Question 1

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

Accepted Answer

Nominal GDP measures the value of all final goods and services at current prices, while real GDP measures them at constant prices.

Question 2

Suppose the government increases its spending by $100 million and the marginal propensity to consume (MPC) is 0.8. Using the simple spending multiplier, what is the total change in GDP?

Accepted Answer

$500 million

Question 3

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Purchases of stocks and bonds

Question 4

If the unemployment rate is 6% and the natural rate of unemployment is 4%, what type of unemployment is most likely present?

Accepted Answer

Cyclical unemployment

Question 5

Which of the following best explains why the aggregate demand curve slopes downward?

Accepted Answer

As the price level falls, the purchasing power of money increases, leading to higher consumption and investment.

Question 6

According to Keynesian economics, what is the primary reason for persistent unemployment during a recession?

Accepted Answer

Aggregate demand is insufficient to purchase all goods and services produced.

Question 7

If the government wants to close a recessionary gap, which fiscal policy action would be most effective?

Accepted Answer

Increase government spending or decrease taxes

Question 8

Which of the following is an example of automatic stabilizers in fiscal policy?

Accepted Answer

Unemployment insurance payments that increase during a recession

Question 9

Suppose the economy is experiencing demand-pull inflation. Which of the following is the most likely cause?

Accepted Answer

A significant increase in aggregate demand

Question 10

If the marginal propensity to consume (MPC) is 0.75, what is the value of the simple spending multiplier?

Accepted Answer

$$\frac{1}{1-0.75} = 4$$

Question 11

Which of the following best describes crowding out in the context of fiscal policy?

Accepted Answer

Government borrowing increases interest rates, reducing private investment.

Question 12

Which of the following is most likely to shift the short-run aggregate supply curve to the left?

Accepted Answer

An increase in business taxes

Question 13

If actual GDP is greater than potential GDP, which of the following is most likely to occur?

Accepted Answer

Inflationary pressures will increase.

Question 14

Which of the following statements about the business cycle is correct?

Accepted Answer

Expansions are periods of rising GDP and falling unemployment.

Question 15

Suppose the government implements a balanced budget multiplier policy, increasing both government spending and taxes by $50 billion. If the MPC is 0.8, what is the total change in GDP?

Accepted Answer

$50 billion

Question 16

Which of the following is an example of structural unemployment?

Accepted Answer

A worker's skills are no longer needed due to technological change.

Question 17

Which of the following best describes the Keynesian view of aggregate supply in the short run?

Accepted Answer

Aggregate supply is upward sloping due to sticky wages and prices.

Question 18

If the marginal propensity to consume (MPC) is 0.6 and the government increases spending by $200 million, what is the total increase in GDP?

Accepted Answer

$500 million

Question 19

Which of the following is a likely effect of a supply shock, such as a sudden increase in oil prices?

Accepted Answer

A leftward shift of the short-run aggregate supply curve

Question 20

Which of the following best explains why the multiplier effect is generally smaller in the real world than in simple models?

Accepted Answer

Taxes, imports, and price level changes reduce the size of the multiplier.

Macroeconomics Review: GDP, Fiscal Policy, Unemployment, and Business Cycles

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