$$\frac{250-240}{240} \times 100 = 4.17\%$$

$$\frac{10}{200} \times 100 = 5\%$$

$$\frac{110-100}{100} \times 100 = 10\%$$

$$\frac{150}{250} \times 100 = 60\%$$

Question 1

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

Accepted Answer

Nominal GDP measures the value of all final goods and services at current prices, while real GDP measures them at constant base-year prices.

Question 2

Given the GDP deflator formula $$GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100$$, what does a GDP deflator value of 120 indicate?

Accepted Answer

Nominal GDP is 20% higher than real GDP, indicating a 20% increase in the overall price level since the base year.

Question 3

If the CPI in 2020 is 250 and the CPI in 2019 is 240, what is the inflation rate for 2020?

Accepted Answer

$$\frac{250-240}{240} 	imes 100 = 4.17\%$$

Question 4

Which of the following is a limitation of the GDP deflator as a measure of inflation?

Accepted Answer

It includes non-consumer products like defense equipment and factory machinery, making it less representative of everyday cost-of-living changes.

Question 5

Which bias in the CPI arises because consumers switch to cheaper alternatives when prices of certain goods rise?

Accepted Answer

Substitution bias

Question 6

Suppose the labor force in a country is 200 million and 10 million people are unemployed. What is the unemployment rate?

Accepted Answer

$$\frac{10}{200} 	imes 100 = 5\%$$

Question 7

Why might the official unemployment rate decrease during a severe recession, even if the economy is not improving?

Accepted Answer

Because discouraged workers stop looking for work and are no longer counted as unemployed.

Question 8

Which of the following best explains the relationship between GDP and total income in an economy?

Accepted Answer

GDP equals total income because every expenditure on final goods and services becomes income for someone else.

Question 9

If the GDP deflator was 100 in 2010 and 110 in 2020, what was the cumulative inflation rate over this period?

Accepted Answer

$$\frac{110-100}{100} 	imes 100 = 10\%$$

Question 10

Which index is most appropriate for measuring the change in the cost of living for a typical household?

Accepted Answer

Consumer Price Index (CPI)

Question 11

A country’s working-age population is 250 million, and its labor force is 150 million. What is the labor force participation rate?

Accepted Answer

$$\frac{150}{250} 	imes 100 = 60\%$$

Question 12

Which of the following is a key difference between the CPI and the GDP deflator?

Accepted Answer

The CPI uses a fixed basket of goods, while the GDP deflator uses current production weights.

Question 13

If the PPI rises sharply before the CPI, what is the most likely implication for the economy?

Accepted Answer

Producer prices are rising, which may signal future increases in consumer prices (CPI).

Question 14

In the Silicon & Computers example, why is only the value of final goods (computers) included in GDP, not the value of silicon as well?

Accepted Answer

To avoid double counting, as the value of silicon is already included in the value of the final good (computers).

Question 15

Which of the following is NOT a bias associated with the CPI?

Accepted Answer

Base year bias

Question 16

If a country’s real GDP increases but its nominal GDP remains constant, what must be happening to the overall price level?

Accepted Answer

The overall price level is falling (deflation).

Question 17

Which of the following best describes the cancellation principle in national income accounting?

Accepted Answer

Every cost incurred by one economic agent becomes an exact source of income for another agent.

Question 18

Which of the following would NOT be included in the calculation of the U.S. unemployment rate?

Accepted Answer

A full-time student not looking for work.

Question 19

If the cost of a fixed basket of goods was $$200 in the base year and 260 $$this year, what is the CPI for this year?

Accepted Answer

$$\frac{260}{200} 	imes 100 = 130$$

Macroeconomics: GDP, Price Levels, Inflation, and Unemployment – Core Concepts and Measurement

Study Guide - Practice Questions