INDIAN PUBLISHERS

RVS GROUP OF EDUCATIONS

Chapterwise (2024-25)
CLASS-12-Macroeconomics
CHAPTER-3

Multiple choice Question:

1. What does Gross National Product (GNP) measure?
a) Total market value of all final goods and services produced within a country in a specific
period
b) Total market value of all final goods and services produced by a country's residents,
regardless of location, in a specific period
c) Total income earned by a country's residents and businesses in a specific period
d) Total value of all goods and services consumed within a country in a specific period
Answer: b) Total market value of all final goods and services produced by a country's
residents, regardless of location, in a specific period
2. What is the key difference between Gross Domestic Product (GDP) and Net Domestic
Product (NDP)?
a) NDP adjusted depreciation while GDP doesn't
b) GDP includes indirect taxes while NDP doesn't
c) NDP accounts for net income earned from abroad while GDP doesn't
d) GDP accounts for net income earned from abroad while NDP doesn't
Answer: a) NDP adjusted depreciation while GDP doesn't
3. Real GDP is adjusted for:
 a) Changes in population over time
b) Changes in price level over time
c) Changes in government spending over time
d) Changes in investment over time
Answer: b) Changes in price level over time
4. What does the GDP deflator measure?
a) The change in prices of all goods and services produced domestically
b) The ratio of nominal GDP to real GDP
c) The level of inflation in the economy
d) The difference between gross and net domestic product
Answer: b) The ratio of nominal GDP to real GDP
5. How does GDP relate to the concept of welfare?
a) GDP is a direct measure of welfare as it accounts for all economic transactions in a
country
b) GDP indirectly influences welfare through its impact on employment and income
distribution
c) GDP is not related to welfare as it only measures economic output
d) GDP is inversely related to welfare as higher GDP often leads to lower overall welfare
Answer: b) GDP indirectly influences welfare through its impact on employment and
income distribution

Assertion and reason-based questions with answer, the Alternatives are:

