Q: Given the following data, calculate the GDP deflator for Year 2: Nominal GDP in Year 2 = $$22,000 Real GDP in Year 2 = 20$$,000

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{22,000}{20,000} \times 100 = 110$$

Q: If the Consumer Price Index (CPI) in the base year is 100, and the CPI in the current year is 120, what is the inflation rate?

$$Inflation\ Rate = \frac{CPI_{CY} - CPI_{BY}}{CPI_{BY}} \times 100 = \frac{120 - 100}{100} \times 100 = 20\%$$

Q: A country has a labor force of 200 million people, and 10 million are unemployed. What is the unemployment rate?

$$Unemployment\ Rate = \frac{Unemployed}{Labor\ Force} \times 100 = \frac{10}{200} \times 100 = 5\%$$

Q: If the basket of goods cost $$100 in Year 1 and 105 in $$Year 2, what is the inflation rate using the CPI?

$$Inflation\ Rate = \frac{105 - 100}{100} \times 100 = 5\%$$

Question 1

In the circular flow diagram, which of the following best describes the role of households in the market for resources?

Accepted Answer

They sell resources such as labor, land, and capital.

Question 2

Which of the following transactions would be included in the calculation of GDP using the expenditure approach?

Accepted Answer

A household purchases a new washing machine.

Question 3

Given the following data, calculate the GDP deflator for Year 2:
Nominal GDP in Year 2 = $$22,000
Real GDP in Year 2 = 20$$,000

Accepted Answer

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{22,000}{20,000} 	imes 100 = 110$$

Question 4

Which of the following is NOT a shortcoming of GDP as a measure of well-being?

Accepted Answer

GDP includes the value of leisure time.

Question 5

If the Consumer Price Index (CPI) in the base year is 100, and the CPI in the current year is 120, what is the inflation rate?

Accepted Answer

$$Inflation\ Rate = \frac{CPI_{CY} - CPI_{BY}}{CPI_{BY}} 	imes 100 = \frac{120 - 100}{100} 	imes 100 = 20\%$$

Question 6

A country has a labor force of 200 million people, and 10 million are unemployed. What is the unemployment rate?

Accepted Answer

$$Unemployment\ Rate = \frac{Unemployed}{Labor\ Force} 	imes 100 = \frac{10}{200} 	imes 100 = 5\%$$

Question 7

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment due to a mismatch between workers' skills and available jobs.

Question 8

A minimum wage law sets a price floor above the equilibrium wage. What is the likely result in the labor market?

Accepted Answer

A surplus of labor (unemployment).

Question 9

If the basket of goods cost $$100 in Year 1 and 105 in $$Year 2, what is the inflation rate using the CPI?

Accepted Answer

$$Inflation\ Rate = \frac{105 - 100}{100} 	imes 100 = 5\%$$

Question 10

Which of the following is an example of an efficiency wage?

Accepted Answer

A wage set above the equilibrium to increase worker productivity.

Question 11

Which of the following would NOT be included in the calculation of Gross National Product (GNP) for the United States?

Accepted Answer

Profits earned by a Japanese-owned factory in the US.

Question 12

If a country’s real GDP increases by 3% per year, approximately how many years will it take for the country’s real GDP to double?

Accepted Answer

$$Years\ to\ double = \frac{70}{Growth\ Rate} = \frac{70}{3} \approx 23.3$$

Question 13

Which of the following government policies is most likely to increase a country’s long-run economic growth?

Accepted Answer

Subsidizing research and development.

Question 14

What is the main reason that developing countries can experience faster economic growth than developed countries, according to the 'catch-up effect'?

Accepted Answer

They can adopt existing technologies from developed countries.

Question 15

Which of the following best explains why knowledge capital is considered a public good?

Accepted Answer

It is nonrival and nonexcludable.

Question 16

If the labor force participation rate is calculated as $$\frac{Labor\ Force}{Adult\ Population} 	imes 100$$, what happens to the rate if discouraged workers increase during a recession?

Accepted Answer

The labor force participation rate decreases.

Question 17

Which of the following is a likely consequence of substitution bias in the Consumer Price Index (CPI)?

Accepted Answer

The CPI understates the actual inflation rate.

Question 18

Suppose the price of widgets doubles, the price of gizmos stays the same, and the price of doodads falls. If the basket contains more widgets than other goods, what can you say about inflation?

Accepted Answer

There is likely inflation because the overall basket cost increases.

Question 19

Which of the following best describes the effect of an outward shift in the per-worker production function?

Accepted Answer

It shows that for any given amount of capital per worker, output per worker increases.

Macroeconomics Study Guide: GDP, Jobs, Inflation, and Economic Growth

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