Question 1

Suppose a bakery buys flour for $$100, uses it to bake bread, and sells the bread to a grocery store for 200. $$The grocery store then sells the bread to consumers for $300. What is the total value added at all stages of production, and what is the final market value of the bread included in GDP?

Accepted Answer

Total value added is $$300; final market value is 300.$$

Question 2

Which of the following is NOT a limitation of GDP as a measure of economic well-being?

Accepted Answer

GDP accurately measures changes in the quality of goods and services.

Question 3

If nominal GDP in 2022 is $$ \ 1$${,}200 $$ billion and the GDP deflator is  120$$ $, what is real GDP in 2022?

Accepted Answer

$$ \ 1$${,}000 $ billion

Question 4

The Consumer Price Index (CPI) in 2021 was $$ 250 $$ and in 2022 it was $$ 275 . $$What was the rate of inflation between 2021 and 2022?

Accepted Answer

$$ 10\% $$

Question 5

Which of the following is a limitation of the Consumer Price Index (CPI)?

Accepted Answer

It does not account for substitution bias when consumers switch to cheaper goods.

Question 6

Suppose the labor force in a country is 10 million people, and 9 million are employed. What is the unemployment rate?

Accepted Answer

$$ 10\% $$

Question 7

Which of the following best describes the natural rate of unemployment?

Accepted Answer

The sum of frictional and structural unemployment when the economy is at full employment.

Question 8

If the labor force participation rate increases while the population remains constant, what must be true?

Accepted Answer

The number of people in the labor force has increased.

Question 9

Which of the following scenarios best illustrates demand-pull inflation?

Accepted Answer

A rapid increase in consumer spending causes firms to raise prices.

Question 10

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

Accepted Answer

$$ 5 $$

Question 11

Suppose a country experiences unanticipated inflation. Which of the following groups is most likely to benefit?

Accepted Answer

Borrowers with fixed-rate loans.

Question 12

If disposable income increases by $$ \ 1$${,}000 $$ and consumption increases by $$ \$$ 700 $$, what is the marginal propensity to save (MPS)?

Accepted Answer

$$ 0.3 $$

Question 13

Which of the following is NOT a non-income determinant of consumption?

Accepted Answer

Marginal propensity to consume (MPC)

Question 14

Which of the following would most likely increase investment spending in the economy?

Accepted Answer

A decrease in real interest rates.

Question 15

If the consumption function is $$ C = 200 + 0.75Y $$, and planned investment is $$ 100 $$, what is the equilibrium level of real GDP ($$ Y $$)?

Accepted Answer

$$ 1{,}200 $$

Question 16

Which of the following best describes disinflation?

Accepted Answer

A decrease in the rate of inflation.

Question 17

A country has a population of 50 million, 30 million in the labor force, and 27 million employed. What is the labor force participation rate?

Accepted Answer

$$ 60\% $$

Question 18

Which of the following is a limitation of official unemployment figures?

Accepted Answer

They do not include discouraged workers who have stopped looking for work.

Question 19

If the GDP deflator increases from $$ 110  to$$ $$ 121 $$ while nominal GDP remains constant, what happens to real GDP?

Accepted Answer

Real GDP decreases.

Question 20

Which of the following best illustrates cost-push inflation?

Accepted Answer

A sharp rise in oil prices increases production costs, leading to higher prices for goods.

Exam 2-Macroeconomics: GDP, Inflation, Unemployment, and the Income-Expenditure Model

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