Q: Which of the following equations correctly represents the relationship between nominal GDP, real GDP, and the GDP deflator?

$\text{Nominal GDP} = \text{Real GDP} \times \frac{\text{GDP Deflator}}{100}$

Question 1

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

Accepted Answer

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

Question 2

Suppose the market for coffee is in equilibrium. If a frost destroys a large portion of the coffee crop, what is the most likely immediate effect on the equilibrium price and quantity of coffee?

Accepted Answer

Price increases, quantity decreases.

Question 3

If the marginal propensity to consume (MPC) is 0.8, what is the value of the simple spending multiplier?

Accepted Answer

$\frac{1}{1-0.8} = 5$

Question 4

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

Accepted Answer

Purchases of stocks and bonds

Question 5

If the unemployment rate is 6%, the labor force is 150 million, and the number of unemployed people is 9 million, what is the number of employed people?

Accepted Answer

141 million

Question 6

Which of the following best explains why the aggregate demand curve is downward sloping?

Accepted Answer

As the price level rises, the purchasing power of money falls, leading to a decrease in the quantity of goods and services demanded.

Question 7

Suppose the government increases its spending by $100 billion. If the marginal propensity to consume is 0.75, by how much will equilibrium GDP increase, assuming no crowding out?

Accepted Answer

$400$ billion

Question 8

Which of the following would cause a rightward shift in the short-run aggregate supply (SRAS) curve?

Accepted Answer

A decrease in nominal wages

Question 9

If the Federal Reserve wants to decrease the money supply, which of the following actions should it take?

Accepted Answer

Sell government securities in the open market

Question 10

Which of the following best describes the crowding-out effect?

Accepted Answer

Government borrowing increases interest rates, which reduces private investment.

Question 11

Suppose the economy is experiencing a recessionary gap. Which fiscal policy would be most appropriate to close the gap?

Accepted Answer

Increase government spending and/or decrease taxes

Question 12

If the nominal GDP in 2020 is $20 trillion and the GDP deflator is 125, what is the real GDP for 2020?

Accepted Answer

$16$ trillion

Question 13

Which of the following is an example of structural unemployment?

Accepted Answer

A worker loses their job because their skills are no longer needed due to technological change.

Question 14

According to the quantity theory of money, if the money supply increases by 10% and velocity and real output remain constant, what happens to the price level?

Accepted Answer

It increases by 10%.

Question 15

Which of the following would be considered an automatic stabilizer in fiscal policy?

Accepted Answer

Unemployment insurance benefits

Question 16

If the long-run aggregate supply (LRAS) curve shifts to the right, which of the following is most likely to occur?

Accepted Answer

Potential output increases

Question 17

Suppose the economy is at full employment and the government increases spending without raising taxes. According to the AS/AD model, what is the most likely short-run effect?

Accepted Answer

An increase in the price level (inflation)

Question 18

Which of the following equations correctly represents the relationship between nominal GDP, real GDP, and the GDP deflator?

Accepted Answer

$	ext{Nominal GDP} = 	ext{Real GDP} 	imes \frac{	ext{GDP Deflator}}{100}$

Question 19

If the required reserve ratio is 10%, what is the maximum potential increase in the money supply from a new deposit of $1,000?

Accepted Answer

$10,000$

Question 20

Which of the following best describes the Phillips Curve in the short run?

Accepted Answer

There is an inverse relationship between inflation and unemployment.

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