Q: Suppose a country produces only three goods: cars, computers, and bread. In 2022, the quantities and prices are as follows: 100 cars at $$20,000 each, 200 computers at 1$$,000 each, and 10,000 loaves of bread at $$2 each. In 2023, the quantities are the same, but prices rise to 22$$,000 per car, $$1,100 per computer, and 2.20 $$per loaf of bread. What is the GDP deflator for 2023, using 2022 as the base year?

$$\frac{\text{Nominal GDP}_{2023}}{\text{Real GDP}_{2023}} \times 100 = \frac{2,200,000 + 220,000 + 22,000}{2,000,000 + 200,000 + 20,000} \times 100 = \frac{2,442,000}{2,220,000} \times 100 \approx 110$$

Q: If the Consumer Price Index (CPI) was 120 in 2021 and 132 in 2022, what was the inflation rate between 2021 and 2022?

$$\frac{132 - 120}{120} \times 100 = 10\%$$

Q: A country has a population of 100 million people. 60 million are in the labor force, and 54 million are employed. What is the unemployment rate?

$$\frac{6\text{ million}}{60\text{ million}} \times 100 = 10\%$$

Q: A country’s per capita real GDP increases from $$20,000 to 21$$,000 over one year. What is the growth rate of per capita real GDP?

$$\frac{21,000 - 20,000}{20,000} \times 100 = 5\%$$

Q: If the labor force participation rate is 70\% and the working-age population is 200 million, what is the size of the labor force?

$$0.70 \times 200,000,000 = 140,000,000$$

Question 1

Suppose a country produces only three goods: cars, computers, and bread. In 2022, the quantities and prices are as follows: 100 cars at $$20,000 each, 200 computers at 1$$,000 each, and 10,000 loaves of bread at $$2 each. In 2023, the quantities are the same, but prices rise to 22$$,000 per car, $$1,100 per computer, and 2.20 $$per loaf of bread. What is the GDP deflator for 2023, using 2022 as the base year?

Accepted Answer

$$\frac{	ext{Nominal GDP}_{2023}}{	ext{Real GDP}_{2023}} 	imes 100 = \frac{2,200,000 + 220,000 + 22,000}{2,000,000 + 200,000 + 20,000} 	imes 100 = \frac{2,442,000}{2,220,000} 	imes 100 \approx 110$$

Question 2

Which of the following best describes the difference between GDP and GNP?

Accepted Answer

GDP measures the value of all final goods and services produced within a country's borders, while GNP measures the value of all final goods and services produced by a country's citizens, regardless of location.

Question 3

If the Consumer Price Index (CPI) was 120 in 2021 and 132 in 2022, what was the inflation rate between 2021 and 2022?

Accepted Answer

$$\frac{132 - 120}{120} 	imes 100 = 10\%$$

Question 4

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

The purchase of a used car from a friend.

Question 5

Suppose the nominal interest rate on a savings account is 5\% and the inflation rate is 3\%. What is the real interest rate?

Accepted Answer

$$5\% - 3\% = 2\%$$

Question 6

A country has a population of 100 million people. 60 million are in the labor force, and 54 million are employed. What is the unemployment rate?

Accepted Answer

$$\frac{6	ext{ million}}{60	ext{ million}} 	imes 100 = 10\%$$

Question 7

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker loses their job because their skills are no longer needed due to automation.

Question 8

If nominal GDP increases by 8\% and the GDP deflator increases by 5\%, what is the approximate growth rate of real GDP?

Accepted Answer

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

Question 9

Which of the following best describes the concept of 'crowding out' in the loanable funds market?

Accepted Answer

Government borrowing increases interest rates, reducing private investment.

Question 10

A country’s per capita real GDP increases from $$20,000 to 21$$,000 over one year. What is the growth rate of per capita real GDP?

Accepted Answer

$$\frac{21,000 - 20,000}{20,000} 	imes 100 = 5\%$$

Question 11

Which of the following is a problem with using GDP as a measure of economic well-being?

Accepted Answer

GDP does not account for the value of household production or the underground economy.

Question 12

If the labor force participation rate is 70\% and the working-age population is 200 million, what is the size of the labor force?

Accepted Answer

$$0.70 	imes 200,000,000 = 140,000,000$$

Question 13

Which of the following best explains why the CPI may overstate the true cost of living?

Accepted Answer

It does not fully account for substitution bias and improvements in product quality.

Question 14

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate is searching for their first job.

Question 15

If the nominal wage increases by 4\% and the inflation rate is 2\%, what is the percentage change in the real wage?

Accepted Answer

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

Question 16

Which of the following would be considered an intermediate good?

Accepted Answer

Steel purchased by a car manufacturer to produce cars.

Question 17

Which of the following is a cost of unexpected inflation?

Accepted Answer

It arbitrarily redistributes wealth between borrowers and lenders.

Question 18

Suppose the government increases its budget deficit, leading to higher demand for loanable funds. What is the likely effect on the equilibrium interest rate and quantity of loanable funds?

Accepted Answer

The equilibrium interest rate rises, and the quantity of loanable funds increases.

Question 19

Which of the following best describes the 'catch-up' or convergence effect in economic growth?

Accepted Answer

Poorer countries tend to grow faster than richer countries, allowing them to catch up in income levels.

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

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