MACRO ECONOMICS

Assinment 1- AvM-3-B
ZEESHAN  190735
 QUESTION NO.1
Answer:
The economic position of a country is access on the basis of growth in GDP, inflation rate and
the rate of un employment.
GDP is defined as the value of final goods and services. The value of final goods includes all
values that has been added to the actual value.
Usman (Farmer) has produced the 100 tons of wheat and he sale the 100 tons of wheat to
Yousaf for 850 Rs per ton.
So, 100 × 850 = 85,000
Yousaf (owner of flour mill) converts wheat into flour and sold it to Hamza for 1500 RS per ton.
Price of output = 1500 × 100 = 150,000
Value added = Price of output – price of input
= 150,000 – 85,000
= 65000
Hamza makes the bread by using that flour, and he makes 200,000 RS by selling all of the bread
that are being made by using the 100 tons of wheat.
So,
= 200,000 – 150,000
= 50000
GDP is calculated as value of final goods produced so,
GDP = 85,000 + 150,000 + 200,000
= 435,000
 QUESTION NO.2

NOMINAL GDP EACH YEAR:

2017
Nominal GDP for 2017 = (Quantity of good A in 2017 × Price of good A in 2017) + (Quantity of
good B in 2017 × Price of good B in 2017) + (Quantity of good C in 2017 × Price of good C in
2017)
= (30 × 900) + (120 × 192) + (95 × 450)
= 27,000 + 23040 + 42,750
= 92,790
2018
Nominal GDP for 2018 = (Quantity of good A in 2018 × Price of good A in 2018) + (Quantity of
good B in 2018 × Price of good B in 2018) + (Quantity of good C in 2018 × Price of good C in
2018)
= (35×1,000) + (140×200) + (85×750)
= 35,000 + 28,000 + 63,750
= 126,750

2019
Nominal GDP for 2019 = (Quantity of good A in 2019 × Price of good A in 2019) + (Quantity of good B
in 2019 × Price of good B in 2019) + (Quantity of good C in 2019 × Price of good C in 2019)
= (34×1050) + (136×205) + (102×550)
= 35,700 + 27,880 + 56,100
= 119,680

REAL GPD OF EACH YEAR:

2017
= (Price of good A in 2017 × Quantity of good A in 2017) + (Quantity of good B in 2017 × Price of
good B in 2017) + (Quantity of good C in 2017 × Price of good C in 2017)
= (30 × 900) + (120 × 192) + (95 × 450)
= 27,000 + 23040 + 42,750
= 92,790
2018
REAL GDP FOR 2018 = (Quantity of good A in 2018 × Price of good A in 2017) + (Quantity of
good B in 2018 × Price of good B in 2017) + (Quantity of good C in 2019 × Price of good C in
2017)
= (30 × 1000) + (120 × 200) + (95 × 750)
= 35,000 + 24000 + 71250
= 130250
2019
REAL GDP FOR 2019 = (Quantity of good A in 2019 × Price of good A in 2017) (Quantity of good B
in 2019 × Price of good B in 2017) (Quantity of good C in 2017 × Price of good C in 2017)
= (30 × 1050) + (120 × 205) + (95 × 550)

= 31,500 + 24,600 + 52250

= 108350

QUESTION NO 3

GDP DEFLATOR FOR EACH YEAR

2017

GDP DEFLATOR = 100 × Nominal GDP ̸ Real GDP

= 100 × 92,790 ̸ 92790

= 100

2018
GDP DEFLATOR = 100 × Nominal GDP ̸ Real GDP
= 100 × 126,750 ̸130250

= 97.31

2019

GDP DEFLATOR = 100 × Nominal GDP ̸ Real GDP

= 100 × 119680 ̸108350
= 110.45

INFLATION RATE FROM 2017 to 2018

Inflation rate from 2107 to 2018 is given by:
= New – Old ̸ Old
= 97. 3 – 100 / 100
= -2.7 / 100
=-2.7 %

Prices has been decreased in 2018 2.7% as compared to the 2017.

INFLATION RATE FROM 2018 TO 2019

Inflation Rate from 2018 to 2019 is given by:
= New – Old / Old
= 110.4 – 97.3 / 97.3
=13.1 / 97.3
= 13.4%
Prices has been increased 13.4% in 2019 than in 2018.
 QUESTION NO 4

Calculating the CPI of 2017 by taking the 2018 as base price

CPI =100 × Cost of Basket with current prices / Cost of basket with base prices
= 100 × 30 + 120 + 95 / 35 + 140 + 85
=100 × 245 / 260
= 94

Calculating the CPI of 2018 by taking the 2018 as base price

CPI = 100 × Cost of basket with current prices / Cost of basket with base prices
= 100 × 35 + 140 + 85 / 35 + 140 + 85
= 100

Calculating the CPI of 2019 by taking the 2018 as base price

CPI = 100 × Cost of basket with current prices / Cost of basket with base prices
= 100 × 34 + 136 + 102 / 260
= 104

Now, Calculating the Inflation rate from 2017 to 2018

As, we know that in order to calculate the inflation we have:
= new – old / old
= 100 – 94 / 94
=6%
So, we can see here that the prices in 2018 has increased 6 percent in comparison of 2017. This
is the value that we have calculated by the CPI. But if we compare the inflation that we
calculated by using the GDP deflator than we summarized that prices in the 2018 decreases
2.7% and the inflation rate was given by -2.7%.

Inflation rate from 2018 to 2019

As we know that we find the inflation rate by:
= New – Old / Old
= 104 – 100 / 100
=4%
From above calculation we can say that inflation rate of 2018 and 2019 is 4% which shows that
prices are low in 2019.