Q: Suppose the Consumer Price Index (CPI) was 200 last year and 210 this year. What is the inflation rate for this year?

$$\frac{210-200}{200} \times 100 = 5\%$$

Q: If nominal GDP is $$\2$$,400$$ and real GDP is $$\$$2,000$$, what is the GDP deflator?

$$\frac{2,400}{2,000} \times 100 = 120$$

Q: If the marginal propensity to consume (MPC) is $$0.9$$ and planned aggregate expenditure increases by $$\10$ billion, by how much will aggregate income increase in the short run?

$$\frac{1}{1-0.9} \times 10 = 100$$ billion dollars

Question 1

Suppose the Consumer Price Index (CPI) was 200 last year and 210 this year. What is the inflation rate for this year?

Accepted Answer

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

Question 2

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs.

Question 3

If nominal GDP is $$\2$$,400$$ and real GDP is $$\$$2,000$$, what is the GDP deflator?

Accepted Answer

$$\frac{2,400}{2,000} 	imes 100 = 120$$

Question 4

Which of the following is NOT a potential problem with the Consumer Price Index (CPI) as a measure of inflation?

Accepted Answer

It does not account for changes in the money supply.

Question 5

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 6

Which of the following would cause the short-run aggregate supply (SRAS) curve to shift to the left?

Accepted Answer

An increase in the expected future price level.

Question 7

Suppose the marginal propensity to consume (MPC) is $$0.8. $$What is the value of the multiplier?

Accepted Answer

$$\frac{1}{1-0.8} = 5$$

Question 8

Which of the following best describes the paradox of thrift?

Accepted Answer

An increase in saving can lead to a decrease in aggregate income and possibly a recession in the short run.

Question 9

If the government runs a budget deficit, what is the likely effect in the market for loanable funds?

Accepted Answer

The equilibrium real interest rate rises and the quantity of funds loaned to firms decreases.

Question 10

Which of the following would cause a decrease in aggregate demand?

Accepted Answer

A decrease in government spending.

Question 11

Which of the following is the correct formula for private saving in a closed economy?

Accepted Answer

$$S_{private} = Y + TR - C - T$$

Question 12

If the marginal propensity to consume (MPC) is $$0.9$$ and planned aggregate expenditure increases by $$\10$ billion, by how much will aggregate income increase in the short run?

Accepted Answer

$$\frac{1}{1-0.9} 	imes 10 = 100$$ billion dollars

Question 13

Which of the following is a main function of the financial system in promoting long-run economic growth?

Accepted Answer

Allowing companies to borrow money from households to invest in new capital goods and technology.

Question 14

Which of the following would shift the long-run aggregate supply (LRAS) curve to the right?

Accepted Answer

A technological advance that improves labor productivity.

Question 15

Which of the following is the correct formula for the marginal propensity to save (MPS)?

Accepted Answer

$$MPS = 1 - MPC$$

Question 16

Which of the following is an example of a supply shock?

Accepted Answer

A sudden increase in oil prices due to geopolitical conflict.

Question 17

If both aggregate demand (AD) and short-run aggregate supply (SRAS) increase, and the price level rises, what is the most likely explanation?

Accepted Answer

The increase in AD was bigger than the increase in SRAS.

Question 18

Which of the following is a determinant of planned investment spending?

Accepted Answer

Expectations of future profitability, interest rates, taxes, and cash flow.

Question 19

According to Milton Friedman and monetarist theory, what policy should be used to reduce fluctuations in real GDP, employment, and inflation?

Accepted Answer

A monetary growth rule.

Question 20

Which of the following best describes the relationship between nominal and real interest rates?

Accepted Answer

$$	ext{Real interest rate} = 	ext{Nominal interest rate} - 	ext{Inflation rate}$$

Macroeconomics Midterm Review: Chapters 9, 10, 12, and 13 (Unemployment, Inflation, Economic Growth, Aggregate Expenditure, and Aggregate Demand/Supply)

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