Q: Suppose the real GDP of a country grows from $$2,000$$ billion to $$2,100$$ billion in one year. What is the growth rate of real GDP for that year?

$$\frac{2,100 - 2,000}{2,000} \times 100 = 5\%$$

Q: Suppose the nominal exchange rate between the US dollar and the euro is $$1.2$$ dollars per euro. The US price level is $$120$$, and the European price level is $$100. $$What is the real exchange rate?

$$1.2 \times \frac{120}{100} = 1.44$$

Question 1

Suppose the real GDP of a country grows from $$2,000$$ billion to $$2,100$$ billion in one year. What is the growth rate of real GDP for that year?

Accepted Answer

$$\frac{2,100 - 2,000}{2,000} 	imes 100 = 5\%$$

Question 2

If a country's real GDP per capita is growing at a constant rate of $$2\%$$ per year, approximately how many years will it take for real GDP per capita to double, according to the Rule of 70?

Accepted Answer

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

Question 3

Which of the following best describes the difference between human capital and technology as determinants of productivity?

Accepted Answer

Human capital refers to the skills and knowledge of workers, while technology refers to the processes used to turn inputs into outputs.

Question 4

A government introduces a policy that lowers taxes on interest income. According to the loanable funds model, what is the most likely effect of this policy?

Accepted Answer

The supply of loanable funds shifts to the right, lowering the real interest rate and increasing investment.

Question 5

Suppose a country is experiencing diminishing returns to capital. According to the Solow Growth Model, what is the most effective way for this country to sustain long-run economic growth?

Accepted Answer

Invest in technological change to improve productivity.

Question 6

If the reserve ratio in a fractional reserve banking system is $$10\%$$, what is the value of the money multiplier?

Accepted Answer

$$\frac{1}{0.10} = 10$$

Question 7

Which of the following is NOT a function of money?

Accepted Answer

Providing a source of government revenue

Question 8

A country has the following data: $$Y = 5,000$$, $$T = 1,000$$, $$C = 3,000$$, $$G = 1,200. $$What is the value of national savings in a closed economy?

Accepted Answer

$$(Y - T - C) + (T - G) = (5,000 - 1,000 - 3,000) + (1,000 - 1,200) = 1,000 - 200 = 800$$

Question 9

Which of the following best describes the concept of monetary neutrality?

Accepted Answer

Changes in the money supply affect only nominal variables, not real variables, in the long run.

Question 10

If the Federal Reserve wants to decrease inflation, which of the following actions is it most likely to take?

Accepted Answer

Increase the federal funds rate to reduce the money supply.

Question 11

Suppose the nominal exchange rate between the US dollar and the euro is $$1.2$$ dollars per euro. The US price level is $$120$$, and the European price level is $$100. $$What is the real exchange rate?

Accepted Answer

$$1.2 	imes \frac{120}{100} = 1.44$$

Question 12

Which of the following statements about the Phillips Curve is correct?

Accepted Answer

In the short run, there is an inverse relationship between inflation and unemployment.

Question 13

If a country’s currency appreciates, what is the most likely effect on its net exports?

Accepted Answer

Net exports will decrease because exports become more expensive for foreign buyers.

Question 14

Which of the following is a plausible consequence of a government running a persistent budget deficit, according to the loanable funds model?

Accepted Answer

The demand for loanable funds shifts to the right, raising real interest rates and potentially crowding out private investment.

Question 15

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

Accepted Answer

Poor countries tend to grow faster than rich countries because they have less capital per worker.

Question 16

If the central bank increases the money supply rapidly over several years, what is the most likely long-run effect according to the quantity theory of money?

Accepted Answer

A sustained increase in the inflation rate.

Question 17

Which of the following is included in M2 but NOT in M1?

Accepted Answer

Small-denomination time deposits

Question 18

Suppose the US government increases spending without raising taxes, resulting in a budget deficit. What is the likely effect on the market for loanable funds?

Accepted Answer

The demand for loanable funds increases, raising the real interest rate.

Question 19

Which of the following is a likely short-run effect of an expansionary monetary policy?

Accepted Answer

Lower unemployment and higher inflation

Question 20

If a country has positive net capital outflows, what does this imply about its net exports?

Accepted Answer

Net exports are positive, indicating the country exports more than it imports.

Macroeconomics Study Notes: Economic Growth, Financial System, Money, Monetary Policy, and Open Economy

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