Q: Which formula correctly calculates the inflation rate between two years using the Consumer Price Index (CPI)?

$$\frac{CPI_{\text{current}} - CPI_{\text{previous}}}{CPI_{\text{previous}}} \times 100$$

Q: If a salary was $30,000 in 1993 (CPI = 85.6) and the CPI in 2021 is 141.6, what is the equivalent salary in 2021 dollars?

$$30,000 \times \frac{141.6}{85.6} \approx 49,626$$

Q: If the marginal propensity to spend ($$z) is$$ $$0.60$$ and investment increases by $$150$$ million, what is the change in equilibrium income?

$$\Delta Y = \frac{1}{1 - 0.60} \times 150 = 2.5 \times 150 = 375$$

Question 1

Given the following data for 2018: Fur Coats (Q) = 20, Fur Coat Price = $$30, Sunscreen (Q) = 60, Sunscreen Price = 10$$, what is the nominal GDP for 2018?

Accepted Answer

$$\1200$

Question 2

Using 2017 prices (Fur coat = $$15, Sunscreen = 5$$), what is the real GDP for 2019 if Fur Coats (Q) = 30 and Sunscreen (Q) = 40?

Accepted Answer

$$\650$

Question 3

Which of the following is NOT included in GDP according to the value-added method?

Accepted Answer

The value of unpaid housework

Question 4

Which formula correctly calculates the inflation rate between two years using the Consumer Price Index (CPI)?

Accepted Answer

$$\frac{CPI_{	ext{current}} - CPI_{	ext{previous}}}{CPI_{	ext{previous}}} 	imes 100$$

Question 5

If a salary was $30,000 in 1993 (CPI = 85.6) and the CPI in 2021 is 141.6, what is the equivalent salary in 2021 dollars?

Accepted Answer

$$30,000 	imes \frac{141.6}{85.6} \approx 49,626$$

Question 6

Which of the following is classified as 'Investment' (I) in the GDP expenditure approach?

Accepted Answer

A business purchasing new equipment

Question 7

In the Aggregate Expenditure (AE) model, what determines the slope of the AE function?

Accepted Answer

$$z = MPC(1 - t) - m$$

Question 8

If the AE equation is $$AE = 228 + 0.62Y$$, what does the intercept (228) represent?

Accepted Answer

Autonomous spending

Question 9

If the economy is at a point where $$AE \u003e Y on $$the AE diagram, what happens to inventories and production?

Accepted Answer

Inventories decrease and production increases

Question 10

If the marginal propensity to consume (MPC) is 0.8, what is the marginal propensity to save (MPS)?

Accepted Answer

$$MPS = 1 - MPC = 0.2$$

Question 11

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

Accepted Answer

A decrease in input prices

Question 12

If exports ($$X) $$are $$350$$ and the marginal propensity to import ($$m) is$$ $$0.25$$, at what level of income ($$Y) $$will net exports ($$NX) be $$zero?

Accepted Answer

$$Y = \frac{350}{0.25} = 1400$$

Question 13

If the marginal propensity to spend ($$z) is$$ $$0.60$$ and investment increases by $$150$$ million, what is the change in equilibrium income?

Accepted Answer

$$\Delta Y = \frac{1}{1 - 0.60} 	imes 150 = 2.5 	imes 150 = 375$$

Question 14

Which of the following best explains why investment is more volatile than consumption?

Accepted Answer

Investment occurs in large, infrequent lump sums and is sensitive to business expectations

Question 15

Which event would cause a movement along the AS curve rather than a shift?

Accepted Answer

An increase in demand for Canada’s exports

Question 16

What is the formula for the government spending multiplier in the AE model?

Accepted Answer

$$\frac{1}{1 - z}$$

Question 17

During a recessionary gap, what do automatic stabilizers do?

Accepted Answer

Tax revenues fall and transfer payments rise automatically, increasing the government deficit and stabilizing aggregate demand

Question 18

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

Accepted Answer

An increase in immigration that expands the labour force

Question 19

If the marginal propensity to consume (MPC) is $$0.75$$, the tax rate ($$t) is$$ $$0.10$$, and the marginal propensity to import ($$m) is$$ $$0.20$$, what is the slope ($$z) of $$the AE function?

Accepted Answer

$$z = 0.75(1 - 0.10) - 0.20 = 0.675 - 0.20 = 0.475$$

Aggregate Expenditure, GDP, Inflation, and AD-AS: Core Macroeconomics Study Notes

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