Q: If the Consumer Price Index (CPI) increases from $$ 220 to$$ $$ 231 in $$one year, what is the annual inflation rate?

$$ \frac{231 - 220}{220} \times 100 = 5\% $$

Q: The labor force participation rate is calculated as:

$$ \frac{\text{Labor Force}}{\text{Working-Age Population}} \times 100 $$

Q: Suppose the CPI in 2010 was $$ 180 $$ and in 2020 it was $$ 240 . If a $$worker earned $$ \40$${,}000 $ in 2010, what is the equivalent salary in 2020 dollars?

$$ \40$${,}000 \times \frac{240}{180} = \$$53{,}333 $$

Question 1

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured using current prices, while real GDP is adjusted for inflation using constant prices.

Question 2

Suppose a country’s GDP in 2022 was $$ \1$${,}000 $$ billion and in 2023 it was $$ \$$1{,}080 $$ billion. If the GDP deflator increased from $$ 100  to$$ $$ 104 $$ over the same period, what is the real GDP growth rate from 2022 to 2023?

Accepted Answer

$$ \frac{1{,}080}{104} \div \frac{1{,}000}{100} - 1 = 0.038  or$$ $$ 3.8\% $$

Question 3

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

Accepted Answer

Transfer payments such as Social Security

Question 4

If the Consumer Price Index (CPI) increases from $$ 220  to$$ $$ 231  in $$one year, what is the annual inflation rate?

Accepted Answer

$$ \frac{231 - 220}{220} 	imes 100 = 5\% $$

Question 5

Which scenario best illustrates frictional unemployment?

Accepted Answer

A recent college graduate is searching for her first job.

Question 6

The labor force participation rate is calculated as:

Accepted Answer

$$ \frac{	ext{Labor Force}}{	ext{Working-Age Population}} 	imes 100 $$

Question 7

Which of the following would be considered an example of structural unemployment?

Accepted Answer

A coal miner loses his job because the demand for coal has declined permanently.

Question 8

If the nominal interest rate is $$ 6\% $$ and the inflation rate is $$ 2\% $$, what is the real interest rate?

Accepted Answer

$$ 6\% - 2\% = 4\% $$

Question 9

Which of the following is a problem with using the unemployment rate as a measure of labor market health?

Accepted Answer

It does not account for underemployed workers.

Question 10

Which of the following best describes the concept of 'menu costs' in relation to inflation?

Accepted Answer

The cost to businesses of changing prices frequently due to inflation.

Question 11

Suppose the CPI in 2010 was $$ 180 $$ and in 2020 it was $$ 240 . If a $$worker earned $$ \40$${,}000 $ in 2010, what is the equivalent salary in 2020 dollars?

Accepted Answer

$$ \40$${,}000 	imes \frac{240}{180} = \$$53{,}333 $$

Question 12

Which of the following is most likely to increase a country’s long-term economic growth?

Accepted Answer

Investing in human capital and technology.

Question 13

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

Accepted Answer

Transfer payments

Question 14

If the efficiency wage theory is correct, what is the likely effect of firms paying above-market wages?

Accepted Answer

It will increase unemployment because more people want to work at higher wages.

Question 15

Which of the following best describes the crowding out effect?

Accepted Answer

Government borrowing increases interest rates, reducing private investment.

Question 16

Suppose the per-worker production function is $$ Y = A \cdot f(K) $$, where $$ Y  is $$output per worker, $$ A  is $$technology, and $$ K  is $$capital per worker. If $$ A $$ increases, what happens to $$ Y $$?

Accepted Answer

$$ Y $$ increases for any given $$ K .$$

Question 17

Which of the following is a function of financial intermediaries in the loanable funds market?

Accepted Answer

They match savers with borrowers.

Question 18

If the expected return on investment increases, what is the likely effect on the demand for loanable funds?

Accepted Answer

Demand for loanable funds increases.

Question 19

Which of the following best explains why the CPI may overstate the true rate of inflation?

Accepted Answer

It does not account for substitution between goods.

Question 20

A country’s real GDP grew from $$ \500$$ $$ billion to $$ \$$550 $$ billion in one year. What is the growth rate?

Accepted Answer

$$ \frac{550 - 500}{500} 	imes 100 = 10\% $$

Macroeconomics Core Concepts: Business Cycles, GDP, Unemployment, Inflation, and Economic Growth

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