Q: Suppose the nominal GDP in 2025 is $$ \22$$,000 $$ billion and the real GDP in 2025 (in 2015 dollars) is $$ \$$20,000 $$ billion. What is the GDP deflator for 2025?

$$ \frac{22,000}{20,000} \times 100 = 110 $$

Q: If the labor force in a country is 150 million and the number of unemployed people is 9 million, what is the unemployment rate?

$$ \frac{9}{150} \times 100 = 6\% $$

Q: Suppose the cost of a fixed basket of goods in the base year is $$ \500$$ $$ and in the current year is $$ \$$550 . $$What is the Consumer Price Index (CPI) for the current year?

$$ \frac{550}{500} \times 100 = 110 $$

Q: If the CPI in 2024 is 120 and the CPI in 2025 is 126, what is the inflation rate from 2024 to 2025?

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

Q: Suppose the marginal propensity to consume (MPC) is $$0.8. If $$government spending increases by $$ \100$$ $ million, by how much will equilibrium output increase, assuming no taxes and a closed economy?

$$ \frac{1}{1 - 0.8} \times 100 = 5 \times 100 = \500$$ $ million

Q: If the labor force is 200 million and the working-age population is 250 million, what is the labor force participation rate?

$$ \frac{200}{250} \times 100 = 80\% $$

Question 1

Which of the following transactions would be included in the calculation of a country's Gross Domestic Product (GDP) for the current year?

Accepted Answer

A new car produced and sold by a domestic manufacturer

Question 2

Suppose the nominal GDP in 2025 is $$ \22$$,000 $$ billion and the real GDP in 2025 (in 2015 dollars) is $$ \$$20,000 $$ billion. What is the GDP deflator for 2025?

Accepted Answer

$$ \frac{22,000}{20,000} 	imes 100 = 110 $$

Question 3

If the labor force in a country is 150 million and the number of unemployed people is 9 million, what is the unemployment rate?

Accepted Answer

$$ \frac{9}{150} 	imes 100 = 6\% $$

Question 4

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

Accepted Answer

Nominal GDP is measured in current prices, while real GDP is measured in constant prices.

Question 5

Suppose the cost of a fixed basket of goods in the base year is $$ \500$$ $$ and in the current year is $$ \$$550 . $$What is the Consumer Price Index (CPI) for the current year?

Accepted Answer

$$ \frac{550}{500} 	imes 100 = 110 $$

Question 6

If the CPI in 2024 is 120 and the CPI in 2025 is 126, what is the inflation rate from 2024 to 2025?

Accepted Answer

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

Question 7

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

Accepted Answer

The value of intermediate goods used in production

Question 8

In a closed economy, the equilibrium condition in the goods market is given by:

Accepted Answer

$$ Y = C + I + G $$

Question 9

Suppose the marginal propensity to consume (MPC) is $$0.8. If $$government spending increases by $$ \100$$ $ million, by how much will equilibrium output increase, assuming no taxes and a closed economy?

Accepted Answer

$$ \frac{1}{1 - 0.8} 	imes 100 = 5 	imes 100 = \500$$ $ million

Question 10

If the consumption function is $$ C = 200 + 0.75Y_D $$ and disposable income $$ Y_D $$ increases by $$ \400$$ $, what is the change in consumption?

Accepted Answer

$$ 0.75 	imes 400 = \300$$ $

Question 11

Which of the following best describes autonomous consumption?

Accepted Answer

Consumption that occurs even when disposable income is zero

Question 12

If the labor force is 200 million and the working-age population is 250 million, what is the labor force participation rate?

Accepted Answer

$$ \frac{200}{250} 	imes 100 = 80\% $$

Question 13

Which of the following would cause the equilibrium interest rate to decrease in the money market, all else equal?

Accepted Answer

An increase in the money supply

Question 14

If the central bank conducts an expansionary open market operation, what is the immediate effect on the central bank's balance sheet?

Accepted Answer

Assets increase and liabilities increase

Question 15

Which of the following best describes a liquidity trap?

Accepted Answer

A situation where the nominal interest rate is at or near zero and monetary policy becomes ineffective

Question 16

Suppose the money demand function is $$ M^d = 0.25Y - 100i $$, where $$ Y  is $$income and $$ i  is $$the interest rate (in percent). If $$ Y = 4,000 $$ and the money supply $$ M^s = 800 $$, what is the equilibrium interest rate?

Accepted Answer

$$ 0.25 	imes 4,000 - 100i = 800 \implies 1,000 - 100i = 800 \implies 100i = 200 \implies i = 2 $$

Question 17

Which of the following statements about the relationship between bond prices and interest rates is correct?

Accepted Answer

When bond prices rise, interest rates fall

Question 18

If private saving is defined as $$ S_{private} = Y - T - C $$, which of the following changes would increase private saving, all else equal?

Accepted Answer

A decrease in consumption (C)

Question 19

Which of the following best describes the marginal propensity to save (MPS)?

Accepted Answer

The fraction of an additional dollar of income that is saved

Question 20

Suppose the government increases taxes by $$ \50$$ $$ million in a closed economy with an MPC of 0.6$. What is the expected change in equilibrium output?

Accepted Answer

$$ \Delta Y = -\frac{MPC}{1 - MPC} 	imes \Delta T = -\frac{0.6}{0.4} 	imes 50 = -1.5 	imes 50 = -\75$$ $ million

Macroeconomics Exam 1 Study Guide: Measuring Economic Activity, Goods Market, and Financial Markets

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