Q: A country has a working-age population of 200 million, 120 million employed, and 10 million unemployed. What is the unemployment rate?

$$\frac{10}{130} \times 100 = 7.7\%$$

Q: If the Consumer Price Index (CPI) was 120 last year and is 126 this year, what is the inflation rate?

$$\frac{126 - 120}{120} \times 100 = 5\%$$

Question 1

Which of the following best describes the concept of opportunity cost?

Accepted Answer

The value of the next best alternative forgone when a choice is made.

Question 2

Suppose an economy can produce only two goods: cars and computers. If the economy is operating on its production possibility frontier (PPF), which of the following is true?

Accepted Answer

The economy is experiencing productive efficiency.

Question 3

If the price of coffee increases, which of the following will occur, ceteris paribus, according to the law of demand?

Accepted Answer

The quantity demanded of coffee will decrease.

Question 4

Which of the following would cause a rightward shift in the demand curve for electric vehicles?

Accepted Answer

An increase in consumer income, assuming electric vehicles are normal goods.

Question 5

Given the expenditure approach to GDP, which of the following equations is correct?

Accepted Answer

$$GDP = C + I + G + (X - M)$$

Question 6

Why is real GDP preferred over nominal GDP when comparing economic output over time?

Accepted Answer

Real GDP adjusts for changes in the price level, removing the effects of inflation.

Question 7

A country has a working-age population of 200 million, 120 million employed, and 10 million unemployed. What is the unemployment rate?

Accepted Answer

$$\frac{10}{130} 	imes 100 = 7.7\%$$

Question 8

If the Consumer Price Index (CPI) was 120 last year and is 126 this year, what is the inflation rate?

Accepted Answer

$$\frac{126 - 120}{120} 	imes 100 = 5\%$$

Question 9

Which of the following would increase potential GDP in the long run?

Accepted Answer

An increase in labor productivity due to technological innovation.

Question 10

If the government runs a budget deficit ($$T - G \u003c 0$$), what is the likely effect in the loanable funds market?

Accepted Answer

The demand for loanable funds increases, raising the interest rate.

Question 11

Which of the following is NOT a function of money?

Accepted Answer

Source of economic growth

Question 12

If the Federal Reserve conducts an open market purchase of government securities, what is the immediate effect on the money supply and nominal interest rate?

Accepted Answer

Money supply increases and nominal interest rate decreases.

Question 13

According to the quantity theory of money, if the money supply grows by 8% and real GDP grows by 3%, what is the implied inflation rate?

Accepted Answer

$$8\% - 3\% = 5\%$$

Question 14

If the marginal propensity to consume (MPC) is 0.75 and there are no taxes or imports, what is the value of the expenditure multiplier?

Accepted Answer

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

Question 15

Suppose the economy is in a recessionary gap. According to the aggregate supply and demand model, what is the likely adjustment in the long run if wages are flexible?

Accepted Answer

Money wages decrease, shifting SRAS right.

Question 16

Which of the following best describes the Laffer curve?

Accepted Answer

It shows the relationship between tax rates and tax revenue, indicating that beyond a certain point, higher tax rates reduce total revenue.

Question 17

If the Federal Reserve wants to fight inflation, which of the following actions is it most likely to take?

Accepted Answer

Conduct an open market sale of government securities.

Question 18

Which of the following would be considered a supply shock that could cause cost-push inflation?

Accepted Answer

A sudden increase in oil prices due to geopolitical conflict.

Question 19

Which of the following best explains why the unemployment rate may understate the true extent of unemployment?

Accepted Answer

It excludes marginally attached and discouraged workers from the labor force.

Question 20

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

Accepted Answer

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

Principles of Macroeconomics: Comprehensive Study Guide

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