Q: Suppose a country produces only cars and computers. In 2020, it produced 100 cars at $$20,000 each and 200 computers at 1$$,000 each. In 2021, it produced 120 cars at $$22,000 each and 220 computers at 1$$,100 each. What is the nominal GDP for 2021?

$$120 \times 22,000 + 220 \times 1,100 = 2,640,000 + 242,000 = 2,882,000$$

Q: Which formula correctly calculates Real GDP?

$$\text{Real GDP} = \text{Nominal GDP} / \text{GDP Deflator}$$

Q: If the GDP deflator in 2022 is 120 and nominal GDP is $6,000 billion, what is real GDP for 2022?

$$\text{Real GDP} = \frac{6,000}{1.20} = 5,000$$ billion

Q: The labor force participation rate is defined as:

$$\text{LFPR} = \frac{\text{Labor Force}}{\text{Adult Population}} \times 100$$

Q: If a country’s real GDP grows at 2% per year, approximately how many years will it take for real GDP to double?

$$\text{Years to double} = \frac{70}{2} = 35$$

Question 1

Which of the following best describes the difference between microeconomics and macroeconomics?

Accepted Answer

Microeconomics focuses on individual markets and decision-makers, while macroeconomics analyzes aggregate outcomes such as GDP, inflation, and unemployment.

Question 2

Suppose a country produces only cars and computers. In 2020, it produced 100 cars at $$20,000 each and 200 computers at 1$$,000 each. In 2021, it produced 120 cars at $$22,000 each and 220 computers at 1$$,100 each. What is the nominal GDP for 2021?

Accepted Answer

$$120 	imes 22,000 + 220 	imes 1,100 = 2,640,000 + 242,000 = 2,882,000$$

Question 3

Which formula correctly calculates Real GDP?

Accepted Answer

$$	ext{Real GDP} = 	ext{Nominal GDP} / 	ext{GDP Deflator}$$

Question 4

If the GDP deflator in 2022 is 120 and nominal GDP is $6,000 billion, what is real GDP for 2022?

Accepted Answer

$$	ext{Real GDP} = \frac{6,000}{1.20} = 5,000$$ billion

Question 5

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

Accepted Answer

The value of intermediate goods used in production.

Question 6

If inflation is 5% and the nominal interest rate is 7%, what is the real interest rate?

Accepted Answer

$$r = i - \pi = 7\% - 5\% = 2\%$$

Question 7

High inflation generally benefits which group?

Accepted Answer

Borrowers, because the real value of repayments decreases.

Question 8

Which of the following is a cost of inflation?

Accepted Answer

Menu costs, which are the costs to firms of changing prices.

Question 9

The labor force participation rate is defined as:

Accepted Answer

$$	ext{LFPR} = \frac{	ext{Labor Force}}{	ext{Adult Population}} 	imes 100$$

Question 10

Which type of unemployment is caused by the time it takes for workers to search for jobs that best suit their skills?

Accepted Answer

Frictional unemployment

Question 11

If a country’s real GDP grows at 2% per year, approximately how many years will it take for real GDP to double?

Accepted Answer

$$	ext{Years to double} = \frac{70}{2} = 35$$

Question 12

Which of the following best explains the concept of diminishing returns to capital?

Accepted Answer

As more capital is added, each additional unit of capital increases output by a smaller amount.

Question 13

Which equation best represents productivity in terms of output and labor hours?

Accepted Answer

$$	ext{Productivity} = \frac{Y}{L}$$, where $$Y is $$output and $$L is $$labor hours.

Question 14

Which of the following is considered a source of long-term economic growth?

Accepted Answer

Physical capital, human capital, and technological change.

Question 15

If the price level increases by 3% and nominal GDP increases by 5%, what is the approximate growth rate of real GDP?

Accepted Answer

$$	ext{Real GDP growth} \approx 5\% - 3\% = 2\%$$

Question 16

Which of the following would increase a country’s potential GDP?

Accepted Answer

An increase in the capacity output of all resources.

Question 17

Which of the following is a problem associated with unemployment?

Accepted Answer

Loss of output and income for the economy.

Question 18

If the GDP deflator increases from 110 to 115, what is the approximate inflation rate?

Accepted Answer

$$\frac{115 - 110}{110} 	imes 100 = 4.55\%$$

Question 19

A country’s GDP per capita increases, but its population grows faster than GDP. What is the likely effect on living standards?

Accepted Answer

Living standards may stagnate or fall.

Macroeconomics: Core Concepts and Measures

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