than gross domestic product (GDP) and factor income earned by non-residents within the economic territory will be _____________ than factor income earned by residents outside the economic territory. A. B. C. D. larger larger larger smaller smaller larger smaller smaller
## C GNP = GDP + Net factor income from abroad If the net factor income from abroad is negative, GNP will be smaller than GDP. Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory If the net factor income from abroad is negative, factor income earned by non-residents within the economic territory will be larger than factor income earned by residents outside the economic territory. ##
|!|EM42008|!| To calculate the GNP of Hong Kong, which of the following should be added to the GDP of Hong Kong? A. the income earned by a Hong Kong resident from working at the Hong Kong branch office of a Japanese company B. C. D. the income earned by a French chef who has worked in Hong Kong for a month the interest received by a Hong Kong resident from his savings deposit in a bank in Australia the investment made by a Mainland businessman in a restaurant in Hong Kong
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## C GNP = GDP + Net factor income from abroad, where Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory As the interest received by a Hong Kong resident from his savings deposit in a bank in Australia is factor income earned by residents outside the economic territory, it should be added to the GDP of Hong Kong in calculating the GNP. Options A and D are incorrect. They are not factor income earned by residents outside the economic territory, therefore they should not be added to the GDP of Hong Kong in calculating the GNP. Option B is incorrect. The income earned by a French chef who has worked in Hong Kong for a month is factor income earned by non-residents within the economic territory, therefore it should be deducted from the GDP of Hong Kong in calculating the GNP. ##
|!|EM42009|!| Which of the following should be deducted from the gross domestic product (GDP) of Hong Kong in calculating the gross national product (GNP) of Hong Kong? (1) the income received by a Japanese who teaches Japanese in a Japanese language school in Hong Kong for 3 months (2) the dividends paid to an American for holding shares of a listed company in Hong Kong (3) the rental income received by a Hong Kong resident who leases out his apartment in the Mainland
A. B. C. D.
(3) only (1) and (2) only (2) and (3) only (1), (2) and (3)
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## B GNP = GDP + Net factor income from abroad, where Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory (1) and (2) are correct. As they are factor income earned by non-residents within the economic territory, they should be deducted from the GDP in calculating the GNP of Hong Kong. (3) is incorrect. As the rental income received by a Hong Kong resident who leases out his apartment in the Mainland is factor income earned by residents outside the economic territory, it should be added to the GDP in calculating the GNP of Hong Kong. ##
|!|EM42010|!| Consider the economic data of Country X shown in the table and answer the following question.
Components Private consumption expenditure Government consumption expenditure Net domestic fixed capital formation Changes in inventories Depreciation Net exports Factor income paid abroad Factor income from abroad
$ billion 230 190 100 20 5 150 110 80
Refer to the above information. The GNP at market prices is _________________ billion. A. B. C. D. $655 $660 $665 $670
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## C GNP at market prices = GDP at market prices + Net factor income from abroad = $[(230 + 190 + (100 + 20 + 5) + 150 + (80 110)] billion = $665 billion ##
|!|EM42011|!| Consider the economic data of Country X shown in the table and answer the following question.
Components Private consumption expenditure Government consumption expenditure Gross investment Changes in inventories Depreciation Net exports Indirect taxes Subsidies Net factor income from abroad
$ million 100 80 90 -30 10 70 20 50 -50
Refer to the above table. The GNP at factor cost is _________________ million. A. B. C. D. $230 $260 $290 $320
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## D GNP at factor cost = GDP at market prices + Net factor income from abroad Indirect tax + Subsidies = $[(100 + 80 + 90 + 70) 50 20 + 50] million = $320 million ##
|!|EM42012|!| Consider the economic data of Country X shown in the table and answer the following questions.
Component Private consumption expenditure Government consumption expenditure Net domestic fixed capital formation Decrease in inventories Depreciation Indirect taxes Subsidies Net exports Net factor income from abroad
$ billion 230 60 180 50 10 X 5 320 55
(a)
Refer to the above table. The GNP at market prices is _________________ billion. A. B. C. D. $730 $760 $805 $915
(b) If GDP at factor cost is $700 billion, the value of X is _________________ billion. A. B. C. D. $40 $45 $50 $55
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## (a) C GNP at market prices = GDP at market prices + Net factor income from abroad = $[(230 + 60 + 180 50 + 10 + 320) + 55] billion = $805 billion (b) D GDP at market prices = GDP at factor cost + Indirect tax Subsidies $(230 + 60 + 180 50 + 10 + 320) billion = $(700 + X 5) billion X = 55 ##
|!|EM42013|!| Which of the following should be included in Hong Kongs GDP but not in Hong Kongs GNP? A. the income earned by a Korean doctor who has been operating a clinic in Hong Kong for several years B. C. D. the revenue of an outlet in Macau run by a Hong Kong-based garment company the dividends earned by a British from the shares of a company listed in Hong Kong the money received by a Hong Kong resident from the sale of his old mobile phone
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## C As the dividend is distributed from a Hong Kong company (a resident producing unit of Hong Kong), it should be included in Hong Kongs GDP. On the other hand, dividends earned by the British should not be included in Hong Kongs GNP as this is factor income earned by non-residents within the economic territory. Option A is incorrect. As the Korean doctor is a resident producing unit of Hong Kong, the income earned should be included in Hong Kongs GDP. Moreover, as the Korean has worked in Hong Kong for more than a year, he is regarded as a resident of Hong Kong. Therefore, his income should also be included in Hong Kongs GNP. Option B is incorrect. As the outlet is not a resident producing unit of Hong Kong, the revenue should not be included in Hong Kongs GDP. On the other hand, as it is factor income earned by residents outside the economy territory, it should be included in Hong Kongs GNP. Option D is incorrect. The value of the old mobile phone was included in the GDP when it was sold for the first time. Therefore, the money received should not be included in either the GDP or the GNP for the current year. ##
|!|EM42014|!| Which of the following should be included in Hong Kongs GNP but not in Hong Kongs GDP? A. B. the salary received by an Australian for working at a restaurant in Hong Kong for 5 years the salary received by a Hong Kong resident for working at a company in Hong Kong that is owned by an American C. D. the rent received by a Hong Kong resident from leasing out his flat in Canada the interest received by a Mainland resident from money deposited in a bank in Hong Kong
