Q: Given the following data from the land of milk and honey, calculate nominal GDP for 2017. Use the formula $$GDP = \sum (P_i \times Q_i)$$, where $$P_i is $$price and $$Q_i is $$quantity for each good.

$$GDP_{2017} = (1 \times 200) + (2 \times 100) = 200 + 200 = 400$$

Q: Using 2016 as the base year, calculate real GDP for 2018. Use the formula $$Real\ GDP = \sum (P_{base} \times Q_{current}).$$

$$Real\ GDP_{2018} = (1 \times 200) + (2 \times 100) = 200 + 200 = 400$$

Q: What is the GDP deflator for 2018, using 2016 as the base year? Use the formula $$GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100.$$

$$GDP\ Deflator_{2018} = \frac{800}{400} \times 100 = 200$$

Q: Using the GDP data, calculate the percentage change in real GDP from 2017 to 2018. Use the formula $$\frac{Real\ GDP_{2018} - Real\ GDP_{2017}}{Real\ GDP_{2017}} \times 100.$$

$$\frac{400 - 400}{400} \times 100 = 0\%$$

Question 1

In 2001, an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What is the most likely immediate effect on the supply curve for leather goods?

Accepted Answer

The supply curve for leather goods shifts to the left, decreasing supply.

Question 2

Given the following data from the land of milk and honey, calculate nominal GDP for 2017. Use the formula $$GDP = \sum (P_i 	imes Q_i)$$, where $$P_i is $$price and $$Q_i is $$quantity for each good.

Accepted Answer

$$GDP_{2017} = (1 	imes 200) + (2 	imes 100) = 200 + 200 = 400$$

Question 3

Using 2016 as the base year, calculate real GDP for 2018. Use the formula $$Real\ GDP = \sum (P_{base} 	imes Q_{current}).$$

Accepted Answer

$$Real\ GDP_{2018} = (1 	imes 200) + (2 	imes 100) = 200 + 200 = 400$$

Question 4

What is the GDP deflator for 2018, using 2016 as the base year? Use the formula $$GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100.$$

Accepted Answer

$$GDP\ Deflator_{2018} = \frac{800}{400} 	imes 100 = 200$$

Question 5

If the price of milk doubles from 2016 to 2018, but the quantity remains the same, what happens to nominal GDP and real GDP?

Accepted Answer

Nominal GDP increases, but real GDP remains unchanged.

Question 6

Which event would decrease the unemployment rate, according to the scenarios provided?

Accepted Answer

Jon finds a job after a long search.

Question 7

Suppose the supply of cattle hides decreases due to disease. What is the most likely effect on the equilibrium price of leather goods?

Accepted Answer

The equilibrium price of leather goods will increase.

Question 8

If Arya gives up looking for a job and retires, what is the effect on the labor force participation rate?

Accepted Answer

The labor force participation rate decreases.

Question 9

Using the GDP data, calculate the percentage change in real GDP from 2017 to 2018. Use the formula $$\frac{Real\ GDP_{2018} - Real\ GDP_{2017}}{Real\ GDP_{2017}} 	imes 100.$$

Accepted Answer

$$\frac{400 - 400}{400} 	imes 100 = 0\%$$

Question 10

If Jaime becomes an adult and starts looking for a job, what is the effect on the unemployment rate?

Accepted Answer

The unemployment rate increases.

Question 11

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

Accepted Answer

Nominal GDP is measured using current prices, while real GDP is measured using constant base-year prices.

Question 12

If the GDP deflator increases from one year to the next, what does this indicate?

Accepted Answer

The overall price level in the economy has increased.

Question 13

Suppose the price of honey quadruples from 2016 to 2018, but the quantity remains the same. What is the effect on the GDP deflator?

Accepted Answer

The GDP deflator increases.

Question 14

If Cersei dies while enjoying retirement, what is the effect on the unemployment rate?

Accepted Answer

There is no effect on the unemployment rate.

Question 15

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

The value of intermediate goods used in production.

Question 16

If the supply of cattle hides decreases, what is the likely effect on the price of cattle hides and the supply of leather goods?

Accepted Answer

The price of cattle hides increases, and the supply of leather goods decreases.

Question 17

Which scenario would have no effect on the unemployment rate?

Accepted Answer

Tyrion is employed and continues working.

Question 18

If the GDP deflator in 2017 is 100 and in 2018 is 200, what does this imply about the price level?

Accepted Answer

The price level doubled from 2017 to 2018.

Question 19

If the quantity of milk produced doubles from 2016 to 2017, but the price remains the same, what happens to real GDP?

Accepted Answer

Real GDP increases.

Question 20

Which of the following best explains why real GDP is a better measure of economic well-being than nominal GDP?

Accepted Answer

Real GDP accounts for changes in the price level, allowing for comparison of output across years.

Macroeconomics Exam 1 Practice Questions: Demand, GDP, and Unemployment

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