Question 1

Which of the following best describes what is included in the calculation of GDP for a country?

Accepted Answer

The value of all legal final goods and services produced within a country in a given period of time.

Question 2

Suppose the consumer price index (CPI) was 105 in Year 1 and 111 in Year 2. What was the inflation rate between these two years? Use the formula $$ 	ext{Inflation Rate} = \frac{	ext{CPI}_{	ext{Year 2}} - 	ext{CPI}_{	ext{Year 1}}}{	ext{CPI}_{	ext{Year 1}}} 	imes 100 .$$

Accepted Answer

5.7 percent

Question 3

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, what is the inflation rate? Use the Fisher equation: $$ i = r + \pi $$, where $$ i  is $$the nominal rate, $$ r  is $$the real rate, and $$ \pi  is $$the inflation rate.

Accepted Answer

-2 percent

Question 4

In 1972, President Nixon’s salary was $$200,000. The CPI was 41.8 in 1972 and 237.0 in 2015. What would Nixon’s 1972 salary be equivalent to in 2015 dollars? Use the formula $$ 	ext{Salary}_{2015} = 	ext{Salary}_{1972} 	imes \frac{	ext{CPI}_{2015}}{	ext{CPI}_{1972}} $.

Accepted Answer

$1,134,000

Question 5

Which of the following best measures the economic prosperity of a country?

Accepted Answer

The level of real per capita GDP

Question 6

Suppose in a closed economy, private saving is $$29$$ billion and investment is $$36$$ billion. What is public saving?

Accepted Answer

Public saving is equal to $$-7$$ billion.

Question 7

If the price level increased from 130 to 156, what was the inflation rate? Use $$ 	ext{Inflation Rate} = \frac{156 - 130}{130} 	imes 100 .$$

Accepted Answer

20 percent

Question 8

Which of the following statements about investment is correct according to economists?

Accepted Answer

Investment refers to the purchase of new capital goods, not stocks and bonds.

Question 9

If $$ M = 5,000 $$, $$ P = 5.5 $$, and $$ Y = 9,000 $$, what is the velocity of money? Use the equation $$ V = \frac{P 	imes Y}{M} .$$

Accepted Answer

Question 10

Which of the following is NOT a function of money?

Accepted Answer

Protection against inflation

Question 11

If the reserve ratio is 5 percent, how much money can be created from $$500 of new reserves? Use the money multiplier formula $$ 	ext{Money Multiplier} = \frac{1}{	ext{Reserve Ratio}} $.

Accepted Answer

$10,000

Question 12

Which of the following events would shift the aggregate demand curve to the right?

Accepted Answer

An increase in government expenditures or a decrease in the price level

Question 13

Which of the following is included in M1?

Accepted Answer

Both demand deposits and traveler’s checks

Question 14

According to the liquidity preference theory, in the short run, what adjusts to bring money supply and money demand into balance?

Accepted Answer

The interest rate

Question 15

If the quantity of money supplied is greater than the quantity of money demanded, what will happen to the interest rate?

Accepted Answer

The interest rate will fall.

Question 16

In a closed economy, national saving equals which of the following? (Select all that apply)

Accepted Answer

All of the above are correct

Question 17

If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, what is the cyclical unemployment rate?

Accepted Answer

0.8 percent

Question 18

Which of the following best describes the catch-up effect?

Accepted Answer

Relatively poor countries tend to have higher growth rates than relatively rich countries.

Question 19

Which of the following is the key factor underlying the standard of living in a country?

Accepted Answer

The amount of goods and services produced from each hour of a worker’s time.

Question 20

When the consumer price index rises, what happens to the typical family’s cost of living?

Accepted Answer

They have to spend more dollars to maintain the same standard of living.

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