Q: Which of the following equations represents the relationship between nominal GDP, real GDP, and the price level?

$$\text{Nominal GDP} = \text{Real GDP} \times \text{Price Level}$$

Question 1

Which of the following best describes a procyclical economic variable during the business cycle?

Accepted Answer

A variable that moves in the same direction as overall economic activity.

Question 2

According to the Real Business Cycle (RBC) theory, what is the primary driver of business cycles?

Accepted Answer

Random fluctuations in productivity due to technological change.

Question 3

Suppose the aggregate demand (AD) curve shifts rightward faster than potential GDP. According to the AS-AD model, what is the likely outcome?

Accepted Answer

Real GDP grows faster than potential and inflation is higher.

Question 4

Which of the following is an example of a cost-push inflation shock?

Accepted Answer

A sudden increase in oil prices raises production costs.

Question 5

If the price level rises more than expected, what is the likely short-run effect on real GDP according to the AS-AD model?

Accepted Answer

Real GDP moves above potential GDP, creating an inflationary gap.

Question 6

Which of the following best describes a demand-pull inflation spiral?

Accepted Answer

A continuous increase in aggregate demand sustained by ongoing increases in the quantity of money.

Question 7

Suppose the central bank unexpectedly increases the money supply. According to the AS-AD model, what is the immediate effect if expectations are not yet adjusted?

Accepted Answer

Aggregate demand increases, raising both the price level and real GDP above potential.

Question 8

Which of the following is NOT a typical feature of business cycles?

Accepted Answer

They are periodic, occurring at predictable intervals.

Question 9

If a country experiences repeated oil shocks that increase production costs, which type of inflation is most likely to occur?

Accepted Answer

Cost-push inflation.

Question 10

In the context of the AS-AD model, what happens if aggregate demand increases more slowly than potential GDP?

Accepted Answer

Real GDP growth is slower and inflation is less than expected.

Question 11

Which of the following equations represents the relationship between nominal GDP, real GDP, and the price level?

Accepted Answer

$$	ext{Nominal GDP} = 	ext{Real GDP} 	imes 	ext{Price Level}$$

Question 12

A country is experiencing a wage-price spiral. Which of the following best describes this phenomenon?

Accepted Answer

Rising nominal wages increase production costs, which in turn cause firms to raise prices, leading to further wage demands.

Question 13

According to the RBC theory, what is the effect of a positive technological shock on the economy?

Accepted Answer

It increases productivity, leading to an expansion in real GDP.

Question 14

Which of the following is a lagging indicator in the business cycle?

Accepted Answer

Unemployment rate.

Question 15

If the central bank responds to a cost-push inflation shock by increasing the money supply, what is the likely result?

Accepted Answer

Both the price level and real GDP increase, but inflation may become persistent.

Question 16

Which of the following best describes the concept of 'intertemporal substitution' in the RBC theory?

Accepted Answer

Workers choose when to supply labor based on expected changes in productivity and wages over time.

Question 17

Suppose the expected inflation rate is 2%, but actual inflation turns out to be 5%. What is the likely short-run effect on real GDP?

Accepted Answer

Real GDP rises above potential GDP.

Question 18

Which of the following policies is most likely to trigger a demand-pull inflation?

Accepted Answer

A significant increase in government spending.

Question 19

If the economy is at full employment and aggregate demand increases unexpectedly, what is the most likely outcome in the short run?

Accepted Answer

An inflationary gap with real GDP above potential and rising prices.

Question 20

Which of the following statements about business cycles is correct?

Accepted Answer

Business cycles are not periodic, meaning they do not occur at predictable intervals.

Business Cycles: Macroeconomic Theory and Application

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