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## C Since the rent received by a Hong Kong resident from leasing out his flat in Canada is factor income earned by residents outside the economic territory, it should be included in Hong Kongs GNP only. Option A is incorrect. Since the Australian was employed by a resident producing unit of Hong Kong, his income should be included in Hong Kongs GDP. Moreover, as the Australian worked in Hong Kong for more than a year, he is regarded as a resident of Hong Kong, and the salary should be included in Hong Kongs GNP as well. Option B is incorrect. Since the Hong Kong resident is employed by a resident producing unit of Hong Kong, his income should be included in Hong Kongs GDP. Moreover, as he is a resident of Hong Kong, his salary should be included in Hong Kongs GNP as well. Option D is incorrect. As the interest received by the Mainland resident who deposits money in a bank in Hong Kong is factor income earned by non-residents within the economic territory, it should not be included in Hong Kongs GNP. ##
|!|EM42015|!| Mrs. Wong, who came from the Mainland, worked as a Putonghua teacher in a language centre in Hong Kong for two years. The salary she received should be included in A. B. C. D. Hong Kongs GDP only. Hong Kongs GNP only. both Hong Kongs GDP and GNP. neither Hong Kongs GDP nor GNP.
## C As Mrs. Wong was employed by a resident producing unit of Hong Kong, her salary should be included in Hong Kongs GDP. Moreover, as Mrs. Wong worked in Hong Kong for more than a year, she is regarded as a resident of Hong Kong. Therefore, her salary should be included in Hong Kongs GNP as well. ##
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|!|EM42016|!| Jason is an American. He worked in a company in Hong Kong for nine months. Jasons salary for these nine months should be included in A. B. C. D. Hong Kongs GNP. both Hong Kongs GDP and GNP. the USs GDP. the USs GNP.
## D To the US, Jasons salary is factor income earned by residents outside the economic territory. Therefore, it should be included in the USs GNP. Options A and B are incorrect. To Hong Kong, Jasons salary is factor income earned by non-residents within the economic territory. Therefore, it should be excluded from Hong Kongs GNP. Option C is incorrect. As Jason was not employed by a resident producing unit of the US, his salary should not be included in the USs GDP. ##
|!|EM42017|!| Carson has been working for a company in Japan for ten years and he still holds a HKSAR identity card. Which of the following statements is CORRECT? A. Carsons salary during this period was included in Hong Kongs GNP as he still holds the HKSAR identity card. B. C. Carsons salary during this period was included in both Hong Kongs GDP and GNP. Carsons salary during this period was included in Japans GDP only as he is not a resident of Japan. D. Carsons salary during this period was included in both Japans GDP and GNP.
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## D As Carson was employed by a resident producing unit of Japan (the company in Japan), his salary was included in the GDP of Japan. As Carson has worked in Japan for more than a year, he was regarded as a resident of Japan, and his salary was included in the GNP of Japan. Options A and B are incorrect. As Carson had not stayed in Hong Kong for at least 12 months, he was not regarded as a resident of Hong Kong and therefore his salary was not included in the GNP of Hong Kong. As Carson was not employed by a resident producing unit of Hong Kong, his salary was not included in the GDP of Hong Kong. ##
|!|EM42018|!| If the factor income earned by residents outside the economic territory increases and its net factor income from abroad remains unchanged, this implies that (1) its GDP increases. (2) its GNP increases. (3) the factor income earned by non-residents within the economic territory increases.
A. B. C. D.
(1) only (3) only (1) and (2) only (1), (2) and (3)
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## D Net factor income from abroad = Factor income earned by residents outside the economic territory Factor income earned by non-residents within the economic territory (1) and (3) are correct. If the factor income earned by residents outside the economic territory increases and its net factor income from abroad remains unchanged, this means the factor income earned by nonresidents within the economic territory increases. As the factor income earned by non-residents within the economic territory is included in the GDP, an increase in the factor income earned by non-residents within the economic territory leads to an increase in the GDP. (2) is correct. As the GDP increases and the net factor income from abroad remains unchanged, the GNP increases. ##
|!|EM42019|!| Suppose real GNP decreases but real GDP remains unchanged. This means that the net factor income from abroad A. B. C. D. is positive. is negative. increases. decreases.
## D Real GNP = Real GDP + Net factor income from abroad If real GNP decreases but real GDP remains unchanged, net factor income from abroad must decrease. ##
|!|EM42020|!| Which of the following statements about national saving is CORRECT? A. B. C. D. National saving must be equal to domestic investment in a closed economy. Private saving must be equal to public saving. National saving must not be equal to domestic investment in an open economy. None of the above.
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## A In a closed economy, Y = C + I + G, so I = Y C G. As S = Y C G, S = I. Option C is incorrect. In an open economy, S I = NX. If NX = 0, national saving is equal to domestic investment. ##
|!|EM42021|!| Which of the following statements about national saving are CORRECT? (1) National saving is the income left after paying for government consumption expenditure. (2) If there is a budget deficit, public saving will be negative. (3) Private saving is the income left after paying for taxes and private consumption.
A. B. C. D.
(1) and (2) only (1) and (3) only (2) and (3) only (1), (2) and (3)
## C (2) is correct. Public saving is equal to the government budget balance after paying for government consumption expenditure with tax revenue. If there is a budget deficit, the government consumption expenditure is larger than the tax revenue. Therefore, public saving will be negative. (1) is incorrect. National saving is the income left after paying for private consumption expenditure and government consumption expenditure. ##
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|!|EM42022|!| In a closed economy, Y = $200, C = $80, G = $50, SP = $30 where Y, C, G and SP are national income, private consumption expenditure, government consumption expenditure and private saving respectively. There is a _________________ and domestic investment is _________________. A. B. C. D. budget surplus of $30 $40 budget surplus of $40 $70 budget deficit of $30 $40 budget deficit of $40 $70
## B National saving (S) = Y C G = $200 $80 $50 = $70 Public saving = National saving Private saving (SP) = $70 $30 = $40 Public saving = Tax revenue (T) Government consumption expenditure (G) As public saving is positive, there is a budget surplus. As national saving equals domestic investment in a closed economy, domestic investment is therefore $70. ##
|!|EM42023|!| In a closed economy, A. B. C. D. the current account balance is always equal to zero. public saving is always equal to domestic investment. private saving is always equal to domestic investment. None of the above.
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## A NX = CA. As there is no trade of goods and services in a closed economy, the current account balance is always equal to zero. Options B and C are incorrect. In a closed economy, private saving and public saving can be greater than, smaller than or equal to domestic investment respectively. Only the sum of public saving and private saving must be equal to domestic investment. ##
|!|EM42024|!| If there is a budget surplus in a closed economy, which of the following MUST be positive? A. B. C. D. national saving public saving private saving trade balance
