Q: If the nominal GDP in 2022 is $$ \20$$\,000 $$ and the real GDP in 2022 (using 2015 as the base year) is $$ \$$18\,000 $$, what is the GDP deflator for 2022?

$$ \frac{20,000}{18,000} \times 100 = 111.1 $$

Q: If the Consumer Price Index (CPI) was 120 last year and 126 this year, what is the inflation rate for this year?

$$ \frac{126 - 120}{120} \times 100 = 5\% $$

Q: If the unemployment rate is 6\%, the labor force participation rate is 70\%, and the working-age population is 200 million, how many people are unemployed?

$$ 200 \times 0.70 = 140 $$ million in labor force; $$ 140 \times 0.06 = 8.4 $$ million unemployed

Question 1

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

A student chooses to spend an hour studying for an exam instead of going to a movie, giving up the enjoyment of the movie.

Question 2

Suppose the U.S. government increases its spending on infrastructure without raising taxes. According to the loanable funds model, what is the most likely effect on the real interest rate and private investment?

Accepted Answer

The real interest rate will rise and private investment will decrease due to crowding out.

Question 3

If the nominal GDP in 2022 is $$ \20$$\,000 $$ and the real GDP in 2022 (using 2015 as the base year) is $$ \$$18\,000 $$, what is the GDP deflator for 2022?

Accepted Answer

$$ \frac{20,000}{18,000} 	imes 100 = 111.1 $$

Question 4

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

The value of a used car sold by one consumer to another.

Question 5

A country can produce either 100 units of wheat or 200 units of corn with its available resources. What is the opportunity cost of producing one unit of wheat?

Accepted Answer

$$ \frac{200}{100} = 2 $$ units of corn

Question 6

If the Consumer Price Index (CPI) was 120 last year and 126 this year, what is the inflation rate for this year?

Accepted Answer

$$ \frac{126 - 120}{120} 	imes 100 = 5\% $$

Question 7

Which of the following would cause a movement along the demand curve for pizza, rather than a shift of the demand curve?

Accepted Answer

A decrease in the price of pizza.

Question 8

Suppose the marginal propensity to consume (MPC) is $$ 0.8 . $$What is the government purchases multiplier?

Accepted Answer

$$ \frac{1}{1 - 0.8} = 5 $$

Question 9

If the unemployment rate is 6\%, the labor force participation rate is 70\%, and the working-age population is 200 million, how many people are unemployed?

Accepted Answer

$$ 200 	imes 0.70 = 140 $$ million in labor force; $$ 140 	imes 0.06 = 8.4 $$ million unemployed

Question 10

Which of the following best describes the difference between nominal and real interest rates?

Accepted Answer

Nominal interest rates are not adjusted for inflation, while real interest rates are.

Question 11

If the price of coffee increases, what is the likely effect on the demand for tea, assuming tea is a substitute for coffee?

Accepted Answer

The demand for tea will increase.

Question 12

A country’s real GDP per capita grows at an average annual rate of 3\%. According to the Rule of 70, approximately how many years will it take for real GDP per capita to double?

Accepted Answer

$$ \frac{70}{3} \approx 23.3 $$ years

Question 13

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate searching for their first job.

Question 14

If the government increases taxes and decreases spending at the same time, what type of fiscal policy is this and what is its likely effect on aggregate demand?

Accepted Answer

Contractionary fiscal policy; aggregate demand will decrease.

Question 15

Suppose the CPI basket costs $$ \500$$ $$ in the base year and $$ \$$600  in $$the current year. What is the CPI for the current year?

Accepted Answer

$$ \frac{600}{500} 	imes 100 = 120 $$

Question 16

Which of the following would shift the supply curve for loanable funds to the right?

Accepted Answer

An increase in household savings.

Question 17

If a country has an absolute advantage in producing both wheat and steel, but a comparative advantage in producing wheat, what should it do according to the theory of comparative advantage?

Accepted Answer

Specialize in producing wheat and trade for steel.

Question 18

Which of the following is a shortcoming of using GDP as a measure of economic well-being?

Accepted Answer

It does not account for household production or the underground economy.

Question 19

If the short-run Phillips curve is downward sloping, what does this imply about the relationship between inflation and unemployment in the short run?

Accepted Answer

There is a trade-off: as inflation increases, unemployment decreases.

Question 20

A country’s real GDP was $$ \1$$,000 $$ billion last year and $$ \$$1,050 $$ billion this year. What is the growth rate of real GDP?

Accepted Answer

$$ \frac{1,050 - 1,000}{1,000} 	imes 100 = 5\% $$

Core Principles and Models in Macroeconomics: Study Notes

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