Q: If the nominal GDP of a country increases from $$10 trillion to 11 $$trillion while the GDP deflator rises from 100 to 110, what is the real GDP growth rate?

$$\text{Real GDP in year 1} = \frac{10\ \text{trillion}}{1.00} = 10\ \text{trillion}$$ $$\text{Real GDP in year 2} = \frac{11\ \text{trillion}}{1.10} = 10\ \text{trillion}$$ $$\text{Growth rate} = 0\%$$

Q: Suppose the government increases its spending by $100 million. If the marginal propensity to consume (MPC) is 0.8, what is the total change in aggregate demand according to the simple spending multiplier?

$$\text{Multiplier} = \frac{1}{1 - 0.8} = 5$$ $$\text{Total change} = 5 \times 100\ \text{million} = 500\ \text{million}$$

Question 1

Suppose the economy of Country X is operating inside its production possibility curve (PPC). Which of the following statements best explains this situation?

Accepted Answer

Country X has unemployed resources or inefficiency in production.

Question 2

If the nominal GDP of a country increases from $$10 trillion to 11 $$trillion while the GDP deflator rises from 100 to 110, what is the real GDP growth rate?

Accepted Answer

$$	ext{Real GDP in year 1} = \frac{10\ 	ext{trillion}}{1.00} = 10\ 	ext{trillion}$$
$$	ext{Real GDP in year 2} = \frac{11\ 	ext{trillion}}{1.10} = 10\ 	ext{trillion}$$
$$	ext{Growth rate} = 0\%$$

Question 3

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative forgone when a choice is made.

Question 4

Country A can produce either 100 units of wheat or 200 units of corn with its resources. Country B can produce either 80 units of wheat or 160 units of corn. Which country has the comparative advantage in producing corn?

Accepted Answer

Neither country, because their opportunity costs are the same.

Question 5

If the unemployment rate is 6\% and the natural rate of unemployment is 4\%, which of the following is true?

Accepted Answer

There is cyclical unemployment present in the economy.

Question 6

Suppose the government increases its spending by $100 million. If the marginal propensity to consume (MPC) is 0.8, what is the total change in aggregate demand according to the simple spending multiplier?

Accepted Answer

$$	ext{Multiplier} = \frac{1}{1 - 0.8} = 5$$
$$	ext{Total change} = 5 	imes 100\ 	ext{million} = 500\ 	ext{million}$$

Question 7

Which of the following would cause a rightward shift in the aggregate demand (AD) curve?

Accepted Answer

An increase in consumer confidence leading to higher consumption.

Question 8

If the Federal Reserve wants to decrease the money supply, which of the following actions should it take?

Accepted Answer

Sell government securities in the open market.

Question 9

Suppose the economy is experiencing high inflation. Which monetary policy action is most appropriate for the Federal Reserve to take?

Accepted Answer

Sell government bonds to the public.

Question 10

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 adjusted for inflation using base-year prices.

Question 11

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

Accepted Answer

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

Question 12

Which of the following is NOT included in the calculation of Gross Domestic Product (GDP)?

Accepted Answer

The sale of used furniture at a garage sale.

Question 13

A country is experiencing a recession. Which fiscal policy action would be most appropriate to stimulate aggregate demand?

Accepted Answer

Increase government spending.

Question 14

Suppose the reserve requirement is 10\%. If a bank receives a new deposit of $1,000, what is the maximum amount of new loans it can make?

Accepted Answer

$$900$$

Question 15

Which of the following best explains why the aggregate supply (AS) curve is upward sloping in the short run?

Accepted Answer

Because input prices are fixed in the short run, so higher output prices increase profits and output.

Question 16

If the economy is at equilibrium where aggregate demand equals aggregate supply, and the government increases taxes, what is the likely short-run effect?

Accepted Answer

Aggregate demand will decrease, leading to lower output and possibly higher unemployment.

Question 17

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose job is replaced by automation.

Question 18

If the money supply increases by 5\% and the velocity of money is constant, but real GDP increases by 2\%, what is the expected inflation rate according to the quantity theory of money?

Accepted Answer

$$	ext{Inflation rate} = 5\% - 2\% = 3\%$$

Question 19

Which of the following is a function of money?

Accepted Answer

A store of value, a unit of account, and a medium of exchange.

Question 20

Suppose the government implements a policy that increases investment in infrastructure, leading to higher productivity. In the long run, what is the likely effect on the aggregate supply curve?

Accepted Answer

The aggregate supply curve will shift to the right.

Principles of Macroeconomics: Course Syllabus and Structure

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