## B Public saving (SG) = Tax revenue (T) Government consumption expenditure (G) When there is a budget surplus, T > G, public saving is thus positive. ##
|!|EM42025|!| If government consumption expenditure exceeds tax revenue, (1) national saving is negative. (2) public saving is negative. (3) there is a budget deficit.
A. B. C. D.
(1) and (2) only (1) and (3) only (2) and (3) only (1), (2) and (3)
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## C (2) is correct. Public saving = Tax revenue Government consumption expenditure If government consumption expenditure is larger than tax revenue, public saving will be negative. (3) is correct. When government consumption expenditure is larger than tax revenue, the government revenue cannot cover all her expenses. There is a budget deficit. (1) is incorrect. National saving = Private saving + Public saving We can only tell that public saving is negative. Whether national saving is negative or not depends on the value of private saving. ##
|!|EM42026|!| Which of the following statements about an open economy is CORRECT? A. B. C. D. National saving is always equal to domestic investment. National saving is equal to the sum of net exports and domestic investment. If net exports is zero, public saving will be equal to domestic investment. Private saving is always equal to public saving.
## B In an open economy, S I = NX, therefore S = NX + I. Option A is incorrect. In an open economy, S I = NX. Only if NX = 0, national saving is equal to domestic investment. Option C is incorrect. If net exports is zero, national saving instead of public saving is equal to domestic investment. Option D is incorrect. National saving = Private saving + Public saving. There is no definite relationship between private saving and public saving. ##
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|!|EM42027|!| In an open economy, (1) if national saving and domestic investment are not equal, the balance of trade must not reach a balance. (2) if national saving is smaller than domestic investment, the current account balance will be positive. (3) if domestic investment is smaller than national saving, the capital and financial account balance will be negative.
A. B. C. D.
## B (1) is correct. As S I = NX, if national saving is not equal to domestic investment, net exports will either be larger than or smaller than zero and the balance of trade will not reach a balance. (3) is correct. If domestic investment is smaller than national saving, the surplus in saving is used to finance foreign investment. There will be a net capital outflow and the capital and financial account balance will be negative. (2) is incorrect. As S I = NX = CA, if S < I, NX < 0 and CA < 0. ##
|!|EM42028|!| In an open economy, if domestic investment exceeds national saving, there will be a _____________ and the net capital outflow is _____________. A. B. C. D. trade surplus positive trade surplus negative trade deficit positive trade deficit negative
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## D As S I = NX, when I > S, NX < 0. Therefore, there will be a trade deficit. As part of domestic investment is financed by borrowing from abroad, there is a net capital inflow (i.e. the net capital outflow is negative). ##
|!|EM42029|!| In an open economy, if national saving is larger than domestic investment, the value of exports will be _____________ than the value of imports. The capital and financial account balance will be _____________. A. B. C. D. greater positive greater negative smaller positive smaller negative
## B As S I = NX, when S > I, NX > 0. Therefore, the value of exports will be greater than the value of imports. As the surplus in saving is used to finance foreign investment, there will be a net capital outflow. The capital and financial account will be negative. ##
|!|EM42030|!| In an open economy, if national saving is smaller than domestic investment, A. B. C. D. there will be a trade surplus. the capital and financial account balance will be negative. there will be a net capital inflow. the current account balance will be positive.
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## C S I = NX = CA = -KA If S < I, NX < 0. There will be a trade deficit and the economy will be a net borrower in world financial markets, which implies there is a net capital inflow. Option B is incorrect. As there is a net capital inflow, it means that part of domestic investment is financed by borrowing from abroad. The capital and financial account balance will be positive. Option D is incorrect. Since CA = -KA, if the capital and financial account balance is positive, the current account balance will be negative. ##
|!|EM42031|!| In an open economy, when there is a trade surplus, A. B. C. D. domestic investment is larger than national saving. net capital outflow is negative. the current account balance will be negative. the capital and financial account balance will be negative.
## D S I = NX = CA = -KA A trade surplus implies national saving is larger than domestic investment. There will be a net capital outflow and the capital and financial account balance will be negative. Option B is incorrect. As there is a net capital outflow, net capital outflow is positive. Option C is incorrect. As the capital and financial account balance is negative, the current account balance will be positive. ##
|!|EM42032|!| Country X is an economy with a trade deficit. The following statements are correct EXCEPT A. B. C. D. part of its domestic investment is financed by borrowing from abroad. its net capital outflow is positive. its current account balance is negative. its capital and financial account is positive.
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## B As S I = NX, when there is a trade deficit (NX < 0), S < I. As part of domestic investment is financed by borrowing from abroad, there will be a net capital inflow, i.e. net capital outflow is negative. Options C and D are incorrect. As there is a net capital inflow, the capital and financial account balance is positive. As CA = -KA, the current account balance is therefore negative. ##
|!|EM42033|!| If the capital and financial account balance of an open economy is positive, this implies that (1) there is a trade deficit. (2) national saving is larger than domestic investment. (3) there is a net capital inflow.
A. B. C. D.
## B If the capital and financial account balance is positive, this implies that there is a net capital inflow. A capital inflow implies that part of domestic investment is financed by borrowing from abroad and the national saving is smaller than the domestic investment. As S I = NX, when S < I, NX < 0. There is a trade deficit. ##
|!|EM42034|!| If the net capital outflow of an economy is negative, this implies that A. B. C. D. there is a trade deficit. national saving exceeds domestic investment. there is a budget deficit. the current account balance is positive.
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## A If the net capital outflow is negative (capital inflow), it means that domestic investment exceeds national saving and part of domestic investment is financed by borrowing from abroad. As S I = NX, when S < I, NX < 0. Therefore, there is a trade deficit. Option C is incorrect. There is a budget deficit when SG < 0. As we do not have enough information to deduce the value of SG, we do not know if there is a budget deficit. Option D is incorrect. As CA = -KA, when KA > 0, CA < 0. Therefore, the current account balance is negative. ##
|!|EM42035|!| In an economy, the amount of capital inflow is smaller than that of capital outflow. This implies that there is a ______________ and the capital and financial account balance is ______________. A. B. C. D. trade surplus positive trade surplus negative trade deficit positive trade deficit negative
