Q: Suppose the following data is given for a simple economy: Year 1: 100 units of Good A at $$2 each, 50 units of Good B at 4 $$each. Year 2: 120 units of Good A at $$3 each, 60 units of Good B at 5 $$each. If Year 1 is the base year, what is the real GDP in Year 2?

$$\ (120$$ \times 2) + (60 \times 4) = \$$ 240 + \ 240$$ = \$$ 480$$

Q: A country has a population of 200 million. Of these, 120 million are employed, 10 million are unemployed, and 20 million are not in the labor force. What is the unemployment rate?

$$\text{Unemployment Rate} = \frac{10}{120+10} \times 100 = 7.7\%$$

Q: Suppose the Consumer Price Index (CPI) was 120 last year and 126 this year. What is the inflation rate for this year?

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

Question 1

Which of the following transactions would be included in the calculation of a country's Gross Domestic Product (GDP) for the current year?

Accepted Answer

A new car produced and sold by a domestic manufacturer to a local consumer.

Question 2

Suppose the following data is given for a simple economy:

Year 1: 100 units of Good A at $$2 each, 50 units of Good B at 4 $$each.
Year 2: 120 units of Good A at $$3 each, 60 units of Good B at 5 $$each.

If Year 1 is the base year, what is the real GDP in Year 2?

Accepted Answer

$$\ (120$$ 	imes 2) + (60 	imes 4) = \$$ 240 + \ 240$$ = \$$ 480$$

Question 3

Which of the following best explains why GDP is an imperfect measure of a nation's economic well-being?

Accepted Answer

GDP does not include non-market transactions such as household production and the underground economy.

Question 4

A country has a population of 200 million. Of these, 120 million are employed, 10 million are unemployed, and 20 million are not in the labor force. What is the unemployment rate?

Accepted Answer

$$	ext{Unemployment Rate} = \frac{10}{120+10} 	imes 100 = 7.7\%$$

Question 5

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker loses their job because the factory closes due to foreign competition.

Question 6

Suppose the Consumer Price Index (CPI) was 120 last year and 126 this year. What is the inflation rate for this year?

Accepted Answer

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

Question 7

If the nominal interest rate is 8% and the inflation rate is 3%, what is the real interest rate?

Accepted Answer

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

Question 8

Which of the following best describes the 'Rule of 70' in the context of economic growth?

Accepted Answer

It estimates the number of years for a variable to double by dividing 70 by the annual growth rate.

Question 9

If a country's real GDP per capita grows at an average annual rate of 2%, approximately how many years will it take for real GDP per capita to double?

Accepted Answer

$$\frac{70}{2} = 35$$ years

Question 10

Which of the following would cause the supply curve in the market for loanable funds to shift to the right?

Accepted Answer

An increase in the desire of households to save at each interest rate.

Question 11

Suppose the government increases its borrowing to finance a budget deficit. What is the likely effect on the market for loanable funds?

Accepted Answer

The demand for loanable funds increases, raising the equilibrium interest rate and potentially crowding out private investment.

Question 12

Which of the following is NOT considered a shortcoming of GDP as a measure of output?

Accepted Answer

GDP includes the value of intermediate goods.

Question 13

Which of the following best describes 'creative destruction' in the context of long-run economic growth?

Accepted Answer

The process by which new products and technologies replace old ones, leading to economic progress.

Question 14

If the labor force participation rate is calculated as $$\frac{	ext{Labor Force}}{	ext{Working-Age Population}} 	imes 100$$, what is the labor force participation rate for a country with a labor force of 150 million and a working-age population of 200 million?

Accepted Answer

$$\frac{150}{200} 	imes 100 = 75\%$$

Question 15

Which of the following is a cost of unanticipated inflation?

Accepted Answer

It redistributes income between borrowers and lenders.

Question 16

Which of the following is an example of a final good in GDP accounting?

Accepted Answer

A loaf of bread sold to a consumer at a grocery store.

Question 17

Which of the following best explains the difference between Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI)?

Accepted Answer

FDI involves acquiring a controlling interest in a foreign business, while FPI involves purchasing foreign financial assets such as stocks and bonds.

Question 18

Suppose the price of a basket of goods in the base year is $$\200$ and in the current year is $$\$$250. $$What is the Consumer Price Index (CPI) for the current year?

Accepted Answer

$$\frac{250}{200} 	imes 100 = 125$$

Question 19

Which of the following is a reason why the CPI may overstate the true cost of living?

Accepted Answer

It does not account for substitution bias when consumers switch to relatively cheaper goods.

Comprehensive Study Notes: GDP, Unemployment, Inflation, and Economic Growth

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