a) The Assertion (A) is true, but the Reason (R) is false.
b) The Assertion (A) is false, but the Reason (R) is true.
c) Both the Assertion (A) and Reason (R) are true, but the Reason (R) is not the correct
explanation of the assertion.
d) Both the Assertion (A) and Reason (R) are true, and the Reason (R) is the correct
explanation of the assertion.
1. Assertion (A): Gross National Product (GNP) measures the total market value of all final
goods and services produced within a country's borders.
Reason (R): GNP accounts for the income earned by a country's residents and businesses,
regardless of their location.
Answer: d) Both the Assertion (A) and Reason (R) are true, and the Reason (R) is the correct
explanation of the assertion.
Explanation: GNP measures the total market value of all final goods and services produced
by a country's residents, whether within the country or abroad. Therefore, the reason explains
why GNP includes income earned by a country's residents regardless of their location.
2. Assertion (A): Real GDP is a more accurate measure of economic output than Nominal
GDP.
Reason (R): Real GDP adjusts for changes in price level over time, providing a better
reflection of changes in actual production.
Answer: d) Both the Assertion (A) and Reason (R) are true, and the Reason (R) is the correct
explanation of the assertion.
Explanation: Real GDP adjusts for inflation, providing a more accurate measure of changes
in actual production by removing the impact of changing prices over time. This adjustment
makes Real GDP a better indicator of economic output compared to Nominal GDP.
3. Assertion (A): Net Domestic Product (NDP) is always lower than Gross Domestic Product
(GDP).
Reason (R): NDP accounts for depreciation, while GDP does not.
Answer: c) Both the Assertion (A) and Reason (R) are true, but the Reason (R) is not the
correct explanation of the assertion.
Explanation: While both assertions are true, the reason provided does not explain why NDP is
always lower than GDP. Other factors such as indirect taxes and subsidies also contribute to
the difference between NDP and GDP.
4. Assertion (A): GDP Deflator measures the changes in the price level of all goods and
services produced domestically.
Reason (R): The GDP Deflator is calculated by dividing Nominal GDP by Real GDP and
multiplying by 100.
Answer: a) The Assertion (A) is true, but the Reason (R) is false.
Explanation: The GDP Deflator measures the changes in the price level of all goods and
services produced domestically, but it is not calculated by dividing Nominal GDP by Real
GDP and multiplying by 100. Instead, it is calculated by dividing Nominal GDP by Real GDP
and then multiplying by 100.
5. Assertion (A): GDP growth directly leads to an improvement in welfare.
Reason (R): GDP is a comprehensive measure of a nation's economic performance,
encompassing all aspects of economic activity.
Answer: b) The Assertion (A) is false, but the Reason (R) is true.
Explanation: While GDP is a comprehensive measure of economic activity, its direct
correlation with welfare is debatable. GDP growth may not necessarily lead to an
improvement in welfare as it does not account for factors such as income distribution,
environmental sustainability, and quality of life.
Statement based questions with answer alternative from the following:
a) Statement 1 is true and Statement 2 is false.
b) Statement 1 is false and Statement 2 is true.
c) Both Statements 1 and 2 are true.
d) Both Statements 1 and 2 are false.
1. Statement 1: Gross National Product (GNP) includes the value of goods and services
produced domestically by foreign residents.
Statement 2: Gross Domestic Product (GDP) includes the income earned by a country's
residents and businesses, regardless of their location.
Answer: c) Both Statements 1 and 2 are true.
Explanation: GNP includes the value of goods and services produced domestically by both
domestic and foreign residents, while GDP includes the income earned by a country's
residents and businesses, regardless of where the production occurs.
2. Statement 1: Net National Product (NNP) accounts for depreciation and indirect taxes.
Statement 2: Gross Domestic Product (GDP) accounts for net income earned from abroad.
Answer: d) Both Statements 1 and 2 are false.
Explanation: NNP accounts for depreciation but does not account for indirect taxes. GDP
measures the total market value of all final goods and services produced within a country's
borders, without considering net income earned from abroad.
3. Statement 1: Real GDP adjusts for changes in the price level over time.
Statement 2: Nominal GDP reflects the value of goods and services produced in an economy
at current market prices.
Answer: c) Both Statements 1 and 2 are true.
Explanation: Real GDP adjusts for inflation or deflation, providing a more accurate measure
of economic output over time, while Nominal GDP reflects the value of goods and services
produced in an economy at current market prices without adjusting for inflation.
4. Statement 1: GDP Deflator measures the ratio of Nominal GDP to Real GDP.
Statement 2: GDP Deflator is used to calculate the inflation rate in an economy.
Answer: a) Statement 1 is true and Statement 2 is false.
Explanation: The GDP Deflator measures the ratio of Nominal GDP to Real GDP, serving as
a measure of the overall level of prices in the economy, rather than directly calculating the
inflation rate.
5. Statement 1: GDP growth is directly proportional to an improvement in overall welfare.
Statement 2: GDP considers factors such as income distribution, environmental
sustainability, and quality of life.
Answer: b) Statement 1 is false and Statement 2 is true.
Explanation: While GDP growth is often associated with economic progress, it does not
directly measure overall welfare as it does not account for factors such as income
distribution, environmental sustainability, and quality of life.
Case-based questions related to aggregates related to national income:
Case 1: The country of X has a Gross Domestic Product (GDP) of Rs 10 trillion and a Net
Domestic Product (NDP) of Rs 9 trillion. What could be the possible reasons for NDP being
less than GDP?
a) Case 1: Depreciation of capital assets and indirect taxes
b) Case 2: Subsidies and indirect taxes
c) Case 3: Depreciation of capital assets and net income earned from abroad
d) Case 4: Subsidies and net income earned from abroad
Answer: a) Case 1: Depreciation of capital assets and indirect taxes
Explanation: NDP accounts for depreciation of capital assets, which reduces the value from
GDP.
Case 2: In a hypothetical economy, the Nominal GDP is Rs 15 trillion and the Real GDP is
Rs 12 trillion. If the GDP deflator is 125, what can be inferred about the price level in the
economy?
a) Case 1: Prices have increased by 25% since the base year.
b) Case 2: Prices have decreased by 25% since the base year.
c) Case 3: Prices have increased by 125% since the base year.
d) Case 4: Prices have decreased by 125% since the base year.
Answer: a) Case 1: Prices have increased by 25% since the base year.
Explanation: The GDP deflator of 125 indicates that prices have increased by 25% compared
to the base year.
Case 3: Country Y has a Gross National Product (GNP) of Rs 8 trillion and a Net National
Product (NNP) of Rs 7.5 trillion. What could be a possible reason for NNP being less than
GNP?
a) Case 1: Depreciation of capital assets
b) Case 2: Indirect taxes
c) Case 3: Net income earned from abroad
d) Case 4: Subsidies
Answer: a) Case 1: Depreciation of capital assets
Explanation: NNP accounts for depreciation of capital assets, which reduces its value
compared to GNP.
Case 4: In a country with a Nominal GDP of Rs 20 trillion and a Real GDP of Rs 18 trillion,
what can be inferred about the inflation rate?
a) Case 1: Inflation rate is 10%
b) Case 2: Inflation rate is 20%
c) Case 3: Inflation rate is 5%
d) Case 4: Inflation rate is 2%
Answer: a) Case 1: Inflation rate is 10%
Explanation: Inflation rate can be calculated using the formula: (Nominal GDP - Real GDP) /
Real GDP * 100. In this case, the inflation rate would be ((20 - 18) / 18) * 100 = 11.11%,
which is closest to option a) 10%.