## B If capital inflow is smaller than capital outflow, there is a net capital outflow. This implies that national saving is larger than domestic investment and the surplus in saving is used to finance foreign investment. Therefore, the capital and financial account balance will be negative. As S I = NX, when S > I, NX > 0. Therefore, there is a trade surplus. ##
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|!|EM42036|!| Suppose the current account balance of an open economy is positive. Which of the following statements is CORRECT? A. B. C. D. Its capital and financial account balance is positive. There is a net capital inflow. Its national saving is larger than its domestic investment. There is a trade deficit.
## C As CA = -KA, if the current account balance is positive, the capital and financial account balance is negative. This implies that there is a net capital outflow. The national saving is larger than the domestic investment and the surplus in saving is used to finance foreign investment. Option D is incorrect. As S I = NX, when S > I, NX > 0, which means there is a trade surplus. ##
|!|EM42037|!| In an open economy, national saving is $800 and private saving is $600. Net exports is $500. There is a _________________ and domestic investment is _________________. A. B. C. D. budget surplus of $200 $300 budget surplus of $300 $300 budget deficit of $200 $800 budget deficit of $300 $800
## A As national saving = private saving + public saving, public saving = $(800 600) = $200, which is a budget surplus (T G > 0). In an open economy, S I = NX, thus I = $(800 500) = $300. ##
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|!|EM42038|!| In an economy, private saving is $500 and domestic investment is $1,000. Suppose the government has a budget deficit of $200. There will be a _________________ and the current account balance will be ________________. A. B. C. D. trade surplus of $300 positive trade surplus of $700 positive trade deficit of $300 negative trade deficit of $700 negative
## D As there is a budget deficit of $200, public saving is thus -$200. National saving = Private saving + Public saving = $500 $200 = $300 As S I = NX, NX = $300 $1,000 = -$700 As net exports is negative, there is a trade deficit of $700. As NX = CA, when net exports is negative, the current account balance will be negative. ##
|!|EM42039|!| In an economy, national saving is $700 and there is a trade deficit of $700. Domestic investment is _________________. A. B. C. D. $0 $700 -$1,400 $1,400
## D S I = NX $700 I = -$700 I = $1,400 ##
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|!|EM42040|!| In an open economy, Y = $200, C = $60, I = $80, G = $90, where Y, C, I and G are national income, private consumption expenditure, gross investment and government consumption expenditure respectively. According to the above information, there is a _____________, and the capital and financial account balance is _____________. A. B. C. D. trade surplus positive trade surplus negative trade deficit positive trade deficit negative
## C Y = C + I + G + NX $200 = $60 + $80 + $90 + NX NX = -$30 NX = -KA. As NX is negative, the capital and financial account balance will therefore be positive. ##
|!|EM42041|!| In a closed economy, C = $200, G = $110, S = $220, where C, G and S are private consumption expenditure, government consumption expenditure and national saving respectively. The national income of the economy is _____________. A. B. C. D. $240 $460 $530 $680
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## C National saving represents the income left after paying for private consumption expenditure and government consumption expenditure. Therefore, S=YCG $220 = Y $200 $110 Y = $530 ##
|!|EM42042|!| Consider the following data of an open economy: Y = $300 C = $70 G = $90 I = $60 Y, C, G and I are national income, private consumption expenditure, government consumption expenditure and gross investment respectively. If private saving is $180, there is a _____________ and _____________ in the economy. A. B. C. D. budget surplus trade surplus budget surplus trade deficit budget deficit trade surplus budget deficit trade deficit
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## C National saving = Y C G = $300 $70 $90 = $140 National saving = Private saving + Public saving $140 = $180 + Public saving Public saving = -$40 Since public saving is negative, this implies government consumption expenditure is greater than tax revenue. There is a budget deficit. S I = NX NX = $140 $60 = $80 Since net exports is positive, there is a trade surplus. ##
|!|EM42043|!| In an open economy, Y = $600, C = $200, G = $150, I = $300, where Y, C, G and I are national income, private consumption expenditure, government consumption expenditure and gross investment respectively. Which of the following statements is CORRECT? A. B. C. D. National saving is negative. National saving exceeds domestic investment. There is a net capital outflow. The capital and financial account balance is positive.
## D S=YCG = $600 $200 $150 = $250 As national saving ($250) is smaller than domestic investment ($300), part of domestic investment is financed by borrowing from abroad, which means there is a net capital inflow. Therefore, the capital and financial account balance will be positive. ##
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|!|EM42044|!| The GDP statistics can be used to (1) compare the economic development of different economies. (2) evaluate the business prospects. (3) measure income inequality.
A. B. C. D.
## B The GDP statistics can only reflect the average living standard and do not take income distribution into account. ##
|!|EM42045|!| All of the following are the uses of GDP statistics EXCEPT A. B. C. D. reflecting the average living standard. providing information to the government when formulating economic policies. reflecting the external cost to society brought by production. helping firms to make investment plans.
## C Production incurs external cost to society (such as air pollution and traffic congestion), but this is not reflected in GDP statistics. ##
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|!|EM42046|!| In which of the following situations will the per capita real GDP overstate the living standard of people? A. B. C. D. People enjoy more leisure time than before. The general price level increases by 10% during the year. Income is more unevenly distributed. There is an increase in the population size because of immigration.
## C Per capita real GDP only measures the average living standard of people and does not take income distribution into account. Therefore, when income is more unevenly distributed, peoples living standard is overstated. Option A is incorrect. Enjoying more leisure time raises peoples living standard but this is not reflected in the GDP statistics. The per capita real GDP will understate the living standard. Option B is incorrect. Per capita real GDP is not affected by price changes. Option D is incorrect. Per capita real GDP has already taken the effect of population size into account. ##
|!|EM42047|!| Real GDP will understate peoples living standard if A. B. C. D. traffic congestion becomes less serious after the construction of subways. the working hours of people increase. the general price level decreases by 20% during the year. capital goods make up a large proportion of the total output of the economy.
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## A Lessening serious traffic congestion raises peoples living standard but this is not reflected in the GDP statistics. Therefore, the real GDP will understate peoples living standard. Option B is incorrect. Longer working hours lowers peoples living standard and this is not reflected in the GDP statistics. The real GDP will overstate peoples living standard. Option C is incorrect. Real GDP is not affected by price changes. Option D is incorrect. If capital goods make up a large proportion of the total output of the economy, current living standard will be lower and this will not be reflected in the GDP statistics. Therefore, real GDP overstates peoples living standard. ##
