Q: A country’s nominal GDP in 2022 is $$ \1$${,}200 \text{ billion} $$ and its real GDP (in 2015 dollars) is $$ \$$1{,}000 \text{ billion} . $$What is the GDP deflator for 2022?

$$ \frac{1{,}200}{1{,}000} \times 100 = 120 $$

Question 1

Suppose the price of coffee increases. According to the law of demand, what is the most likely immediate effect on the quantity of coffee demanded, and what is the underlying reason?

Accepted Answer

The quantity demanded of coffee decreases due to the substitution and income effects.

Question 2

If the price of oranges rises and consumers buy more peaches instead, which economic concept best explains this behavior?

Accepted Answer

Substitution effect

Question 3

Which of the following would cause a shift in the demand curve for new cars to the right?

Accepted Answer

An increase in consumer incomes, assuming cars are normal goods

Question 4

Which of the following is included in the calculation of GDP using the expenditure approach?

Accepted Answer

Government purchases of new military equipment

Question 5

A country’s nominal GDP in 2022 is $$ \1$${,}200 	ext{ billion} $$ and its real GDP (in 2015 dollars) is $$ \$$1{,}000 	ext{ billion} . $$What is the GDP deflator for 2022?

Accepted Answer

$$ \frac{1{,}200}{1{,}000} 	imes 100 = 120 $$

Question 6

Which of the following best describes an inferior good?

Accepted Answer

A good for which demand increases as income decreases

Question 7

If a severe drought reduces the supply of wheat, what is the most likely effect on the equilibrium price and quantity of wheat?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases

Question 8

Which of the following transactions would NOT be counted in a country’s GDP?

Accepted Answer

A homeowner mowing their own lawn

Question 9

Suppose the market for laptops is in equilibrium. If a new technology reduces production costs, what is the most likely effect on the market?

Accepted Answer

Supply increases, leading to a lower equilibrium price and higher equilibrium quantity

Question 10

Which of the following best illustrates the value-added approach to calculating GDP?

Accepted Answer

Summing the value added at each stage of production, such as from steel producer to car manufacturer to dealer

Question 11

If nominal GDP increases from $$ \2$${,}000 	ext{ billion} $$ to $$ \$$2{,}200 	ext{ billion} $$ and the GDP deflator rises from $$100 to$$ $$110$$, what is the percentage change in real GDP?

Accepted Answer

$$ \frac{2{,}200}{110} = 20 $$, $$ \frac{2{,}000}{100} = 20 $$, so 0\% change

Question 12

During a recession, which of the following typically occurs?

Accepted Answer

Total production and employment fall

Question 13

Which of the following is an example of a complement in consumption?

Accepted Answer

Coffee and creamer

Question 14

If the government imposes a price ceiling below the equilibrium price in the market for gasoline, what is the most likely result?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied

Question 15

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

Accepted Answer

The value of intermediate goods used in production

Question 16

If the price of a normal good falls, what two effects combine to increase the quantity demanded?

Accepted Answer

The substitution effect and the income effect

Question 17

Which of the following best describes the underground economy?

Accepted Answer

Market transactions that are hidden from the government and not counted in GDP

Question 18

A decrease in the price of gasoline (a complement to cars) is likely to have what effect on the demand for cars?

Accepted Answer

Increase the demand for cars

Question 19

Which of the following statements about nominal and real GDP is correct?

Accepted Answer

Nominal GDP can increase due to higher prices, higher output, or both, while real GDP increases only if output increases.

Question 20

If the supply of a product increases while demand remains unchanged, what happens to the equilibrium price and quantity?

Accepted Answer

Equilibrium price falls, equilibrium quantity rises

Principles of Macroeconomics: Supply & Demand, Market Equilibrium, and GDP

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