Q: If nominal GDP in 2023 is $$ \22$${,}000 $$ and real GDP in 2023 (using 2020 as the base year) is $$ \$$20{,}000 $$, what is the GDP deflator for 2023?

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

Question 1

Suppose the price of coffee increases significantly. According to the law of demand, what is the most likely immediate effect on the quantity of coffee demanded, holding all else constant?

Accepted Answer

The quantity demanded of coffee will decrease.

Question 2

If the price of oranges rises, and as a result, consumers buy more peaches, which economic concept best explains this behavior?

Accepted Answer

Substitution effect

Question 3

Which of the following would cause a shift in the demand curve for new cars to the right?

Accepted Answer

An increase in consumer incomes, assuming cars are normal goods

Question 4

A drought reduces the supply of wheat. What is the most likely effect on the equilibrium price and quantity of wheat?

Accepted Answer

Equilibrium price increases, equilibrium quantity decreases

Question 5

Which of the following is NOT included in the calculation of a country's GDP?

Accepted Answer

The value of a used car sold by a private owner

Question 6

If nominal GDP in 2023 is $$ \22$${,}000 $$ and real GDP in 2023 (using 2020 as the base year) is $$ \$$20{,}000 $$, what is the GDP deflator for 2023?

Accepted Answer

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

Question 7

Which of the following best describes the difference between a change in demand and a change in quantity demanded?

Accepted Answer

A change in demand is a shift of the entire demand curve, while a change in quantity demanded is a movement along the demand curve.

Question 8

Suppose the government increases its purchases by $$ \500$$ $$ million, with no change in other components. If consumption is $$ \$$2{,}000 $$ million, investment is $$ \1$${,}000 $$ million, exports are $$ \$$800 $$ million, and imports are $$ \600$$ $ million, what is the new GDP using the expenditure approach?

Accepted Answer

$$ 2{,}000 + 1{,}000 + 500 + (800 - 600) = 3{,}700 $$ million

Question 9

Which of the following is an example of an inferior good?

Accepted Answer

Demand for instant noodles increases when consumer incomes fall.

Question 10

During a recession, which of the following typically occurs?

Accepted Answer

Total production and employment decrease.

Question 11

A car manufacturer buys steel for $$ \5$${,}000 $$, uses it to make a car sold to a dealer for $$ \$$20{,}000 $$, and the dealer sells the car to a consumer for $$ \25$${,}000 $. What is the total value added at all stages?

Accepted Answer

$$ 5{,}000 + (20{,}000 - 5{,}000) + (25{,}000 - 20{,}000) = 25{,}000 $$

Question 12

If the price of coffee and creamer (complements) both rise, what is the most likely effect on the demand for each?

Accepted Answer

Demand for both coffee and creamer will decrease.

Question 13

Which of the following transactions is part of the underground economy and therefore NOT included in GDP?

Accepted Answer

A plumber is paid cash for a home repair and does not report the income.

Question 14

If nominal GDP increases from $$ \10$${,}000 $$ to $$ \$$12{,}000 $$ and real GDP increases from $$ \10$${,}000 $$ to $$ \$$11{,}000 $$, what is the percentage change in the GDP deflator?

Accepted Answer

$$ \frac{12{,}000}{11{,}000} 	imes 100 - 100 = 9.09\% $$ increase

Question 15

Which of the following best explains why intermediate goods are not included in GDP calculations?

Accepted Answer

Including intermediate goods would result in double counting, as their value is already included in the value of final goods.

Question 16

If the market for a product is experiencing a surplus, what does this indicate about the current price and market forces?

Accepted Answer

The price is above equilibrium, and quantity supplied exceeds quantity demanded.

Question 17

Which of the following is an example of the income effect?

Accepted Answer

A decrease in the price of bread increases consumers' real purchasing power, allowing them to buy more bread.

Question 18

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

Accepted Answer

Household production, such as a parent caring for their own child

Question 19

If the price of a normal good increases, what is the most likely effect on the quantity demanded and the demand curve?

Accepted Answer

Quantity demanded decreases (movement along the curve), but the demand curve does not shift.

Principles of Macroeconomics: Supply & Demand, Market Equilibrium, and GDP

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