|!|EM42048|!| Country X and Country Y have the same per capita real GDP. However, Country X has a higher average living standard than Country Y. This may be because A. B. C. D. the population size of Country X is smaller than that of Country Y. the general price level of Country X is lower than that of Country Y. the problem of air pollution in Country X is more serious than that in Country Y. the average working hours of people of Country X is less than that of Country Y.
## D Shorter average working hours implies more leisure time. More leisure time raises the living standard of people in Country X, which is not reflected in per capita real GDP. Therefore, Country X has a higher average living standard than Country Y, even if their per capita real GDP is the same. Option A is incorrect. As the per capita real GDP measures the amount of output that a person can consume on average, it has already taken the effect of population size into account. Option B is incorrect. Real GDP is not affected by price changes. Option C is incorrect. More serious air pollution lowers the living standard of people, which is not reflected in per capita real GDP. It cannot be used to explain why Country X has a higher average living standard than Country Y. ##
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|!|EM42049|!| The real GDP of Country X and Country Y are the same. However, Country X has a lower standard of living than Country Y. Which of the following can explain this situation? (1) The general price level of Country X is higher than that of Country Y. (2) The population size of Country X is larger than that of Country Y. (3) The problem of air pollution is more serious in Country X than in Country Y. (4) The average working hours are shorter for people in Country X than in Country Y.
A. B. C. D.
(1) and (4) only (2) and (3) only (1), (2) and (3) only (1), (2) and (4) only
## B (2) is correct. For the same amount of goods and services produced, the larger the population, the smaller the amount of output a person can consume on average. (3) is correct. More serious air pollution lowers peoples living standard and this is not reflected in the GDP statistics. (1) is incorrect. Real GDP is not affected by the price level. (4) is incorrect. Shorter average working hours raises peoples living standard and this is not reflected in the GDP statistics. This factor cannot explain why Country X has a lower standard of living than Country Y. ##
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|!|EM42050|!| Real GDP is not a perfect indicator reflecting the standard of living of different economies because (1) the inflation rate of different economies may be different. (2) the population size of different economies may be different. (3) the income distribution of different economies may be different. (4) the proportion of investment expenditure in GDP of different economies may be different.
A. B. C. D.
(1) and (2) only (2) and (3) only (1), (3) and (4) only (2), (3) and (4) only
## D (2) is correct. Real GDP measures the real value of goods and services. For the same amount of goods and services produced, the larger the population, the smaller the amount of output a person can consume on average. (3) is correct. Real GDP only measures the average living standard and does not take income distribution into account. (4) is correct. The composition of output is not reflected in the GDP statistics. If investment expenditure constitutes a larger proportion of GDP, current living standard will be lower. (1) is incorrect. Real GDP is not affected by price changes. ##
|!|EM42051|!| A 10% increase in real GNP implies that A. B. C. D. population size increases by 10%. the general price level increases by 10%. per capita real GDP increases by 10%. None of the above.
## D ##
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|!|EM42052|!| Consider the economic data below of Country Y in certain year.
Item Nominal GNP Price level Population
Growth rate (%) 5 10 -10
According to the above data, the real GNP has ________________ and the per capita real GNP has ______________. A. B. C. D. decreased increased increased increased decreased decreased increased decreased
## A As the percentage increase in nominal GNP is smaller than that in the price level, real GNP has decreased. Besides, as the percentage decrease in real GNP is smaller than that in population, per capita real GNP has increased. ##
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Short Questions |!|ES42001|!| (a) Define gross national product (GNP) and gross domestic product (GDP). (4 marks) (2 marks)
(b) What is the difference between GNP and GDP?
## (a) Gross national product (GNP) is the total value of goods and services produced by the factors of production owned by the residents (nationals) of an economy in a given period. (2 marks)
Gross domestic product (GDP) is the total market value of final goods and services produced by all resident producing units of a country or an economic territory in a given period, irrespective of the nationality of the producers. (b) The difference between GNP and GDP is the net factor income from abroad. GNP = GDP + Net factor income from abroad ## (2 marks) (1 mark) (1 mark)
|!|ES42002|!| Should the following items be included in the calculation of Hong Kongs gross national product (GNP)? Explain. (a) the wages of a Hong Kong resident who has worked as a waiter in a restaurant in the Shanghai Pudong International Airport for six months (b) the lottery prize won by a Hong Kong resident in the US (c) (2 marks) (2 marks)
the bonus received by a Japanese from the company in Hong Kong that he has worked for nine months (2 marks)
## (a) The wage should be included in the calculation of Hong Kongs GNP. It is factor income earned by residents outside Hong Kong. (b) The lottery prize should not be included in the calculation of Hong Kongs GNP. It does not involve any production. (c) The bonus should not be included in the calculation of Hong Kongs GNP. It is factor income earned by non-residents (the Japanese) within Hong Kong. ## (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark)
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|!|ES42003|!| Explain whether the following items should be included in the calculation of Hong Kongs gross domestic product and gross national product. (a) the salary earned by an American while working for a company in Hong Kong on a 6-month contract (4 marks)
(b) the salary earned by a Hong Kong resident while working for a company in America for five months (4 marks)
## (a) The salary should be included in Hong Kongs GDP. The American was employed by a resident producing unit of Hong Kong. The salary should not be included in Hong Kongs GNP. It is regarded as factor income earned by non-residents within Hong Kong. (b) The salary should not be included in Hong Kongs GDP. (1 mark) (1 mark) (1 mark) (1 mark) (1 mark)
The Hong Kong resident was not employed by a resident producing unit of Hong Kong. (1 mark) The salary should be included in Hong Kongs GNP. It is regarded as factor income earned by residents outside the economic territory. ## (1 mark) (1 mark)
|!|ES42004|!| In order to calculate the gross national product of Hong Kong, explain whether the following items should be added to or deducted from the gross domestic product of Hong Kong. (a) the rental income received by a Mainland resident from renting out his flat in Hong Kong (2 marks) (b) the income earned by a Hong Kong resident who worked at a boutique in Canada for nine months (2 marks) ## (a) The rental income should be deducted from the GDP of Hong Kong when calculating the GNP. (1 mark) It is regarded as factor income earned by non-residents within Hong Kong. (b) The income should be added to the GDP of Hong Kong when calculating the GNP. It is regarded as factor income earned by residents outside Hong Kong. ## (1 mark) (1 mark) (1 mark)
