Q: The employment-to-population ratio is calculated as:

$$\frac{\text{Employed}}{\text{Working-age population}} \times 100$$

Q: If the CPI in year 1 is 120 and in year 2 is 132, what is the inflation rate?

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

Question 1

Which of the following best describes 'price/wage rigidity' in the short run?

Accepted Answer

Prices and wages are sticky, meaning they do not adjust immediately to changes in demand, which can cause temporary unemployment or inflation.

Question 2

Given the formula for Aggregate Expenditures $$AE = C + I + G + NX$$, what does 'NX' represent?

Accepted Answer

Net exports, calculated as exports minus imports.

Question 3

If the Marginal Propensity to Consume (MPC) is 0.8, what is the value of the Simple Multiplier?

Accepted Answer

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

Question 4

Which scenario would most likely result in unplanned aggregate expenditures?

Accepted Answer

A sudden increase in consumer demand leading to inventory shortages.

Question 5

Disposable Income (DI) is calculated as:

Accepted Answer

$$DI = GDP - T$$

Question 6

If the Marginal Propensity to Save (MPS) is 0.25, what is the Marginal Propensity to Consume (MPC)?

Accepted Answer

$$MPC = 1 - MPS = 0.75$$

Question 7

Which of the following would increase the vertical intercept of the AE function?

Accepted Answer

An increase in autonomous government spending.

Question 8

If the equilibrium GDP is where the AE line intersects the 45° line, what does this point represent?

Accepted Answer

Aggregate expenditures equal actual GDP.

Question 9

Suppose the economy experiences excess AE. What is the likely effect on inventories and GDP?

Accepted Answer

Inventories fall, firms increase production, and GDP rises.

Question 10

The Rule of 70 is used to estimate:

Accepted Answer

The number of years required for GDP to double, given a constant growth rate.

Question 11

Which factor is NOT included in the aggregate production function $$Y = F(L, K, H, T)$$?

Accepted Answer

Natural resources

Question 12

A rise in population will most likely have which effect on the labor market and potential GDP?

Accepted Answer

Shift labor supply right, increasing potential GDP.

Question 13

Which type of unemployment is most likely caused by a recession?

Accepted Answer

Cyclical unemployment

Question 14

The employment-to-population ratio is calculated as:

Accepted Answer

$$\frac{	ext{Employed}}{	ext{Working-age population}} 	imes 100$$

Question 15

If the CPI in year 1 is 120 and in year 2 is 132, what is the inflation rate?

Accepted Answer

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

Question 16

Which of the following is a consequence of inflation according to the study guide?

Accepted Answer

Wealth redistribution between borrowers and lenders.

Question 17

If the marginal propensity to consume (MPC) is 0.6 and autonomous expenditure increases by $$\200$, what is the change in equilibrium GDP using the simple multiplier?

Accepted Answer

$$\Delta Y = 	ext{Multiplier} 	imes \Delta 	ext{Autonomous Expenditure} = \frac{1}{1-0.6} 	imes 200 = 2.5 	imes 200 = 500$$

Question 18

Which of the following best describes the law of diminishing returns in the aggregate production function?

Accepted Answer

Each additional unit of labor adds less output if other inputs are fixed.

Question 19

Which measure is adjusted for inflation?

Accepted Answer

Real wage

Question 20

If the labor force is 150 million and the working-age population is 200 million, what is the labor force participation rate?

Accepted Answer

$$\frac{150}{200} 	imes 100 = 75\%$$

Macroeconomics Study Guide: Aggregate Expenditures, Economic Growth, Unemployment, and Inflation

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