Q: If nominal GDP in 2023 is $$\85$$,831$$ and the price index is 110$, what is the real GDP for 2023?

$$\78$$,028$$ $$\text{Real GDP} = \frac{\$$85,831}{110} \times 100 = \78$$,028$

Q: If the Consumer Price Index (CPI) was $$120$$ last year and $$132$$ this year, what is the inflation rate?

$$10\%$$ $$\text{Inflation Rate} = \frac{132 - 120}{120} \times 100 = 10\%$$

Q: Suppose the nominal interest rate on a loan is $$8\%$$ and the inflation rate is $$3\%. $$What is the real interest rate?

$$5\%$$ $$\text{Real Interest Rate} = 8\% - 3\% = 5\%$$

Question 1

Suppose Country A can produce either 10 units of wheat or 20 units of corn with all its resources, while Country B can produce either 8 units of wheat or 16 units of corn. Which statement best describes their comparative advantage?

Accepted Answer

Neither country has an absolute advantage, but both can benefit from trade by specializing according to comparative advantage.

Question 2

Which of the following best illustrates the law of increasing additional cost?

Accepted Answer

As a country produces more of one good, the opportunity cost of producing additional units of that good increases.

Question 3

If nominal GDP in 2023 is $$\85$$,831$$ and the price index is 110$, what is the real GDP for 2023?

Accepted Answer

$$\78$$,028$$

$$	ext{Real GDP} = \frac{\$$85,831}{110} 	imes 100 = \78$$,028$

Question 4

Which of the following transactions would NOT be included in the calculation of a country's GDP?

Accepted Answer

A used textbook sold from one student to another.

Question 5

A country has the following data for a given year: Consumption = $$\500$ billion, Investment = $$\$$200$$ billion, Government Expenditures = $$\150$ billion, Exports = $$\$$100$$ billion, Imports = $$\120$ billion. What is the GDP using the expenditure approach?

Accepted Answer

$$\830$ billion

$$GDP = C + I + G + (X - M) = 500 + 200 + 150 + (100 - 120) = 830$

Question 6

Which of the following best describes the difference between GDP and GNP?

Accepted Answer

GDP measures production within a country's borders, while GNP measures production by a country's residents regardless of location.

Question 7

If the Consumer Price Index (CPI) was $$120$$ last year and $$132$$ this year, what is the inflation rate?

Accepted Answer

$$10\%$$

$$	ext{Inflation Rate} = \frac{132 - 120}{120} 	imes 100 = 10\%$$

Question 8

Which of the following is an example of a positive externality?

Accepted Answer

A person receives a flu vaccine, reducing the spread of illness in the community.

Question 9

Suppose the nominal interest rate on a loan is $$8\%$$ and the inflation rate is $$3\%. $$What is the real interest rate?

Accepted Answer

$$5\%$$

$$	ext{Real Interest Rate} = 8\% - 3\% = 5\%$$

Question 10

Which of the following best describes the free rider problem?

Accepted Answer

Individuals benefit from a public good without paying for it, leading to under-provision of the good.

Question 11

A country has a labor force of $$200$$ million people, of whom $$190$$ million are employed. What is the unemployment rate?

Accepted Answer

$$5\%$$

$$	ext{Unemployment Rate} = \frac{10}{200} 	imes 100 = 5\%$$

Question 12

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

Accepted Answer

GDP includes the value of used goods sold in the market.

Question 13

If a government wants to correct a negative externality such as pollution, which policy would be most appropriate?

Accepted Answer

Imposing a special tax on the polluting activity.

Question 14

Which of the following best describes a public good?

Accepted Answer

A good that is non-rival and non-excludable.

Question 15

Suppose the cost of a market basket in the base year is $$\500$ and in the current year is $$\$$600. $$What is the Consumer Price Index (CPI) for the current year?

Accepted Answer

$$120$$

$$CPI = \frac{600}{500} 	imes 100 = 120$$

Question 16

Which of the following is an example of a transfer payment?

Accepted Answer

A government payment of unemployment benefits to a jobless worker.

Question 17

If the flows of people getting jobs and losing jobs are equal, what happens to the unemployment rate?

Accepted Answer

The unemployment rate remains constant.

Question 18

Which of the following best describes the circular flow of income in an economy?

Accepted Answer

Goods and services flow from businesses to households, while money flows from households to businesses.

Question 19

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

Accepted Answer

Spending on stocks and bonds.

Question 20

If a country experiences unanticipated inflation, who is most likely to lose?

Accepted Answer

Creditors, because the real value of repayments is lower than expected.

Core Principles of Macroeconomics: Study Guide

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