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|!|ES42005|!| Study the table below.
Components Private consumption expenditure Government consumption expenditure Gross investment Total exports of goods and services Re-exports of goods Total imports of goods and services Changes in inventories Depreciation Subsidies Indirect taxes Factor income paid abroad Factor income from abroad
$ million 250 170 210 220 70 150 -30 60 80 110 140 180
(a)
Calculate the GNP at market prices. Show your steps.
(2 marks) (2 marks)
(b) Calculate the GNP at factor cost. Show your steps.
## (a) GNP at market prices = C + I + G + NX + Net factor income from abroad = $[250 + 210 + 170 + (220 150) + (180 140)] million = $740 million (b) GNP at factor cost = GNP at market prices Indirect tax es + Subsidies = $(740 110 + 80) million = $710 million ## (1 mark) (1 mark) (1 mark) (1 mark)
99
Items Private consumption expenditure Net domestic fixed capital formation Changes in inventories Depreciation Government consumption expenditure Domestic exports of goods Imports of goods Re-exports of goods Imports of services Exports of services Transfer payments Net factor income from abroad Subsidies Indirect taxes Direct taxes
$ billion 420 600 -40 25 250 120 170 80 140 130 90 -20 55 60 110
(a)
Calculate the GDP at market prices. Show your steps.
(2 marks) (2 marks)
(b) Calculate the GNP at factor cost. Show your steps.
## (a) GDP at market prices = C + I + G + NX 40) + 250 + (120 + 80 170 + 130 140)] billion = $1,275 billion (b) GNP at factor cost = GDP at market prices + Net factor income from abroad + Subsidies Indirect taxes = $[1,275 + (-20) + 55 60] billion = $1,250 billion ## (1 mark) (1 mark) = $[420 + (600 + 25 (1 mark) (1 mark)
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|!|ES42007|!| (a) Define public saving and private saving. (4 marks)
(b) Under what condition will national saving of an open economy be equal to domestic investment? (2 marks)
## (a) Public saving is the saving of the government sector. It is equal to the government budget balance after paying for government consumption expenditure with tax revenue. Private saving is the saving of the private sector (households and firms). It is the income left after paying for taxes and consumption. (b) For an open economy, S I = NX. When net exports is zero, national saving will be equal to domestic investment. ## (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark)
|!|ES42008|!| (a) What is balance of payments? (2 marks) (2 marks)
(b) Explain why the balance of payments account is always balanced.
## (a) Balance of payments refers to a statistical record of transactions between residents of the reporting country and residents of the rest of the world during a given time period. (2 marks)
(b) The balance of payments account is always balanced because each international transaction must involve a swap of goods, services or assets between two countries. The two sides of the swap would have offsetting effects on the accounts. ## (2 marks)
|!|ES42009|!| Suppose there is a trade surplus in an economy. (a) Explain whether national saving of the economy is higher than, lower than or equal to domestic investment. (2 marks)
(b) Explain whether the capital and financial account balance of the economy is positive or negative. (2 marks)
101
## (a) As S I = NX in an open economy, when NX > 0, S > I. Therefore, national saving is higher than domestic investment. (2 marks)
(b) As S > I, the surplus in saving is used to finance foreign investment and there is a net capital outflow. Therefore, the capital and financial account balance is negative. ## (2 marks)
|!|ES42010|!| In Country X, domestic investment exceeds national saving. Assume that the unilateral transfers and the net international factor income are both zero. With the use of the saving-investment identity, explain whether (a) there is a trade surplus or deficit. (2 marks)
(b) the current account balance and the capital and financial account is positive or negative. (3 marks)
## (a) As S I = NX in an open economy, when S < I, NX < 0. Therefore, there is a trade deficit. (2 marks) (b) As S < I, part of domestic investment is financed by borrowing from abroad. There is a net capital inflow and the capital and financial account balance is positive. As CA = -KA, the current account balance is negative. ## (2 marks) (1 mark)
|!|ES42011|!| In Country X, the capital and financial account balance has a deficit of $50. (a) Given that domestic investment is $120, calculate the national saving. (2 marks) (2 marks)
(b) Explain whether there is a trade surplus or deficit.
## (a) S I = -KA S = -(-$50) + $120 = $170 (b) As S I = NX, when S > I ($170 > $120), NX > 0. Therefore, there is a trade surplus. ## (1 mark) (1 mark) (2 marks)
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|!|ES42012|!| Consider the following data of an economy. Private consumption expenditure (C) = $500 Gross investment (I) = $370 Government consumption expenditure (G) = $250 Net exports (NX) = -$70 (a) Calculate national saving of the economy. (2 marks) (3 marks)
(b) Suppose private saving is $360. Explain whether there is a budget surplus or deficit.
## (a) S = I + NX = $370 + (-$70) = $300 (b) S = Private saving + Public saving Public saving = $300 $360 = -$60 (1 mark) (1 mark) (1 mark) (1 mark)
As public saving is negative, i.e. government consumption expenditure is larger than tax revenue, there is a budget deficit. ## (1 mark)
|!|ES42013|!| Study the following data. Private consumption expenditure (C) = $200 Gross investment (I) = $150 Government consumption expenditure (G) = $120 National saving (S) = $110 (a) Calculate national income (Y) and net exports (NX). (4 marks) (2 marks)
(b) Calculate the capital and financial account balance.
103
## (a) S=YCG Y = $110 + $200 + $120 = $430 NX = S I = $110 $150 = -$40 (1 mark) (1 mark) (1 mark) (1 mark)
(b) Since S < I, part of domestic investment is financed by borrowing from abroad and there is a net capital inflow. As S I = -KA, there is a capital and financial account surplus of $40. ## (2 marks)
|!|ES42014|!| Consider the following data of an economy. National income (Y) = $1,000 Private consumption expenditure (C) = $200 Government consumption expenditure (G) = $150 Net exports (NX) = $280 (a) Calculate national saving (S) and domestic investment (I). (4 marks) (2 marks)
(b) Explain whether the capital and financial account balance is positive or negative.
## (a) S=YCG = $1,000 $200 $150 = $650 S I = NX I = S NX = $650 $280 = $370 (1 mark) (1 mark) (1 mark) (1 mark)
(b) As national saving ($650) exceeds domestic investment ($370), the surplus in saving is used to finance foreign investment. There is a net capital outflow. The capital and financial account balance is thus negative. ## (2 marks)
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|!|ES42015|!| Suggest and explain TWO possible uses of GDP statistics. (4 marks)
## Possible uses of GDP statistics: - Reflection of standard of living: In an economy with high GDP, there are usually more goods and services available for peoples consumption and the standard of living is therefore higher. - Formulation of government policies: GDP statistics give the government a big picture of economic performance and provide information to the government when formulating government policies. - Basis for comparison: GDP statistics can be used to compare the living standard and the economic development of different economies. (Mark the FIRST TWO points only, 2 marks each) ##
|!|ES42016|!| Compared with Country Y, Country X has lower per capita real GDP but a higher standard of living. Give TWO reasons to explain this situation. (4 marks)
