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ECO403 Assignment 1 Solution Spring 2017

Case 01:

Zambia is a landlocked country in Southern Africa. It is ranked 117th out of 128 countries on the 2007 Global Competitiveness Index. This index looks at the factors that affect economic growth. Social indicators are continued to decline in its economy. The country’s economic growth rate cannot support the rapid population growth. Suppose that Zambian economy produces and consumes only two goods, clothes and bread. Following table shows the price and quantity of these goods in two different years.

Year 2010 Year 2015

Goods Price (Rs.) Quantity Price (Rs.) Quantity

Clothes 600 120 900 150

Bread 10 5000 20 4000

Compute the following by using information given in the table.

a) Nominal GDP for year 2015.

b) Real GDP for year 2015 by taking year 2010 as base year.
c) GDP deflator for year 2015.

(Marks: 1.5+1.5+2)

Case 02:

Angola is a country in Southern Africa. It is the 7th largest country in Africa. Angola’s economy has moved on in recent years from the panic situation caused by a quarter-century of civil war to become the fastest-growing economy in Africa. Suppose that economy of Angola is described by the following equations:

Y = C + I + G Y = 5000

G = 2000

T = 2000
C = 250 + 0.75(Y −T)
I = 1000 r.− 50

Compute the following with the help of this information.

a) Private savings

b) Public savings
c) National savings

(Marks: 2+1.5+1.5)

Solution :

Case: 01
a) Nominal GDP for year 2015. = 215000

b) Real GDP for year 2015 by taking year 2010 as base year. = 130000
c) GDP deflator for year 2015. = 165.38

Case: 02

a) Private savings = 500
b) Public savings = 0
c) National savings = 500

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