Question 1

Suppose the central bank increases the money supply in an economy. According to the Quantity Theory of Money, what is the likely long-term effect on the price level if real output remains constant? Use the equation $$ M 	imes V = P 	imes Y  to $$support your answer.

Accepted Answer

The price level will increase because, with constant output and velocity, more money leads to higher prices.

Question 2

A country is experiencing high unemployment and low inflation. Which macroeconomic policy would be most appropriate to address this situation?

Accepted Answer

Increase government spending or cut taxes to stimulate aggregate demand.

Question 3

If the marginal propensity to consume (MPC) is 0.8, what is the value of the spending multiplier? Use the formula $$ k = \frac{1}{1 - MPC} .$$

Accepted Answer

$$ k = 5 $$

Question 4

Which of the following best describes the concept of 'crowding out' in fiscal policy?

Accepted Answer

Government borrowing leads to higher interest rates, reducing private investment.

Question 5

A country has a nominal GDP of $$500 billion and a GDP deflator of 125. What is its real GDP? Use the formula $$ 	ext{Real GDP} = \frac{	ext{Nominal GDP}}{	ext{GDP Deflator}} 	imes 100 $.

Accepted Answer

$$ 400 	ext{ billion} $$

Question 6

Which of the following is NOT included in the calculation of a country’s GDP?

Accepted Answer

The value of stocks and bonds traded on the stock market.

Question 7

If the unemployment rate is 6%, the labor force is 50 million, and the population is 200 million, how many people are unemployed?

Accepted Answer

3 million

Question 8

Which of the following scenarios best illustrates structural unemployment?

Accepted Answer

A factory worker is replaced by a robot and cannot find a new job due to lack of skills.

Question 9

If the central bank wants to decrease the money supply, which of the following actions should it take?

Accepted Answer

Sell government bonds to the public.

Question 10

Suppose the economy is at full employment and the government increases spending. According to the Phillips Curve, what is the likely short-run effect?

Accepted Answer

Unemployment will fall and inflation will rise.

Question 11

Which of the following best explains why GDP per capita is often used as a measure of a country's standard of living?

Accepted Answer

It divides GDP by the population, reflecting average income per person.

Question 12

If a country’s currency appreciates, what is the likely effect on its exports and imports?

Accepted Answer

Exports decrease, imports increase.

Question 13

Which of the following is an example of expansionary monetary policy?

Accepted Answer

Lowering the interest rate.

Question 14

Suppose the government runs a budget deficit. Which of the following is a possible consequence in the loanable funds market?

Accepted Answer

The demand for loanable funds increases, raising interest rates.

Question 15

If the inflation rate is 3% and the nominal interest rate is 7%, what is the real interest rate? Use the formula $$ r = i - \pi .$$

Accepted Answer

$$ 4\% $$

Question 16

Which of the following would cause a leftward shift in the aggregate demand curve?

Accepted Answer

A decrease in government spending.

Question 17

A country’s real GDP grew from $$1,000 to$$ $$1,050 in $$one year. What was the growth rate of real GDP? Use the formula $$ 	ext{Growth Rate} = \frac{	ext{New Value} - 	ext{Old Value}}{	ext{Old Value}} 	imes 100 .$$

Accepted Answer

$$ 5\% $$

Question 18

Which of the following is a supply-side policy aimed at increasing long-term economic growth?

Accepted Answer

Increasing government spending on infrastructure.

Question 19

If the velocity of money ($$ V ) is 4$$, the money supply ($$ M ) is$$ $$500$$ million, and real output ($$ Y ) is$$ $$1,000$$ million, what is the price level ($$ P $$)? Use the equation $$ M 	imes V = P 	imes Y .$$

Accepted Answer

$$ 2 $$

Question 20

Which of the following best describes the natural rate of unemployment?

Accepted Answer

The unemployment rate when cyclical unemployment is zero.

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