Q: If the CPI in 2012 is 145 and the CPI in 2011 is 140, what is the inflation rate from 2011 to 2012?

$$ \frac{145 - 140}{140} \times 100 = 3.57\% $$

Q: If real GDP was $$2,058$$ billion in 2020 and $$2,125$$ billion in 2021, what is the growth rate of real GDP?

$$ \frac{2,125 - 2,058}{2,058} \times 100 = 3.26\% $$

Question 1

Which of the following best describes the Consumer Price Index (CPI)?

Accepted Answer

A measure of the average price of a set of goods and services in a given period relative to the average price of the same set of goods in a base year.

Question 2

If the CPI in 2012 is 145 and the CPI in 2011 is 140, what is the inflation rate from 2011 to 2012?

Accepted Answer

$$ \frac{145 - 140}{140} 	imes 100 = 3.57\% $$

Question 3

Which of the following is NOT a bias that can affect the accuracy of the CPI?

Accepted Answer

Interest rate bias

Question 4

Suppose the nominal interest rate is 5\% and the inflation rate is 2\%. What is the approximate real interest rate?

Accepted Answer

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

Question 5

If real GDP was $$2,058$$ billion in 2020 and $$2,125$$ billion in 2021, what is the growth rate of real GDP?

Accepted Answer

$$ \frac{2,125 - 2,058}{2,058} 	imes 100 = 3.26\% $$

Question 6

Using the Rule of 70, how many years will it take for an economy growing at 2\% per year to double its GDP?

Accepted Answer

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

Question 7

Which of the following is a function of the financial system?

Accepted Answer

Matching savers with borrowers

Question 8

If the government increases its borrowing, what is the likely effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds decreases, leading to a higher real interest rate.

Question 9

Which of the following best describes potential GDP?

Accepted Answer

The level of real GDP when all firms are producing at capacity

Question 10

A recession in the business cycle is best described as:

Accepted Answer

A period during which real GDP decreases for at least two consecutive quarters.

Question 11

If $$60,850 in 2012 $$and $$54,570 in 2005 $$are compared, and the CPI in 2012 is $$125$$ and in 2005 is $$110$$, which year had more purchasing power?

Accepted Answer

$$54,570 in 2005$$, because $$ \frac{54,570}{110} = 496.09  is $$greater than $$ \frac{60,850}{125} = 486.8 $$

Question 12

Which of the following is NOT a function of financial intermediaries?

Accepted Answer

Setting the nominal interest rate for the central bank

Question 13

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

Accepted Answer

Borrowers, because they repay loans with money that is worth less in real terms.

Question 14

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

Accepted Answer

An increase in profit expectations for firms

Question 15

If the real interest rate is negative, what does this imply?

Accepted Answer

The inflation rate is greater than the nominal interest rate.

Question 16

Which of the following is an example of a less liquid asset?

Accepted Answer

A house

Question 17

Suppose Gillian lends $$200 to $$Sayed for one year at a nominal interest rate of $$5\%$$, and inflation is $$2\%. $$How much will Sayed repay in nominal terms?

Accepted Answer

$$ 200 	imes (1 + 0.05) = 210 $$

Question 18

Which of the following is most likely to increase long-run economic growth?

Accepted Answer

An increase in labour productivity

Question 19

If the government increases transfer payments (TR) and keeps taxes (T) constant, what happens to public saving?

Accepted Answer

Public saving decreases

Inflation, Interest Rates, Economic Growth, and the Business Cycle

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