Q: If nominal GDP in a given year is $$22 trillion and real GDP (base year 2017) is 20 $$trillion, what is the GDP deflator for that year?

$$GDP\ deflator = 100 \times \frac{22}{20} = 110$$

Question 1

Which of the following best explains why the aggregate demand (AD) curve slopes downward?

Accepted Answer

Because as the price level rises, the real value of cash and some financial assets declines, interest rates rise, and exports decrease, reducing the quantity of GDP demanded.

Question 2

Suppose the U.S. government increases its budget deficit. According to the loanable funds model, what is the most likely effect on the real interest rate and investment?

Accepted Answer

The supply of loanable funds shifts left, causing the real interest rate to rise and investment to fall.

Question 3

If the marginal propensity to consume (MPC) is 0.8, what is the value of the spending multiplier?

Accepted Answer

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

Question 4

Which of the following would cause the short-run aggregate supply (SRAS) curve to shift to the left?

Accepted Answer

A sudden increase in the price of natural resources

Question 5

During the 1970s, the U.S. experienced stagflation. Which combination of events best describes stagflation?

Accepted Answer

Rising inflation and rising unemployment

Question 6

If nominal GDP in a given year is $$22 trillion and real GDP (base year 2017) is 20 $$trillion, what is the GDP deflator for that year?

Accepted Answer

$$GDP\ deflator = 100 	imes \frac{22}{20} = 110$$

Question 7

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

Accepted Answer

The value of a computer chip sold to a computer manufacturer

Question 8

Suppose the unemployment rate falls from 4.4% to 4.3%, but the number of employed people also falls. What could explain this phenomenon?

Accepted Answer

The labor force decreased by more than employment.

Question 9

Which of the following best describes the long-run aggregate supply (LRAS) curve?

Accepted Answer

It is vertical because real GDP is determined by resources and technology, not the price level.

Question 10

If the U.S. experiences faster inflation than its trading partners, what is the likely effect on net exports?

Accepted Answer

Net exports will decrease because U.S. goods become less competitive.

Question 11

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose skills are no longer needed due to automation

Question 12

If aggregate expenditures (AE) are less than GDP, what will happen to inventories and GDP in the next period?

Accepted Answer

Inventories will rise and GDP will decrease.

Question 13

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

Accepted Answer

An increase in net exports due to a weaker dollar

Question 14

If the real interest rate is 3% and the inflation rate is 2%, what is the nominal interest rate?

Accepted Answer

$$Nominal\ interest\ rate = Real\ interest\ rate + Inflation = 3\% + 2\% = 5\%$$

Question 15

Which of the following is a cost of unanticipated inflation?

Accepted Answer

It redistributes income from lenders to borrowers.

Question 16

Which of the following would increase both the equilibrium real interest rate and the level of investment in the loanable funds market?

Accepted Answer

An increase in expected future profits from new investments

Question 17

If the U.S. dollar appreciates relative to other currencies, what is the likely effect on U.S. net exports?

Accepted Answer

Net exports will decrease because U.S. goods become more expensive for foreigners.

Question 18

Which of the following best explains why real GDP per capita is considered the best measure of a country's standard of living over time?

Accepted Answer

It controls for both inflation and population growth, allowing for meaningful comparisons across time and countries.

Question 19

Which of the following would most likely cause a leftward shift in the supply of loanable funds?

Accepted Answer

An increase in the desire of households to consume today

Question 20

Suppose the economy is initially in long-run equilibrium. A sudden increase in oil prices occurs. What is the most likely short-run effect?

Accepted Answer

The SRAS curve shifts left, real GDP falls, and the price level rises.

Aggregate Demand, Aggregate Supply, and Macroeconomic Fluctuations: Core Concepts in Macroeconomics

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