## Possible reasons include: - Income distribution in Country X is more equal than that in Country Y. - Consumption expenditure constitutes a larger proportion of GDP in Country X than in Country Y. - People in Country X enjoy more leisure time than people in Country Y. - There are more non-market activities in Country X than in Country Y. - The environmental quality in Country X is better than that in Country Y. (Mark the FIRST TWO points only, 2 marks each) ##
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|!|ES42017|!| (a) Ben said, By looking at the nominal GDP of an economy, we can see the standard of living of people in the economy accurately. Candy said, No, I think nominal GDP is not accurate enough to reflect the standard of living of an economy because it ignores price fluctuations and population size. Who is correct? Explain. (5 marks)
(b) Candy said, I think per capita real GDP is a perfect indicator of standard of living. Suggest TWO reasons to explain why Candy is wrong. (4 marks)
## (a) Candy is correct. (1 mark)
An increase in nominal GDP can be the result of an increase in prices rather than an increase in the amount of goods and services produced. An increase in nominal GDP therefore may not mean an increase in living standard. (2 marks)
Size of population affects the average living standard of people. For the same amount of goods and services produced, the larger the population, the smaller the amount of output a person can consume on average. (b) Per capita real GDP does not reflect the following facts: - Income distribution: With unequal distribution of income, even if GDP is high, a small group of rich people may consume very expensive goods while a large group of poor people may consume cheap goods. - Composition of output: The higher the proportion of consumption expenditure constitutes to GDP, the higher the current living standard. - Leisure time: Although more leisure time raises the living standard of people, the calculation of GDP does not take leisure time into account because it is not transacted in the market. - Non-market activities: Although unpaid and voluntary services raise the living standard of people, they are not included in the GDP calculation because they are not transacted in the market. - Environmental quality: The undesirable effects of production adversely affect the environment and lower the living standard of people in the economy, but they are not reflected in GDP statistics. (Mark the FIRST TWO points only, 2 marks each) ## (2 marks)
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Country A B
GDP in 20X1 (US$ billion) 2,400 3,000
Per capita GDP in 20X1 (US$) 2,000 1,500
Average leisure time of each resident per day (hours) 6.5 8
(a)
With reference to the GDP and per capita GDP of both countries in 20X1, explain how GDP fails to reflect the standard of living of both countries accurately. (3 marks)
(b) Referring to the table, explain why the standard of living of Country B may be underestimated as compared to Country A. (3 marks)
## (a) As the GDP of Country A is lower than that of Country B, but the per capita GDP of Country A is higher than that of Country B, we can conclude that the population size of Country A is smaller than that of Country B. Therefore, GDP fails to reflect the standard of living of both countries accurately as the difference between the population sizes of the two countries is ignored. (3 marks) (b) From the table, the average leisure time of residents of Country B is higher than that of Country A. More leisure time raises the living standard of people, but it is not reflected in the GDP statistics. As a result, the standard of living of Country B is underestimated as compared to Country A. (3 marks) ##
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|!|ES42019|!| The tables below show the information for the population and real gross domestic product (GDP) of Country X and Country Y.
Country X Real GDP $21 billion Population 7 million
Real GDP Population
Country Y $24 billion 6 million
(a)
Calculate the per capita real GDP of Country X and Country Y.
(4 marks)
(b) Based on your answer in (a), which country do u think has a higher standard of living? Suggest TWO factors to explain why your answer may be wrong. (5 marks)
## (a) Per capita real GDP = Real GDP / Population Per capita real GDP of Country X = $21 billion / 7 million = $3,000 Per capita real GDP of Country Y = $24 billion / 6 million = $4,000 (1 mark) (1 mark) (1 mark) (1 mark)
(b) As the per capita real GDP of Country Y is higher than that of Country X, Country Ys standard of living is higher. (1 mark)
Possible reasons why Country Ys standard of living may not be higher than Country A include: - Income distribution in Country X may be more equal than in Country Y. - Consumption expenditure may constitute a larger proportion of GDP in Country X than in Country Y. - People in Country X may enjoy more leisure time than people in Country Y. - There may be more non-market activities in Country X than in Country Y. - The environmental quality in Country X may be better than that in Country Y. (Mark the FIRST TWO points only, 2 marks each) ##
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Long Questions |!|EL42001|!| Read the following economic data of Country X of a certain year.
Items Private consumption expenditure Gross domestic fixed capital formation Changes in inventories Depreciation Government consumption expenditure Total exports of goods Re-exports of goods Total imports of goods Total exports of services Total imports of services Factor income from abroad Factor income paid abroad Direct taxes Indirect taxes Subsidies
$ billion 30 28 -4 5 25 50 15 46 45 48 20 16 9 10 6
(a)
What is the difference between gross domestic product and gross national product?
(2 marks) (4 marks)
(b) Calculate the GNP at market prices and at factor cost of Country X. (c)
Explain whether the following items should be included in the calculation of Country Xs GDP and GNP. (i) the salary earned by a resident of Country X while working in Country Y on a 6-month contract (4 marks)
(ii) the salary earned by a resident of Country Y while working in Country X on a 6-month contract (4 marks)
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## (a) The difference between GNP and GDP is the net factor income from abroad. GNP = GDP + Net factor income from abroad (b) Country Xs GNP at market prices = C + I + G + NX + Net factor income from abroad = $[30 + (28 4) + 25 + (50 46 + 45 48) + (20 16)] billion = $84 billion Country Xs GNP at factor cost = GNP at market prices Indirect taxes + Subsidies = $(84 10 + 6) billion = $80 billion (c) (i) It should not be included in Country Xs GDP. The resident was not employed by a resident producing unit of Country X. It should be included in Country Xs GNP. (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark)
The salary was regarded as factor income earned by residents outside the economic territory. (1 mark) (ii) It should be included in Country Xs GDP. The resident was employed by a resident producing unit of Country X. It should not be included in Country Xs GNP. (1 mark) (1 mark) (1 mark)
The salary was regarded as factor income earned by non-residents within Country X. (1 mark) ##
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|!|EL42002|!| Consider the following data of Country X in 20X0: National income (Y) = $500 Private consumption expenditure (C) = $200 Domestic investment (I) = $150 Government consumption expenditure (G) = $120 (a) (i) Calculate national saving (S). (2 marks)
(ii) Suppose private saving is $120. Explain whether there is a budget deficit or surplus and calculate its amount. (b) Explain whether the trade balance is in deficit or surplus and calculate the amount. (c) (3 marks) (3 marks)
