1.The following transactions took place in Legoland last year:

Item                                 Billions of dollars

Wages paid to labour                           750

Consumption expenditure                    600

Taxes                                                 250

Government transfer payments              50

Indirect taxes less subsidies                    0

Firm's profits                                       200

Net Investment                                    200

Government expenditure                      200

Exports                                               300

Private Savings                                   300

Depreciation                                          50

Imports                                              250

1.1 Calculate Legoland's GDP using the expenditure approach and the factor incomes approach.

1.2 Calculate leakages from and injections into the circular flow of income and expenditure.

1.3 Calculate the net domestic product.

1.4 How much are government saving and national saving?

1.5 If there is a purchase of one corporation by another corporation by swapping shares worth 1 billion dollars, how would it affect the GDP figure?

2. A typical family living on Sandy Island consumes only orange juice, apples and cloth. In the base year, this family spent $40 on orange juice, $45 on apples, and $25 on cloth. Prices in the base year were $4 per liter of orange juice, $3 for each apple and $5 per meter of cloth. In the current year, orange juice costs $3 a liter, apples cost $4 each and cloth costs $7 a meter.

2.1 Calculate the Consumer Price Index in the current year.

2.2 What is the inflation rate between the base year and the current year?

3. An economy has the following real GDP and nominal GDP in 1993, 1994 and 1995:

Year        Real GDP ($ billion)     Nominal GDP ($ billion)

1993            1000                         1000

1994            1050                         1200

1995            1200                         1500

3.1 What were the GDP deflators in 1994 and 1995?

3.2 What is the inflation rate as measured by the GDP deflator between 1993 and 1995?

National Income - Discussion Topic Questions:

 (I) Discuss whether each of the following activities is included in GDP:

(a) sew your own dress

(b) purchase a frozen meal from the supermarket

(c) rent a car

(d) add more business inventories

(e) buy a second-hand TV

(II) Discuss the effect(s) of each of the following reported transactions on this year's GDP:

(a) Japanese companies bought US $1 billion worth of properties in Hong Kong in the first half of this year.

(b) Exports to the United States increased 10% this year.

(c) Government cut back expenditure on housing subsidies this year.