Q: Suppose the nominal GDP of a country in 2020 is $$20$$ trillion and the real GDP (in 2012 dollars) is $$18$$ trillion. What is the GDP deflator for 2020?

$$\frac{20}{18} \times 100 = 111.1$$

Q: If the Consumer Price Index (CPI) was $$120 in 2019 $$and $$126 in 2020$$, what was the inflation rate between 2019 and 2020?

$$\frac{126 - 120}{120} \times 100 = 5\%$$

Q: Suppose the working-age population is $$250$$ million, the labor force is $$160$$ million, and the number of employed workers is $$150$$ million. What is the labor force participation rate?

$$\frac{160}{250} \times 100 = 64\%$$

Q: Suppose the required reserve ratio is $$10\%$$ and a bank receives a new deposit of $$\1$$,000$. What is the maximum amount of new money that can be created in the banking system as a result of this deposit?

$$\frac{1}{0.10} \times 1,000 = 10,000$$; new money created is $$10,000 - 1,000 = 9,000$$

Question 1

Suppose the nominal GDP of a country in 2020 is $$20$$ trillion and the real GDP (in 2012 dollars) is $$18$$ trillion. What is the GDP deflator for 2020?

Accepted Answer

$$\frac{20}{18} 	imes 100 = 111.1$$

Question 2

Which of the following best explains why the long-run aggregate supply (LRAS) curve is vertical?

Accepted Answer

Because in the long run, output is determined by the economy's resources and technology, not by the price level.

Question 3

A country has the following data: Exports = $$500$$ billion, Imports = $$600$$ billion, Consumption = $$2,000$$ billion, Investment = $$400$$ billion, Government Purchases = $$300$$ billion. What is the value of GDP ($$Y$$)?

Accepted Answer

$$Y = 2,000 + 400 + 300 + (500 - 600) = 2,600$$

Question 4

If the Consumer Price Index (CPI) was $$120 in 2019 $$and $$126 in 2020$$, what was the inflation rate between 2019 and 2020?

Accepted Answer

$$\frac{126 - 120}{120} 	imes 100 = 5\%$$

Question 5

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 6

Suppose the working-age population is $$250$$ million, the labor force is $$160$$ million, and the number of employed workers is $$150$$ million. What is the labor force participation rate?

Accepted Answer

$$\frac{160}{250} 	imes 100 = 64\%$$

Question 7

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 8

Which of the following would cause a rightward shift in the aggregate demand (AD) curve?

Accepted Answer

An increase in government purchases

Question 9

If a country’s real GDP grows at an annual rate of $$2\%$$, approximately how many years will it take for real GDP to double?

Accepted Answer

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

Question 10

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 11

Suppose the required reserve ratio is $$10\%$$ and a bank receives a new deposit of $$\1$$,000$. What is the maximum amount of new money that can be created in the banking system as a result of this deposit?

Accepted Answer

$$\frac{1}{0.10} 	imes 1,000 = 10,000$$; new money created is $$10,000 - 1,000 = 9,000$$

Question 12

If the Federal Reserve wants to conduct expansionary monetary policy, which of the following actions would it most likely take?

Accepted Answer

Buy government securities in the open market

Question 13

Which of the following best describes the crowding-out effect?

Accepted Answer

Government borrowing increases interest rates, reducing private investment

Question 14

A country can produce either $$10$$ units of wine or $$20$$ units of cheese with all its resources. Another country can produce either $$8$$ units of wine or $$16$$ units of cheese. Which country has the absolute advantage in cheese, and which has the comparative advantage in wine?

Accepted Answer

First country has absolute advantage in cheese; first country has comparative advantage in wine

Question 15

If the government increases transfer payments by $$\100$ million and the transfer payments multiplier is 0.8$, what is the expected change in real GDP?

Accepted Answer

$$100 	imes 0.8 = 80$$ million

Question 16

Which of the following is a shortcoming of 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 17

If the CPI in 1990 was $$130$$ and in 2020 it was $$260$$, what would be the equivalent of $$\1$$,000$ in 1990 dollars in 2020 dollars?

Accepted Answer

$$1,000 	imes \frac{260}{130} = 2,000$$

Question 18

Which of the following would be included in the calculation of M2 but not in M1?

Accepted Answer

Small-denomination time deposits

Question 19

Suppose the government enacts a contractionary fiscal policy. Which of the following is a likely short-run effect?

Accepted Answer

Aggregate demand decreases, leading to lower output and higher unemployment

Question 20

If the inflation rate is higher than expected, who is most likely to benefit?

Accepted Answer

Borrowers with fixed-rate loans

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