Explain whether the capital and financial account balance and the current account balance are positive or negative. (4 marks)
(d) According to the latest information, the national income of Country X increases compared with that in 20X0. However, its standard of living falls. Give TWO reasons that can explain this phenomenon. (4 marks)
## (a) (i) S=YCG = $500 $200 $120 = $180 (ii) S = Private saving + Public saving Public saving = $180 $120 = $60 As public saving is positive, there is a budget surplus of $60. (b) NX = S I = $180 $150 = $30 There is a trade surplus of $30. (c) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark) (1 mark)
As S > I ($180 > $150), the surplus in saving is used to finance foreign investment. There is a net capital outflow and the capital and financial account balance is negative. (2 marks)
As CA = -KA, when KA < 0, CA > 0. Therefore, the current account balance is positive. (2 marks)
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(d) The reasons include: - The increase in national income may be a result of an increase in prices rather than an increase in the amount of goods and services produced. - The population of Country X increases and the increase in population is more than the increase in national income in Country X. - The income distribution of Country X may become more uneven. - The consumption expenditure may constitute a smaller proportion of GDP as compared with 20X0. - People in Country X may enjoy less leisure time as compared with 20X0. - There may be fewer unpaid and voluntary services as compared with 20X0. - The environmental quality may have worsened as compared with 20X0. (Mark the FIRST TWO points only, 2 marks each) ##
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|!|EL42003|!| The following table shows the data of Country X in 20X1.
Components Private consumption expenditure Government consumption expenditure Net domestic fixed capital formation Changes in inventories Indirect taxes Net exports Net factor income from abroad Depreciation
$ billion 150 350 200 50 50 60 55 10
(a)
Calculate the GDP at factor cost of Country X in 20X1.
(2 marks) (2 marks)
(b) Calculate the GNP at market prices of Country X in 20X1. (c)
Mr. Chan is 70 years old and he has retired. Explain which of the following revenue that he receives should be included in Country Xs GDP. (i) (ii) (iii) the money received from his daughter in Canada the rent received from renting his premises in Country Y (2 marks) (2 marks)
the salary received from working as a part-time worker at a company in Country X (2 marks)
(d) Give TWO reasons to explain why the above GDP statistics are not a perfect indicator to measure the living standard of Country X. (4 marks)
## (a) The GDP at factor cost of Country X in 20X1 = Private consumption expenditure + Gross investment + Government consumption expenditure + Net exports Indirect taxes = $[150 + (200 + 50 + 10) + 350 + 60 50] billion = $770 billion (b) The GNP at market prices of Country X in 20X1 = GDP at factor cost + Indirect taxes + Net factor income from abroad = $(770 + 50 + 55) billion = $875 billion (1 mark) (1 mark) (1 mark) (1 mark)
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(c)
(i)
It should not be included in the GDP.
(1 mark)
It is a transfer payment that does not involve any production of goods and services. (1 mark) (ii) It should not be included in the GDP. (1 mark)
It is not produced within Country X. It is regarded as factor income earned by residents outside Country X. (iii) It should be included in the GDP. Mr. Chan is employed by a resident producing unit of Country X. (d) The above GDP statistics cannot reflect the effects of the following factors: - Price fluctuation: An increase in nominal GDP can be a result of an increase in prices rather than an increase in the amount of goods and services produced. An increase in nominal GDP therefore may not mean an increase in living standard. - Effect of population size: For the same amount of goods and services produced, the larger the population, the smaller the amount of output a person can consume on average. - Income distribution: With unequal distribution of income, even if GDP is high, a small group of rich people may consume very expensive goods while a large group of poor people may consume cheap goods. - Composition of output: The higher the proportion of consumption expenditure constitutes to GDP, the higher the current living standard. - Leisure time: More leisure time raises the living standard of people, but the calculation of GDP does not take leisure time into account because it is not transacted in the market. - Non-market activities: Although unpaid and voluntary services raise the living standard of people, they are not included in the GDP calculation because they are not transacted in the market. - Environmental quality: The undesirable effects of production adversely affect the environment and lower the living standard of people in the economy, but they are not reflected in GDP statistics. (Mark the FIRST TWO points only, 2 marks each) ## (1 mark) (1 mark) (1 mark)
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|!|EL42004|!| Country A is an open economy. Suppose Y = $180, C = $50, G = $40 and I = $30, where Y, C, G and I are national income, private consumption expenditure, government consumption expenditure and gross investment respectively. (a) Calculate the amount of national saving (S) and net exports (NX). (4 marks) (4 marks) (3 marks)
(b) Calculate the current account balance and capital and financial account balance. (c) Explain under what situation private saving equals gross investment.
## (a) S=YCG = $(180 50 40) = $90 (1 mark) NX = S I = $(90 30) = $60(1 mark) (b) S I = NX = CA = -KA As NX = $60, the current account is in surplus of $60. Therefore, the capital and financial account is in deficit of $60. (c) (2 marks) (2 marks) (1 mark) (1 mark)
As S = SP + SG and S = I + NX, SP + SG = I + NX. When public saving equals the net exports, private saving equals gross investment. (3 marks)
##
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Chapter 16 Measurement of Economic Performance (II)

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Chapter 16 Measurement of Economic Performance (II)

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Economics Inquiry for HKDSE Macroeconomics 1 Chapter 16 Measurement of Economic Performance (II)

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Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

## D S I = NX $700 I = -$700 I = $1,400 ##

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

|!|EM42052|!| Consider the economic data below of Country Y in certain year.

Item Nominal GNP Price level Population

Growth rate (%) 5 10 -10

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(b) What is the difference between GNP and GDP?

Aristo Educational Press Ltd.

Aristo Educational Press Ltd.

|!|ES42005|!| Study the table below.

Calculate the GNP at market prices. Show your steps.

(b) Calculate the GNP at factor cost. Show your steps.

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|!|ES42006|!| Study the table below.

Calculate the GDP at market prices. Show your steps.

(b) Calculate the GNP at factor cost. Show your steps.

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|!|ES42007|!| (a) Define public saving and private saving. (4 marks)

|!|ES42008|!| (a) What is balance of payments? (2 marks) (2 marks)

(b) Explain why the balance of payments account is always balanced.

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(b) Explain whether there is a trade surplus or deficit.

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(b) Calculate the capital and financial account balance.

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Aristo Educational Press Ltd.