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GDP and National Income Paper 4: Error Clinic
GDP and National Income Paper 4: Error Clinic
Ten recurring errors: imports left undeducted, net factor income reversed, the deflator misused, per-head units, a wrong growth denominator, nominal and real mixed, and transfer payments counted.
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 4 (error clinic) |
02 Questions (10 items)
- FoundationPrivate consumption is 1 200, investment 400, government spending 300, exports 500 and imports 350, all in hundred million dollars. Find GDP by the expenditure approach.
- FoundationGDP is 2 050 and, in hundred million dollars, foreigners produce 120 locally while residents produce 200 abroad. Find GNP.
- FoundationNominal GDP is 2 640 hundred million dollars and the GDP deflator is 120. Find real GDP.
- IntermediateReal GDP is 2 200 hundred million dollars with a population of four million. Find GDP per head in dollars.
- IntermediateReal GDP rises from 2 200 to 2 310 hundred million dollars. Find the growth rate.
- IntermediateThe GDP deflator rises from 120 to 126. Find the inflation rate.
- ChallengeNominal GDP rises 10 per cent while prices rise 4 per cent. Find real growth to two decimal places.
- ChallengeNominal GDP rises 8 per cent while real GDP falls 2 per cent. Find the percentage change in the deflator.
- ChallengeOver two years nominal GDP rises from 1 000 to 1 210 while prices rise 10 per cent. Find the average annual real growth rate.
- Error redoError clinic: a student adds 6 000 million dollars of government welfare payments into GDP. Where is the mistake?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | 2050 hundred million dollars: net exports are 500 minus 350, giving 150, added to consumption, investment and government spending. | Imports are produced abroad, so the expenditure approach keeps only net exports. |
| 2 | 2130 hundred million dollars: net factor income is 200 minus 120, giving 80, added to GDP. | GDP is counted by where production happens, GNP by who owns the factors of production. |
| 3 | 2200.0 hundred million dollars: real output is nominal output divided by the deflator and multiplied by 100. | The deflator has a base year of 100, so divide and multiply by 100 to return to money units. |
| 4 | 55000.0 dollars, which is 55 thousand dollars per head. | The common error is units: hundred million divided by million has to be tracked step by step. |
| 5 | 5.0 per cent: the change of 110 is divided by the earlier figure of 2 200. | The denominator is the earlier year, not the later one. |
| 6 | 5.0 per cent: the change in the deflator is itself the change in the general price level. | The deflator change is already the inflation rate, so no separate price index is needed. |
| 7 | 5.77 per cent: real growth is 1.10 divided by 1.04 minus 1, times 100. | Real growth deflates nominal growth; subtracting directly gives 6 per cent and overstates it. |
| 8 | It rises 10.2 per cent: the deflator is nominal over real, so 1.08 divided by 0.98 minus 1. | A fall in real output must be written as 0.98 before dividing; it cannot be used as a negative number. |
| 9 | 4.88 per cent: real output is 1 210 divided by 1.10, giving 1 100, so 10 per cent over two years and the square root gives the annual rate. | Multi-year averages need the geometric mean; dividing 10 per cent by two is wrong. |
| 10 | It should not be counted: a transfer payment only redistributes income and matches no production. | Only government purchases of goods and services enter GDP; a transfer payment is not final demand. |
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.
Before any output calculation ask three things: whose production, at what prices, and which year is the base.Tutor Registration →
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