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GDP and National Income Paper 1: Basics
GDP and National Income Paper 1: Basics
Starting from definitions: GDP is territorial, GNP follows residents, with practice on the expenditure approach, the deflator and output per head.
Direct answers Answers and explanations for all ten questions
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 |
| Suggested time | 20 |
| Difficulty mix | Foundation 3 · Intermediate 3 · Challenge 3 · Error redo 1 |
| Chapter | Chapter: DSE Economics GDP and National Income |
| Level | Paper 1 (basics) |
02 Questions (10 items)
- FoundationItem 1: consumption 800, investment 300, government spending 250, exports 420 and imports 380, all in hundred million dollars. Find GDP by the expenditure approach.
- FoundationItem 2: GDP is 1 500 and net factor income from abroad is −80. What is gross national product?
- FoundationItem 3: nominal GDP is 2 200 and the GDP deflator is 110. What is real GDP?
- IntermediateItem 4: real GDP is 3 000 hundred million and the population is six million. Find real GDP per head.
- IntermediateItem 5: a foreign-owned factory produces in Hong Kong. Is its output in Hong Kong GDP or in Hong Kong GNP?
- IntermediateItem 6: the government pays cash assistance to low-income households. Does it enter GDP, and why?
- ChallengeItem 7: unsold output adds 50 to inventories during the year. Does it count in GDP, and under which component?
- ChallengeItem 8: a used car resells for 300 000 dollars and the agent charges 10 000 in commission. How should both be treated?
- ChallengeItem 9: nominal GDP grows 10 per cent while prices rise 4 per cent. What is the real growth rate?
- Error redoError 10: a student counts share trading and resold flats in GDP. How should this be corrected?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | 1390 hundred million dollars: net exports are 40, added to the other three items. | The expenditure approach sums final demand only; imports are not domestic output, so they are subtracted. |
| 2 | 1420, because GNP equals GDP plus net factor income from abroad. | A negative figure means residents earn less abroad than foreigners earn locally. |
| 3 | 2000.0, since real GDP is nominal GDP divided by the deflator and multiplied by one hundred. | The deflator uses a base of one hundred, so a reading above that means prices have risen. |
| 4 | 5.0 ten-thousand dollars: convert to dollars first, then divide by the population. | Per-head comparisons should use real values, since nominal values move with prices. |
| 5 | It counts in GDP but not in GNP, because the production is local while the factor of production is foreign-owned. | GDP asks where production happens; GNP asks who owns the factors. |
| 6 | No. A transfer payment has no matching production, it only redistributes income. | Only spending on production or services counts; a pure transfer of money does not. |
| 7 | Yes, under investment as an increase in inventories, because it was produced this year without entering final consumption. | Inventory change is part of investment; when sold it moves from inventory to consumption without double counting. |
| 8 | The 300 000 is excluded since the car was not produced this year; the 10 000 counts because a service was provided. | The test is whether new production or a service appeared, not the size of the sum. |
| 9 | About 5.77 per cent: divide the nominal growth factor by the price factor rather than subtracting the rates. | Subtracting the rates only approximates the answer when both are small; at higher inflation the error shows. |
| 10 | Trading existing assets is not new production and is excluded; services supplied during the trade, such as commission and legal fees, are included. | Ask whether anything new was produced this year and the answer follows. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
Separate the territorial principle from the residence principle first, then handle the additions and subtractions, and only then the arithmetic.Tutor Registration →
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