Q: Suppose the nominal GDP in 2025 is $$ \22$$,000 $$ billion and the real GDP is $$ \$$20,000 $$ billion. What is the GDP deflator for 2025?

$$ \frac{22,000}{20,000} \times 100 = 110 $$

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

$$ \frac{8}{160} \times 100 = 5\% $$

Q: If the cost of a fixed basket of goods in the base year is $$ \500$$ $$ and in the current year is $$ \$$550 $$, what is the Consumer Price Index (CPI) for the current year?

$$ \frac{550}{500} \times 100 = 110 $$

Q: Suppose the CPI in 2024 is 120 and in 2025 is 126. What is the inflation rate from 2024 to 2025?

$$ \frac{126 - 120}{120} \times 100 = 5\% $$

Q: Suppose the government increases its purchases by $$ \100$$ $$ million in a closed economy with an MPC of 0.75$. By how much will equilibrium output increase?

$$ \frac{1}{1 - 0.75} \times 100 = 400 $$ million

Q: If the labor force is 200 million and the working-age population is 250 million, what is the labor force participation rate?

$$ \frac{200}{250} \times 100 = 80\% $$

Question 1

Which of the following transactions would be included in the calculation of a country's Gross Domestic Product (GDP) for the current year?

Accepted Answer

A new car produced and sold by a domestic manufacturer to a foreign buyer.

Question 2

Suppose the nominal GDP in 2025 is $$ \22$$,000 $$ billion and the real GDP is $$ \$$20,000 $$ billion. What is the GDP deflator for 2025?

Accepted Answer

$$ \frac{22,000}{20,000} 	imes 100 = 110 $$

Question 3

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

Accepted Answer

$$ \frac{8}{160} 	imes 100 = 5\% $$

Question 4

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 uses base year prices.

Question 5

If the cost of a fixed basket of goods in the base year is $$ \500$$ $$ and in the current year is $$ \$$550 $$, what is the Consumer Price Index (CPI) for the current year?

Accepted Answer

$$ \frac{550}{500} 	imes 100 = 110 $$

Question 6

Suppose the CPI in 2024 is 120 and in 2025 is 126. What is the inflation rate from 2024 to 2025?

Accepted Answer

$$ \frac{126 - 120}{120} 	imes 100 = 5\% $$

Question 7

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

Accepted Answer

Purchases of stocks and bonds by households.

Question 8

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

Accepted Answer

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

Question 9

Suppose the government increases its purchases by $$ \100$$ $$ million in a closed economy with an MPC of 0.75$. By how much will equilibrium output increase?

Accepted Answer

$$ \frac{1}{1 - 0.75} 	imes 100 = 400 $$ million

Question 10

Which of the following best describes the IS relation in a closed economy?

Accepted Answer

$$ S = I $$, where saving equals investment at equilibrium output.

Question 11

If the labor force is 200 million and the working-age population is 250 million, what is the labor force participation rate?

Accepted Answer

$$ \frac{200}{250} 	imes 100 = 80\% $$

Question 12

Which of the following would cause the equilibrium interest rate to decrease in the money market?

Accepted Answer

An increase in the money supply by the central bank.

Question 13

If the central bank conducts an expansionary open market operation, what is the immediate effect on the central bank's balance sheet?

Accepted Answer

Assets increase and liabilities increase.

Question 14

Which of the following best explains why banks may want to hold reserves?

Accepted Answer

To meet withdrawal demands and regulatory requirements.

Question 15

Suppose the demand for money is given by $$ Md = 0.25Y - 100i $$, where $$ Y  is $$income and $$ i  is $$the interest rate. If $$ Y = 4000 $$ and the central bank sets the money supply at $$ 800 $$, what is the equilibrium interest rate?

Accepted Answer

$$ 0.25 	imes 4000 - 100i = 800 \Rightarrow 1000 - 100i = 800 \Rightarrow 100i = 200 \Rightarrow i = 2 $$

Question 16

Which of the following best describes a liquidity trap?

Accepted Answer

A situation where the nominal interest rate is at or near zero, making monetary policy ineffective.

Question 17

If the marginal propensity to save (MPS) is $$0.2$$, what is the marginal propensity to consume (MPC)?

Accepted Answer

$$ 1 - 0.2 = 0.8 $$

Question 18

Which of the following is an example of disinflation?

Accepted Answer

The inflation rate falls from 6\% to 3\%.

Question 19

Suppose the working-age population is 300 million, the labor force is 180 million, and the number of employed people is 162 million. What is the employment-population ratio?

Accepted Answer

$$ \frac{162}{300} 	imes 100 = 54\% $$

Macroeconomics Exam 1 Study Guide: Measuring Economic Activity, Goods Market, and Financial Markets

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