Question 1

Which of the following best describes the main purpose of an economic model in macroeconomics?

Accepted Answer

To simplify reality in order to understand relationships between economic variables and predict outcomes.

Question 2

Suppose the price of coffee increases significantly. According to the law of demand, what is the most likely immediate effect, ceteris paribus?

Accepted Answer

The quantity demanded of coffee will decrease.

Question 3

Which of the following scenarios would cause a rightward shift in the market demand curve for electric cars?

Accepted Answer

An increase in the population of urban consumers.

Question 4

If the price of steel (an input for car production) rises, what is the expected effect on the supply curve for cars, holding all else constant?

Accepted Answer

The supply curve for cars will shift to the left.

Question 5

Which of the following is included in the calculation of a country's Gross Domestic Product (GDP)?

Accepted Answer

The value of a foreign-owned factory's production within the country.

Question 6

Given the following data for a closed economy: Consumption ($$C$$) = $$500$$, Investment ($$I$$) = $$200$$, Government Purchases ($$G$$) = $$300$$, Net Exports ($$NX$$) = $$-50. $$What is the value of GDP ($$Y$$)?

$$Y = C + I + G + NX$$

Accepted Answer

$$Y = 1000$$

Question 7

Which of the following best explains why the Consumer Price Index (CPI) may overstate the true cost of living increases?

Accepted Answer

It does not account for substitution bias, quality improvements, and the introduction of new products.

Question 8

Suppose your nominal wage increases by 5% over a year, but the price level (measured by the CPI) increases by 7%. What happens to your real wage?

Accepted Answer

Your real wage decreases by 2%.

Question 9

If the unemployment rate is calculated as:

$$	ext{Unemployment Rate} = \frac{	ext{Number of Unemployed}}{	ext{Labor Force}} 	imes 100$$

Which of the following changes would cause the unemployment rate to rise, all else equal?

Accepted Answer

An increase in the number of unemployed people, with the labor force unchanged.

Question 10

Which type of unemployment is most likely to increase during a recession?

Accepted Answer

Cyclical unemployment

Question 11

A country’s real GDP per capita increases from $$20,000 to$$ $$40,000$$ over a period of years. If the average annual growth rate is $$3.5\%$$, approximately how many years did it take for real GDP per capita to double? Use the Rule of 70:

$$	ext{Years to double} = \frac{70}{	ext{growth rate (\%)}}$$

Accepted Answer

20 years

Question 12

During an economic expansion, which of the following patterns is most likely to occur?

Accepted Answer

GDP increases, inflation increases, unemployment decreases.

Question 13

If the CPI was 200 last year and 210 this year, what is the inflation rate?

$$	ext{Inflation Rate} = \frac{	ext{New Price Level} - 	ext{Old Price Level}}{	ext{Old Price Level}}$$

Accepted Answer

5\%

Question 14

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose job is eliminated due to automation and who needs retraining.

Question 15

Suppose the government increases unemployment insurance benefits. What is the most likely short-term effect on the natural rate of unemployment?

Accepted Answer

It will increase the natural rate of unemployment.

Question 16

If a country’s GDP increases but its population grows even faster, what happens to real GDP per capita?

Accepted Answer

It decreases.

Question 17

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

Accepted Answer

Nominal interest rates measure dollar growth; real interest rates measure purchasing power growth.

Question 18

A natural disaster destroys several factories in a region. What is the most likely effect on the supply curve for manufactured goods from that region?

Accepted Answer

The supply curve shifts to the left.

Question 19

Which of the following is NOT a component of GDP as measured by the expenditure approach?

$$Y = C + I + G + NX$$

Accepted Answer

Household savings

Question 20

If the labor force consists of 1,000 people, 900 are employed, and 100 are unemployed, what is the unemployment rate?

$$	ext{Unemployment Rate} = \frac{	ext{Number of Unemployed}}{	ext{Labor Force}} 	imes 100$$

Accepted Answer

10\%

Core Principles of Macroeconomics: Models, Markets, GDP, Inflation, and Unemployment

Study Guide - Practice Questions

Study Guide - Flashcards