Q: If the inflation rate is measured using the Consumer Price Index (CPI), which of the following formulas is correct?

$$ \text{Inflation Rate} = \frac{\text{CPI}_{t} - \text{CPI}_{t-1}}{\text{CPI}_{t-1}} \times 100 $$

Question 1

Which of the following best describes the three methods of calculating Gross Domestic Product (GDP)?

Accepted Answer

The expenditure, income, and output (value-added) approaches.

Question 2

Suppose a country’s GDP is calculated using the expenditure approach as follows: Consumption = $$ \ 500$$ $$ billion, Investment = $$ \$$ 200 $$ billion, Government Spending = $$ \ 150$$ $$ billion, and Net Exports = $$ -\$$ 50 $$ billion. What is the country’s GDP?

Accepted Answer

$$ \ 800$$ $ billion

Question 3

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Purchases of used cars by households

Question 4

During a recession, which of the following macroeconomic variables typically increases?

Accepted Answer

Unemployment rate

Question 5

A representative consumer faces a trade-off between leisure and consumption. If the wage rate increases, which of the following best describes the substitution effect?

Accepted Answer

The consumer substitutes leisure for work, increasing labor supply.

Question 6

In the context of a closed-economy one-period macroeconomic model, which equation correctly represents the equilibrium condition for goods market?

Accepted Answer

$$ Y = C + I + G $$

Question 7

Suppose a government increases its deficit by raising spending without increasing taxes. According to the two-period consumption-savings model, what is the likely effect on private savings?

Accepted Answer

Private savings will increase as households anticipate higher future taxes.

Question 8

Which of the following best explains the impact of credit market imperfections on the economy?

Accepted Answer

They can reduce the efficiency of resource allocation and amplify the effects of financial crises.

Question 9

A firm is deciding how many workers to hire. According to profit maximization, the firm should hire workers up to the point where:

Accepted Answer

The marginal product of labor equals the real wage.

Question 10

In the Solow growth model, which of the following is a key implication of the steady-state equilibrium?

Accepted Answer

In the long run, output per worker grows only if there is technological progress.

Question 11

If the inflation rate is measured using the Consumer Price Index (CPI), which of the following formulas is correct?

Accepted Answer

$$ 	ext{Inflation Rate} = \frac{	ext{CPI}_{t} - 	ext{CPI}_{t-1}}{	ext{CPI}_{t-1}} 	imes 100 $$

Question 12

Which of the following is a distinguishing feature of the Malthusian model of economic growth?

Accepted Answer

Population growth offsets increases in output, keeping per capita income constant in the long run.

Question 13

Suppose the government implements a policy that increases the after-tax return on savings. According to the two-period model, what is the likely effect on current consumption?

Accepted Answer

Current consumption will decrease as households save more for the future.

Question 14

During a financial crisis, which of the following is most likely to occur due to credit market frictions?

Accepted Answer

Firms and households face higher borrowing costs, reducing investment and consumption.

Question 15

Which of the following best describes the income effect of a wage increase on a representative consumer’s labor supply?

Accepted Answer

The consumer may choose to work less because higher income allows more leisure.

Question 16

If a country’s nominal GDP increases by 5% and the GDP deflator increases by 2%, what is the approximate real GDP growth rate?

Accepted Answer

$$ 3\% $$

Question 17

Which of the following is a likely consequence of a persistent government budget deficit in the context of the intertemporal model?

Accepted Answer

Higher future taxes or reduced future government spending will be required to balance the budget.

Question 18

In the real intertemporal model with investment, which of the following shocks would most likely increase both output and the real interest rate in the short run?

Accepted Answer

An increase in total factor productivity (TFP)

Question 19

Which of the following best explains why the Solow model predicts diminishing returns to capital accumulation?

Accepted Answer

As more capital is added, each additional unit of capital adds less to output than the previous unit.

Question 20

Suppose a country experiences a negative productivity shock. According to the one-period macroeconomic model, what is the likely effect on output, employment, and the real wage?

Accepted Answer

Output, employment, and the real wage all decrease.

Intermediate Macroeconomic Theory and Policy I: Course Syllabus and Study Guide

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