M.Com

1. CU-MCom-MEBE-MOOCS-I—Answers to Select Questions discussed in the Class at the
University of Calcutta
subirmaitra.wixsite.com/moocs
National Income Accounting:
1. Assume that in a hypothetical economy GNP is Rs. 5000, personal disposable income
(aggregate) Rs. 4100 and the government budget deficit is Rs. 200 Consumption is Rs.
3800 and the trade deficit is Rs. 100. i) What is the size of investment (I)7 ii) How large is
government spending (G)
Answer: We know that
Personal disposable income = GNP –(Tax—Transfer)
 4100 = 5000—(Tax—Transfer)
 (Tax—Transfer) = 900
Again, Government Budget Deficit = G --(Tax—Transfer)
 200 = G – 900
 G = 1100
GNP = C + I + G + (X—M)
 5000 = 3800 + I + 1100 - 100
 I = 5000 – 3800 – 1000
 I = 200
2. You are given the following data in crores of rupees:
Govt. and business transfer 15
Indirect business taxes 30
GNP 630
Social security contributions 20
Personal taxes 25
Capital consumption 80
Residential construction 70
Retained earnings 0
Personal consumption expenditure 390
Direct business taxes 40
Calculate the value of NNP, national income, personal income and disposable income.

2. Gross Investment Rs. 800
Net Investment Rs. 200
Consumption Rs. 4000
Government purchase of goods and services Rs. 1100
Government budget surplus Rs. 30
Answer:
NNP = GNP – Depreciation
= 630 – 80
= 550
NI = NNP – IBT
= 550 – 30
= 520
Personal Income = Personal consumption expenditure + Government and
Business Transfer + Personal Taxes
= 390 + 15 + 25
= 430
Personal Disposable Income = Personal income –Personal taxes—Social security
Contributions
= 430 – 25 –20
= 385
3. The following is the information from the national income accounts of a hypothetical
country: GDP Rs. 6000
Calculate NDP, Net exports, Government taxes minus transfer, disposable personal
income, personal saving.
Answer: We know that NDP = GDP – Depreciation and
Depreciation = Gross Investment -- Net Investment
= 800 – 200
= 600
NDP = 6000 – 600
= 5400
Net export = Export – Import can’t be calculated since we don’t have
information relating to export and import.

3. Government budget surplus = (Government Taxes – Transfer) – Government purchases
 (Government Taxes – Transfer) = Government purchases + Government budget surplus
= 1100 + 30
= 1130
Disposable personal income = GDP –(Government Taxes –Transfer) = 6000 – 1130 = 4870
Personal saving = Disposable personal income – Consumption = 4870 –4000 = 870
4. Assume that GDP is Rs.6000, personal disposable income is Rs.5100, the government budget
deficit is Rs.200, consumption is Rs.3800 and the trade deficit is Rs.100. Find the values of saving,
investment and government spending.
Answer:
GDP = 6000
Disposable Personal Income = GDP – Taxes
=> 5100 = 6000—Taxes
=> Taxes = 6000—5100 = 900
Again, Government Budget Deficit = 200
 Government Spending –Taxes = 200
 Government Spending = 200 + 900 = 1100
We know that, Y = C + I + G + (X—M)
 6000 = 3800 + I + 1100 – 100
 I = 6000 – 3800 – 1000 = 1200
Again, Disposable Personal Income = Personal Consumption + Personal Saving
 5100 = 3800 + Personal Saving
 Personal Saving = 1300
Aggregate Saving = Personal Saving + Government Saving + Corporate Saving
= 1300 – 200 + 0
= 1100
5. For a particular country we have the following data:
GDP at market prices 15000
Exports 3000
Imports 5000
Net factor incomes from abroad 2500
Depreciation 3500
Gross Domestic Capital Formation 4500
What is the GNP at market price of this country?

