Q: If the Consumer Price Index (CPI) was 200 last year and is 210 this year, what is the annual inflation rate?

$$\frac{210-200}{200} \times 100 = 5\%$$

Question 1

Which of the following best describes the Law of Comparative Advantage?

Accepted Answer

It states that a country should specialize in producing goods for which it has the lowest opportunity cost and trade for others.

Question 2

Suppose the U.S. can produce either 4,800 computers or 1,600 textiles, and the Philippines can produce either 1,500 computers or 1,500 textiles. What is the opportunity cost of producing one textile in the U.S.?

Accepted Answer

$$3$$ computers

Question 3

Which of the following is NOT included in the calculation of a country’s Gross Domestic Product (GDP)?

Accepted Answer

The value of intermediate goods used in production

Question 4

If the Consumer Price Index (CPI) was 200 last year and is 210 this year, what is the annual inflation rate?

Accepted Answer

$$\frac{210-200}{200} 	imes 100 = 5\%$$

Question 5

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

Accepted Answer

A technological innovation that reduces production costs

Question 6

If the price of used cars increases due to a decrease in the supply of leased vehicles returning to the market, what is the most likely effect on the equilibrium price and quantity of used cars?

Accepted Answer

Equilibrium price rises, equilibrium quantity falls

Question 7

Which of the following best explains why bond prices and yields move in opposite directions?

Accepted Answer

When bond prices rise, the fixed coupon payment represents a smaller percentage return, so yields fall.

Question 8

A country’s production possibilities frontier (PPF) shifts outward. Which of the following could explain this change?

Accepted Answer

A technological innovation that increases productivity

Question 9

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker whose job is replaced by automation and who lacks the skills for new jobs

Question 10

If nominal GDP increases from $$19.2$$ trillion to $$20.4$$ trillion, but the price level (GDP deflator) increases by $$6.2\%$$, what is the approximate real GDP growth rate?

Accepted Answer

$$4.2\%$$

Question 11

Which of the following is a limitation of using GDP as a measure of economic well-being?

Accepted Answer

GDP does not account for the distribution of income among residents of a country.

Question 12

Suppose the labor force participation rate (LFPR) increases due to more women entering the workforce. What is the likely effect on a nation’s productive capacity?

Accepted Answer

Productive capacity increases

Question 13

Which of the following best describes the 'invisible hand' as discussed by Adam Smith?

Accepted Answer

Self-interested individuals, acting in competitive markets, unintentionally promote the social good.

Question 14

If the unemployment rate falls from $$6.7\% to$$ $$6.3\%$$ because more people drop out of the labor force, what does this indicate about the labor market?

Accepted Answer

The labor market may not be improving, as the decline is due to discouraged workers leaving the labor force.

Question 15

Which of the following would be considered a 'normal good' in the context of demand?

Accepted Answer

A good for which demand increases as income increases

Question 16

Which of the following equations correctly represents the relationship between nominal interest rate, real interest rate, and inflation rate (Fisher Equation)?

Accepted Answer

$$i = r + \pi$$

Question 17

A country’s GDP per capita increases, but its income distribution becomes more unequal. What does this imply about the country’s economic well-being?

Accepted Answer

Average income is rising, but not everyone is necessarily better off.

Question 18

Which of the following is an example of a positive economic statement?

Accepted Answer

"An increase in the minimum wage will lead to higher unemployment among teenagers."

Question 19

If a country’s real GDP increases while its population remains constant, what happens to real GDP per capita?

Accepted Answer

It increases

Question 20

Which of the following is most likely to cause cyclical unemployment?

Accepted Answer

A recession that reduces overall demand for goods and services

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