Q: A country’s Consumer Price Index (CPI) rises from 120 to 126 over one year. What is the inflation rate for that year?

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

Q: If the reserve requirement is 10%, what is the maximum potential increase in the money supply from a $1,000 deposit?

$$ \frac{1}{0.10} \times 1,000 = 10,000 $$

Question 1

Which of the following best describes the concept of opportunity cost as discussed in Chapter 1 of Hubbard & O’Brien?

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

Suppose Country A can produce either 100 units of wheat or 50 units of corn per year, while Country B can produce either 80 units of wheat or 40 units of corn per year. According to the principle of comparative advantage, which country should specialize in corn production?

Accepted Answer

Country B, because it has a lower opportunity cost for corn.

Question 3

If the demand for a product increases while the supply remains constant, what will happen to the equilibrium price and quantity?

Accepted Answer

Equilibrium price will increase and equilibrium quantity will increase.

Question 4

Which formula is used to calculate Gross Domestic Product (GDP) using the expenditure approach?

Accepted Answer

$$ GDP = C + I + G + NX $$

Question 5

A country’s Consumer Price Index (CPI) rises from 120 to 126 over one year. What is the inflation rate for that year?

Accepted Answer

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

Question 6

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

Accepted Answer

The sale of used goods.

Question 7

If the unemployment rate is calculated as $$ \frac{	ext{Number of Unemployed}}{	ext{Labor Force}} 	imes 100 $$, which of the following scenarios would result in a decrease in the unemployment rate?

Accepted Answer

The number of unemployed decreases while the labor force remains constant.

Question 8

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment resulting from workers lacking the skills required for available jobs.

Question 9

Suppose the money supply in an economy increases by 10% while real output remains constant. According to the quantity theory of money, what is the expected effect on the price level?

Accepted Answer

The price level will increase by 10%.

Question 10

Which equation represents the quantity theory of money?

Accepted Answer

$$ MV = PY $$

Question 11

If a country’s nominal GDP grows by 8% and its real GDP grows by 3%, what is the implied inflation rate?

Accepted Answer

$$ 8\% - 3\% = 5\% $$

Question 12

Which of the following is a function of money as discussed in Chapter 14?

Accepted Answer

A store of value.

Question 13

If the reserve requirement is 10%, what is the maximum potential increase in the money supply from a $1,000 deposit?

Accepted Answer

$$ \frac{1}{0.10} 	imes 1,000 = 10,000 $$

Question 14

Which of the following best explains why inflation can be harmful to an economy?

Accepted Answer

It creates uncertainty and can distort price signals.

Question 15

Which of the following is an example of cyclical unemployment?

Accepted Answer

A factory worker laid off during a recession.

Question 16

If the government increases spending without raising taxes, what is the likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand will increase.

Question 17

Which of the following is a component of the financial system as discussed in Chapter 6.2?

Accepted Answer

Banks and other financial intermediaries.

Question 18

Suppose the exchange rate between the US dollar and the euro changes from $$1 = €0.90 to$$ $$1 = €1.10. $$What is the effect on US exports to Europe?

Accepted Answer

US exports become more expensive for Europeans, likely decreasing US exports.

Question 19

Which equation best represents the calculation of net exports?

Accepted Answer

$$ NX = X - M $$

Principles of Macroeconomics: Course Syllabus and Structure

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