4. Answer: GNP at Market Price = GDP at market Price + Net factor incomes from abroad
= 15000 + 2500
= 17500
6. Payasia is a closed economy in which only three commodities are produced : milk, rice and
payasam ( made out of milk and rice). In the year 2001, Rs. 1000 worth of rice, Rs.
600 worth of milk and Rs. 800 worth of payasam were produced. Rs. 200 worth of rice and Rs.
300 worth of milk were used up to produce the payasam that year. Assuming that Payasia had
no stocks of rice and milk at the beginning of the year 2001, what was the GNP in Payasia in
2001?
Answer: Rice (Final Goods) = 800; Milk (Final Goods) = 300 Payasam (Final Goods) = 800
 GNP = 800 + 300 + 800 = 1900
7. The following are the complete set of items which are found in the national accounts
statistics of a country for the year 2000-01
i) Depreciation Allowances = Rs. 200
ii) Personal (direct) Tax payments = Rs. 250
iii) Indirect Business Taxes = Rs. 200
iv) Corporate (profits) Taxes = Rs. 100
v) Dividend payments = Rs. 50
vi) Undistributed profits = Rs. 50
vii) Government Transfer Payments = Rs. 200
viii) Personal Consumption Expenditure = Rs. 1200
ix) Personal Savings = Rs. 100
Use the above entries to compute a) Personal income; b) Net National Product;
c) National Income; d) Gross National Product; for this country for the year 2000-01.
Answer:
Personal Income = Personal Consumption Expenditure + Personal Saving + Personal (direct) Tax
Payments
= 1200 + 100 + 250 = 1550
Corporate Profit = Dividend payments + Undistributed profits + Corporate profit tax
= 50 + 50 + 100 = 200
Personal Income = NI – Corporate profit – Social Insurance Contribution + Transfer payments +
Interest adjustment + Dividend
1550 = NI – 200 – 0 + 200 + 0 + 50
 NI = 1550 – 50 = 1500

5.  NI = NNP at Factor Cost = 1500
NNP at Market Price = NNP at FC + Indirect Business Taxes = 1500 + 200 = 1700
GNP at Market price = NNP at MP + Depreciation = 1700 + 200 = 1900
Simple Keynesian Theory:
8. Suppose that the economy is characterized by the following structural equations: C =
160 + 0.6 (Y--T); I = 150; G = 150; T = 100.
a) Determine the equilibrium output level. b) If G rises to 250, what is the how
equilibrium level of output? What is the value of the govt. expenditure
multiplier? c) If tax falls to 50, by how much will equilibrium output rise? What is the
value of tax multiplier?
Answer: a) 1000; b) 1250 and 2.5; c) 75 and --1.5.
9. Suppose you have the following information about a closed economy:
C = 50 + 0.80 (Y --T); I = 200 ; G = 100
a) Find out the equilibrium level of income. b) Suppose G increases to 250 what is the
new equilibrium level of income? c) What level of G is needed to achieve a target
income of 1000?
Answer: a) 1350; b) 2100; c) 80
10. In the simple Keynesian model, assume that the consumption function is given by
C = 200 + 0.75 (Y--T). Planned investment is 100, government purchases and taxes are
both 100.
a. Graph planned expenditure as a function of income.
b. What is the equilibrium level of income?
c. If government purchases increase to 125, what is the new equilibrium income?
d. What level of government purchases is needed to achieve an income of 1,600?
Answer: b. 1300 ; c. 1400 ; d. 175
IS-LM Model:
11. Consider the following economy:
The consumption function is given by C = 200 + 0.75 (Y--T).
The investment function is I(r) = 200 -- 25r. Government purchases and taxes are both
100. The money demand function is: ( M/P)d = Y -- 100 r. The money supply M is 1000
and the price level P is 2.
a. Find the equilibrium interest rate r and the equilibrium level of income Y.
b. Suppose that government purchases are raised from 100 to 150. How much would
Y increase if the real interest rate were constant? What are the new equilibrium
interest rate and level of income?
c. Suppose instead that the money supply is raised from 1,000 to 1,200. What are the
new equilibrium interest rate and level of income?
Answer: a. 1100 and 6; b. 1300 (when r is kept constant at 6); 1200 and 7
c. 1150 and 5.5.