Q: Given the following data for a country in 2022: Nominal GDP = $$ \ 1$${,}200 $$ billion, Real GDP = $$ \$$ 1{,}000 $$ billion. What is the GDP deflator?

$$ \frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100 = \frac{1{,}200}{1{,}000} \times 100 = 120 $$

Q: Suppose the Consumer Price Index (CPI) in 2020 is $$ 120 $$ and in 2021 is $$ 126 . $$What is the inflation rate between 2020 and 2021?

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

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

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

Question 2

Suppose Country A can produce either 10 units of wheat or 20 units of corn with all its resources, while Country B can produce either 8 units of wheat or 16 units of corn. Which country has the comparative advantage in producing wheat?

Accepted Answer

Country A, because its opportunity cost of producing 1 wheat is 2 corn, the same as Country B, but it has absolute advantage.

Question 3

If the price of a good is set below the equilibrium price, what is the most likely outcome in a competitive market?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 4

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 5

Given the following data for a country in 2022: Nominal GDP = $$ \ 1$${,}200 $$ billion, Real GDP = $$ \$$ 1{,}000 $$ billion. What is the GDP deflator?

Accepted Answer

$$ \frac{	ext{Nominal GDP}}{	ext{Real GDP}} 	imes 100 = \frac{1{,}200}{1{,}000} 	imes 100 = 120 $$

Question 6

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

Accepted Answer

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

Question 7

Which of the following would cause the Production Possibilities Curve (PPC) to shift outward?

Accepted Answer

An improvement in technology.

Question 8

Suppose the Consumer Price Index (CPI) in 2020 is $$ 120 $$ and in 2021 is $$ 126 . $$What is the inflation rate between 2020 and 2021?

Accepted Answer

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

Question 9

If the government imposes a tax on a good, what is the effect on the supply curve and market equilibrium?

Accepted Answer

The supply curve shifts to the left, increasing equilibrium price and decreasing equilibrium quantity.

Question 10

Which of the following best explains why GDP is an imperfect measure of well-being?

Accepted Answer

GDP does not account for non-market transactions or income distribution.

Question 11

If the unemployment rate is calculated as $$ \frac{	ext{Number of Unemployed}}{	ext{Labor Force}} 	imes 100 $$, which of the following would cause the unemployment rate to decrease, all else equal?

Accepted Answer

An increase in the number of discouraged workers who stop looking for work.

Question 12

Which of the following is most likely to shift the aggregate demand (AD) curve to the right?

Accepted Answer

An increase in consumer confidence leading to higher consumption.

Question 13

If the required reserve ratio is $$ 10\% $$, what is the simple deposit multiplier?

Accepted Answer

$$ \frac{1}{0.1} = 10 $$

Question 14

Which of the following best describes the difference between absolute advantage and comparative advantage?

Accepted Answer

Absolute advantage is about producing more with fewer resources, while comparative advantage is about having a lower opportunity cost.

Question 15

Suppose the government increases spending by $$ \ 100$$ $$ million and the marginal propensity to consume is  0.75$$ $. By how much will equilibrium GDP increase according to the simple multiplier model?

Accepted Answer

$$ \frac{1}{1 - 0.75} = 4 $$; $$ 4 	imes 100 = \ 400$$ $ million

Question 16

Which of the following is a likely effect of an unanticipated increase in inflation?

Accepted Answer

Borrowers benefit because the real value of repayments decreases.

Question 17

According to the Quantity Theory of Money, if the money supply increases by 10% and velocity and real output remain constant, what happens to the price level?

Accepted Answer

The price level increases by 10%.

Question 18

Which of the following best describes the long-run Phillips Curve?

Accepted Answer

It is vertical at the natural rate of unemployment.

Question 19

If the economy is at full employment and there is a negative supply shock, what is the likely short-run effect?

Accepted Answer

Output decreases and the price level increases.

Question 20

Which of the following is an example of an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance payments that increase during a recession.

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