$$\frac{210-200}{200} \times 100 = 5\%$$

Question 1

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured using current prices, while real GDP is adjusted for inflation using a base year.

Question 2

Suppose the GDP deflator in a given year is 120 and nominal GDP is $600 billion. What is the real GDP for that year?

Accepted Answer

$500 billion

Question 3

Which of the following is NOT a component of GDP in the expenditure approach?

Accepted Answer

Transfer payments

Question 4

If the Consumer Price Index (CPI) increases from 200 to 210 in one year, what is the annual inflation rate?

Accepted Answer

$$\frac{210-200}{200} 	imes 100 = 5\%$$

Question 5

Which scenario best illustrates the concept of 'double counting' in GDP measurement?

Accepted Answer

Including both the value of wheat sold to a bakery and the value of bread sold to consumers in GDP.

Question 6

A country has a natural rate of unemployment of 4%. If the actual unemployment rate is 7%, what is the output gap likely to be?

Accepted Answer

Negative, indicating the economy is below potential GDP.

Question 7

Which of the following would most likely cause a rightward shift in the aggregate demand curve?

Accepted Answer

An increase in consumer confidence leading to higher consumption.

Question 8

If the marginal propensity to consume (MPC) is 0.8, what is the value of the simple spending multiplier?

Accepted Answer

$$\frac{1}{1-0.8} = 5$$

Question 9

Which of the following is an example of frictional unemployment?

Accepted Answer

A recent college graduate searching for their first job.

Question 10

Which policy would be most effective in reducing cyclical unemployment during a recession?

Accepted Answer

Increasing government spending on infrastructure projects.

Question 11

If the central bank wants to decrease the money supply, which action would it most likely take?

Accepted Answer

Sell government bonds in the open market.

Question 12

Which of the following best explains the difference between the short-run and long-run aggregate supply curves?

Accepted Answer

The short-run aggregate supply curve is upward sloping, while the long-run aggregate supply curve is vertical at potential GDP.

Question 13

Which of the following is a limitation of monetary policy?

Accepted Answer

Time lags between policy implementation and its effects on the economy.

Question 14

If a country’s bond market experiences a sudden increase in interest rates, what is the likely effect on investment spending?

Accepted Answer

Investment spending will decrease due to higher borrowing costs.

Question 15

Which of the following is NOT considered a function of money?

Accepted Answer

Source of government revenue

Question 16

Suppose a country’s GDP increases, but its population grows at a faster rate. What is the likely effect on GDP per capita?

Accepted Answer

GDP per capita will decrease.

Question 17

Which of the following would be omitted from the calculation of GDP?

Accepted Answer

The value of unpaid household labor.

Question 18

If the government increases taxes and decreases spending simultaneously, what is the likely short-run effect on aggregate demand?

Accepted Answer

Aggregate demand will decrease.

Question 19

Which of the following best describes the relationship between savings and investment in the context of economic growth?

Accepted Answer

Higher savings can lead to higher investment, which promotes economic growth.

Question 20

A country has a nominal GDP of $1,000 billion and a GDP deflator of 125. What is its real GDP?

Accepted Answer

$$\frac{1,000}{1.25} = 800$$ billion

Macroeconomics Study Guide: Key Concepts and Models

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