Q: A country’s nominal GDP in 2022 is $$20 trillion, and its real GDP (using 2015 as the base year) is 16 $$trillion. What is the GDP deflator for 2022?

$$\displaystyle \text{GDP Deflator} = \left( \frac{\20$$\text{ trillion}}{\$$16\text{ trillion}} \right) \times 100 = 125$$

Q: If the labor force in a country is 160 million and 8 million people are unemployed, what is the unemployment rate?

$$\displaystyle \text{Unemployment Rate} = \left( \frac{8}{160} \right) \times 100 = 5\%$$

Q: A country’s CPI was 200 in 2021 and 210 in 2022. What was the inflation rate between 2021 and 2022?

$$\displaystyle \text{Inflation Rate} = \left( \frac{210 - 200}{200} \right) \times 100 = 5\%$$

Q: If a country’s real GDP per capita grows at a constant rate of 2% per year, approximately how many years will it take for real GDP per capita to double?

$$\displaystyle \text{Doubling Time} \approx \frac{70}{2} = 35 \text{ years}$$

Question 1

Suppose the price of beef increases significantly. According to the study materials, what is the most likely effect on the demand for chicken, and why?

Accepted Answer

The demand for chicken will increase because beef and chicken are substitute goods.

Question 2

A country’s nominal GDP in 2022 is $$20 trillion, and its real GDP (using 2015 as the base year) is 16 $$trillion. What is the GDP deflator for 2022?

Accepted Answer

$$\displaystyle 	ext{GDP Deflator} = \left( \frac{\20$$	ext{ trillion}}{\$$16	ext{ trillion}} ight) 	imes 100 = 125$$

Question 3

Which of the following transactions would be included in the calculation of GDP using the expenditure approach?

Accepted Answer

A government purchase of new military equipment.

Question 4

If the labor force in a country is 160 million and 8 million people are unemployed, what is the unemployment rate?

Accepted Answer

$$\displaystyle 	ext{Unemployment Rate} = \left( \frac{8}{160} ight) 	imes 100 = 5\%$$

Question 5

A country’s CPI was 200 in 2021 and 210 in 2022. What was the inflation rate between 2021 and 2022?

Accepted Answer

$$\displaystyle 	ext{Inflation Rate} = \left( \frac{210 - 200}{200} ight) 	imes 100 = 5\%$$

Question 6

Which of the following best describes the Law of Diminishing Marginal Returns to Capital in the per-worker production function?

Accepted Answer

As more capital per worker is added, each additional unit of capital increases output per worker by a smaller amount.

Question 7

Suppose the government runs a budget deficit. According to the loanable funds market model, what is the likely effect on the real interest rate and private investment?

Accepted Answer

The real interest rate rises and private investment decreases due to crowding out.

Question 8

If a country’s real GDP per capita grows at a constant rate of 2% per year, approximately how many years will it take for real GDP per capita to double?

Accepted Answer

$$\displaystyle 	ext{Doubling Time} \approx \frac{70}{2} = 35 	ext{ years}$$

Question 9

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose job was replaced by automation and who lacks the skills for new available jobs.

Question 10

A country’s nominal interest rate is 6% and the inflation rate is 2%. What is the real interest rate according to the Fisher equation?

Accepted Answer

$$\displaystyle r = i - \pi = 6\% - 2\% = 4\%$$

Question 11

Which of the following is NOT a limitation of GDP as a measure of economic well-being?

Accepted Answer

GDP includes the value of all intermediate goods produced.

Question 12

If the cost of a fixed basket of goods was $$500 in the base year and 600 in $$the current year, what is the Consumer Price Index (CPI) for the current year?

Accepted Answer

$$\displaystyle 	ext{CPI} = \left( \frac{600}{500} ight) 	imes 100 = 120$$

Question 13

Which of the following best explains why knowledge capital is considered a public good in New Growth Theory?

Accepted Answer

It is nonrival and nonexcludable, so one person's use does not diminish another's and it is difficult to prevent others from using it.

Question 14

Suppose a country’s working-age population is 250 million, the labor force is 150 million, and 140 million are employed. What is the labor force participation rate?

Accepted Answer

$$\displaystyle 	ext{LFPR} = \left( \frac{150}{250} ight) 	imes 100 = 60\%$$

Question 15

Which of the following would cause a rightward shift in the market supply curve for smartphones?

Accepted Answer

A technological innovation that reduces production costs.

Question 16

If the actual market price of a good is set below the equilibrium price, what will occur in the market according to supply and demand theory?

Accepted Answer

A shortage will occur because quantity demanded exceeds quantity supplied.

Question 17

A developing country with a low initial capital stock is expected to grow faster than a developed country with a high capital stock. This is an example of which economic concept?

Accepted Answer

The Catch-Up Hypothesis (Economic Convergence)

Question 18

Which of the following best describes the business cycle phase known as a 'trough'?

Accepted Answer

The point where real GDP bottoms out before turning upward into a new expansion.

Question 19

A household’s disposable income is $$60,000, it pays 10$$,000 in taxes, receives $$2,000 in government transfers, and spends 45$$,000 on consumption. What is the household’s private savings?

Accepted Answer

$$\displaystyle S_{	ext{private}} = Y + TR - C - T = 60,000 + 2,000 - 45,000 - 10,000 = 7,000$$

Comprehensive Macroeconomics Study Notes (Chapters 3, 8–11.2)

Study Guide - Practice Questions

Study Guide - Flashcards