Case 5: A country has a Gross Domestic Product (GDP) of Rs 12 trillion and a Net Domestic
Product (NDP) of Rs 10 trillion. Which of the following could explain the difference between
GDP and NDP?
a) Case 1: Indirect taxes
b) Case 2: Subsidies
c) Case 3: Net income earned from abroad
d) Case 4: Depreciation of capital assets
Answer: d) Case 4: Depreciation of capital assets
Explanation: NDP accounts for depreciation of capital assets, which reduces its value
compared to GDP.
Source-based integrated questions:
Source 1: Excerpt from an Economic Report
"The Gross Domestic Product (GDP) of Country A increased by 5% in the last quarter,
reaching Rs 1.2 trillion. However, when accounting for inflation, the Real GDP growth rate
was only 3%. This growth was primarily driven by an increase in consumer spending and
exports."
Source 2: Statement from an Economist
"Economist X argues that focusing solely on Gross Domestic Product (GDP) growth rate can
be misleading as it does not consider factors such as income distribution and environmental
sustainability. Real GDP provides a more accurate measure of economic growth as it adjusts
for changes in price level over time."
Integrated Question 1:
Based on the information provided in Source 1 and Source 2, which of the following
statements is most accurate?
a) GDP growth rate is a reliable indicator of overall economic well-being.
b) Real GDP growth rate accounts for changes in price level over time, providing a more
accurate measure of economic growth.
c) Consumer spending and exports have no impact on GDP growth rate.
d) Economist X suggests that GDP growth rate should be the sole focus of economic analysis.
Answer: b) Real GDP growth rate accounts for changes in price level over time, providing a
more accurate measure of economic growth.
Integrated Question 2:
How might the information provided in Source 1 support the argument made by Economist X
in Source 2?

a) By demonstrating that GDP growth rate reflects changes in income distribution.

b) By highlighting the limitations of GDP growth rate in assessing economic progress.
c) By showing that GDP growth rate is directly correlated with environmental sustainability.
d) By indicating that GDP growth rate is the only factor influencing economic well-being.
Answer: b) By highlighting the limitations of GDP growth rate in assessing economic
progress.
Integrated Question 3:
If the GDP Deflator for Country A is 110, what can be inferred about the relationship between
Nominal GDP and Real GDP?
a) Nominal GDP is greater than Real GDP.
b) Real GDP is greater than Nominal GDP.
c) Nominal GDP and Real GDP are equal.
d) Nominal GDP and Real GDP are not related.
Answer: a) Nominal GDP is greater than Real GDP.
Integrated Question 4:
How might the consideration of factors such as income distribution and environmental
sustainability affect the interpretation of GDP growth rate?
a) They have no impact on the interpretation of GDP growth rate.
b) They provide additional context for assessing the overall well-being of an economy.
c) They decrease the reliability of GDP growth rate as an economic indicator.
d) They make GDP growth rate the sole measure of economic progress.
Answer: b) They provide additional context for assessing the overall well-being of an
economy.
Integrated Question 5:
If Country A's GDP grew by 7% last year, but Real GDP only grew by 4%, what could be a
possible explanation for this difference?
a) Changes in the price level over time
b) Changes in government spending
c) Changes in population growth
d) Changes in income distribution
Answer: a) Changes in the price level over time

Sources of above Question