Q: Suppose the Consumer Price Index (CPI) in 2020 was 250 and in 2021 it was 265. What was the inflation rate between 2020 and 2021?

$$\frac{265 - 250}{250} \times 100\% = 6\%$$

Question 1

Which of the following best explains why productivity is crucial for a nation's standard of living?

Accepted Answer

Productivity determines the average quantity of goods and services produced per unit of labor, directly affecting real GDP and income levels.

Question 2

Suppose a country increases its physical capital per worker ($$K/L) $$but does not improve its human capital ($$H/L) or $$technology. What is the most likely effect on productivity ($$Y/L$$)?

Accepted Answer

Productivity ($$Y/L) $$will increase, but the gains may diminish without improvements in human capital or technology.

Question 3

A government wants to boost long-run economic growth. Which policy is most likely to increase both human capital and productivity in the future?

Accepted Answer

Subsidizing higher education and vocational training programs.

Question 4

Which of the following is an example of investment in the sense used by economists?

Accepted Answer

A car manufacturer builds a new factory to produce electric vehicles.

Question 5

If the government runs a budget deficit, what is the effect on public saving and the supply of loanable funds?

Accepted Answer

Public saving decreases, reducing the supply of loanable funds.

Question 6

A country with outward-oriented trade policies is most likely to experience which of the following outcomes?

Accepted Answer

Higher productivity and faster economic growth due to integration with the world economy.

Question 7

Suppose the Consumer Price Index (CPI) in 2020 was 250 and in 2021 it was 265. What was the inflation rate between 2020 and 2021?

Accepted Answer

$$\frac{265 - 250}{250} 	imes 100\% = 6\%$$

Question 8

Which of the following is NOT a problem with the Consumer Price Index (CPI) as a measure of the cost of living?

Accepted Answer

It includes the prices of capital goods used by firms.

Question 9

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 10

A country’s national saving is given by $$Y - C - G. If $$GDP ($$Y) is$$ $$10,000$$, consumption ($$C) is$$ $$6,000$$, and government purchases ($$G) $$are $$2,000$$, what is national saving?

Accepted Answer

$$10,000 - 6,000 - 2,000 = 2,000$$

Question 11

Which of the following best describes the role of financial intermediaries in the economy?

Accepted Answer

They allow savers to indirectly provide funds to borrowers, reducing search and monitoring costs.

Question 12

If a country’s property rights are weak and the legal system is unreliable, what is the likely effect on economic growth?

Accepted Answer

Economic growth will likely be lower due to reduced incentives for investment and innovation.

Question 13

Which of the following is included in the GDP deflator but NOT in the Consumer Price Index (CPI)?

Accepted Answer

Capital goods produced domestically.

Question 14

A U.S. company builds a factory in Brazil. This is an example of:

Accepted Answer

Foreign direct investment.

Question 15

Suppose the price of a single share of stock is $$\50$, the annual dividend is $$\$$2$$, and the earnings per share are $$\5$. What is the price-earnings (PE) ratio?

Accepted Answer

$$\frac{50}{5} = 10$$

Question 16

If the government increases taxes but keeps spending constant, what happens to public saving?

Accepted Answer

Public saving increases because $$T - G$$ rises.

Question 17

Which of the following best illustrates the tradeoff between current and future consumption in the context of economic growth?

Accepted Answer

Increasing saving today reduces current consumption but allows for more investment and higher future output.

Question 18

A country’s CPI in 1990 was 120, and in 2024 it is 360. If a worker earned $$\30$$,000$ in 1990, what is the equivalent salary in 2024 dollars?

Accepted Answer

$$30,000 	imes \frac{360}{120} = \90$$,000$

Question 19

Which of the following policies would most directly encourage technological progress and long-run economic growth?

Accepted Answer

Providing tax incentives for private sector research and development.

Long-Run Economic Growth, Financial System, and Measuring the Cost of Living

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