Q: Suppose real GDP in 2017 was $$18,051$$ billion and in 2018 was $$18,566$$ billion. What is the growth rate of real GDP from 2017 to 2018?

$$\frac{18,566 - 18,051}{18,051} \times 100 = 2.9\%$$

Question 1

Which of the following best describes the business cycle as shown in the first image?

Accepted Answer

Alternating periods of economic expansion and recession.

Question 2

According to the business cycle, what typically happens to unemployment during a recession, as shown in the fifth image?

Accepted Answer

Unemployment rises during a recession and may continue to rise even after the recession ends.

Question 3

If the inflation rate increases late in an expansion and decreases during a recession, as shown in the sixth image, what does this suggest about the relationship between inflation and the business cycle?

Accepted Answer

Inflation tends to rise toward the end of expansions and fall during recessions.

Question 4

Using the Rule of 70, how many years will it take for an economy growing at 5% per year to double its real GDP?

Accepted Answer

$$70 \div 5 = 14$$ years

Question 5

Which of the following is the best measure of a country's standard of living?

Accepted Answer

Real GDP per capita

Question 6

What is the primary reason the average American can consume more goods and services now than in 1900?

Accepted Answer

The average American produces more goods and services per hour now than in 1900.

Question 7

Which of the following factors is NOT typically associated with higher long-run economic growth?

Accepted Answer

High inflation

Question 8

If the government runs a budget deficit, what happens in the market for loanable funds as shown in the images?

Accepted Answer

The supply of loanable funds decreases, raising the interest rate.

Question 9

Suppose real GDP in 2017 was $$18,051$$ billion and in 2018 was $$18,566$$ billion. What is the growth rate of real GDP from 2017 to 2018?

Accepted Answer

$$\frac{18,566 - 18,051}{18,051} 	imes 100 = 2.9\%$$

Question 10

Which of the following is a key service provided by the financial system?

Accepted Answer

Risk sharing, liquidity, and information

Question 11

If the nominal interest rate is 6% and the inflation rate is 2%, what is the real interest rate?

Accepted Answer

$$6\% - 2\% = 4\%$$

Question 12

Which of the following best explains why saving is important for long-run economic growth?

Accepted Answer

Saving funds investment, which increases the economy's productive capacity.

Question 13

What is labor productivity?

Accepted Answer

The quantity of goods and services produced by one worker or by one hour of work.

Question 14

Which of the following is an example of 'crowding out'?

Accepted Answer

A decline in private investment due to increased government borrowing.

Question 15

If nominal GDP increases by 5% and the price level increases by 7%, what happens to real GDP?

Accepted Answer

Real GDP decreases by 2%.

Question 16

Which of the following is NOT a factor that increases the rate of long-run economic growth?

Accepted Answer

High government regulation and heavy taxation

Question 17

If technological change increases the demand for loanable funds, what happens to the equilibrium interest rate and quantity of loanable funds?

Accepted Answer

Both the equilibrium interest rate and quantity of loanable funds increase.

Question 18

Which of the following best explains why life expectancy has increased in high-income countries, as shown in the seventh image?

Accepted Answer

Economic growth has led to better health care and living standards.

Question 19

What is the effect of a recession on the inflation rate, as shown in the sixth image?

Accepted Answer

The inflation rate tends to decrease during a recession.

Question 20

Which of the following is a plausible reason why the business cycle has become milder since 1950?

Accepted Answer

The increasing importance of services and government policies to stabilize the economy.

Economic Growth, the Financial System, and Business Cycles

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