Q: Which formula is used to calculate the unemployment rate?

$$\text{Unemployment Rate} = \frac{\text{Number of Unemployed}}{\text{Labor Force}} \times 100$$

Q: If the Consumer Price Index (CPI) rises from 120 to 126 in one year, what is the inflation rate for that year?

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

Q: Which formula represents the money multiplier?

$$\text{Money Multiplier} = \frac{\text{Change in Quantity of Money}}{\text{Change in Monetary Base}}$$

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

Suppose a country produces only two goods: computers and wheat. If the production possibility frontier (PPF) is bowed outward, what does this imply about opportunity costs?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 3

Which equation represents the expenditure approach to calculating GDP?

Accepted Answer

$$GDP = C + I + G + (X - M)$$

Question 4

If nominal GDP increases by 5% and the price level increases by 3%, what is the approximate growth rate of real GDP?

Accepted Answer

2%

Question 5

A person who is not working, has looked for a job in the past four weeks, and is available to work is classified as:

Accepted Answer

Unemployed

Question 6

Which formula is used to calculate the unemployment rate?

Accepted Answer

$$	ext{Unemployment Rate} = \frac{	ext{Number of Unemployed}}{	ext{Labor Force}} 	imes 100$$

Question 7

If the Consumer Price Index (CPI) rises from 120 to 126 in one year, what is the inflation rate for that year?

Accepted Answer

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

Question 8

Which of the following would cause the supply curve for loanable funds to shift to the right?

Accepted Answer

An increase in wealth

Question 9

If the government runs a budget deficit ($$T - G \u003c 0$$), what is the likely effect on the loanable funds market?

Accepted Answer

Demand for loanable funds increases, interest rates rise

Question 10

Which equation represents the quantity theory of money?

Accepted Answer

$$MV = PY$$

Question 11

If the money supply grows by 6% and real GDP grows by 2%, what is the implied inflation rate according to the quantity theory of money?

Accepted Answer

4%

Question 12

Which of the following is NOT a function of money?

Accepted Answer

Source of economic growth

Question 13

If the Federal Reserve conducts an open market purchase, what is the expected effect on the nominal interest rate and the quantity of money?

Accepted Answer

Nominal interest rate decreases, quantity of money increases

Question 14

Which formula represents the money multiplier?

Accepted Answer

$$	ext{Money Multiplier} = \frac{	ext{Change in Quantity of Money}}{	ext{Change in Monetary Base}}$$

Question 15

If the marginal propensity to consume (MPC) is 0.75 and there are no taxes or imports, what is the value of the expenditure multiplier?

Accepted Answer

$$\frac{1}{1 - 0.75} = 4$$

Question 16

Which of the following best describes a recessionary gap?

Accepted Answer

Real GDP is below potential GDP, causing unemployment

Question 17

According to the Phillips curve, what is the relationship between inflation and unemployment in the short run?

Accepted Answer

There is a negative relationship: higher inflation leads to lower unemployment

Question 18

Which of the following is a supply-side effect of fiscal policy that can increase potential GDP?

Accepted Answer

Reducing income taxes

Question 19

If the Fed wants to fight inflation, which monetary policy action should it take?

Accepted Answer

Open market sale of securities

Question 20

Which of the following best describes the dual mandate of the Federal Reserve?

Accepted Answer

Maintain full employment and keep inflation in check

Principles of Macroeconomics: Comprehensive Study Guide

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