Q: Suppose a country produces only three goods: cars, computers, and bread. In 2022, the quantities and prices are as follows: 100 cars at $$20,000 each, 200 computers at 1$$,000 each, and 10,000 loaves of bread at $$2 each. In 2023, the quantities are the same, but prices rise to 22$$,000 per car, $$1,100 per computer, and 2.20 $$per loaf of bread. What is the GDP deflator for 2023, using 2022 as the base year?

$$\frac{\text{Nominal GDP}_{2023}}{\text{Real GDP}_{2023}} \times 100 = \frac{2,200,000 + 220,000 + 22,000}{2,000,000 + 200,000 + 20,000} \times 100 = \frac{2,442,000}{2,220,000} \times 100 \approx 110$$

Q: If the Consumer Price Index (CPI) was 120 in 2021 and 126 in 2022, what was the inflation rate between 2021 and 2022?

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

Q: A country has a population of 100 million. 60 million are in the labor force, and 54 million are employed. What is the unemployment rate?

$$\frac{6\text{ million}}{60\text{ million}} \times 100 = 10\%$$

Question 1

Suppose a country produces only three goods: cars, computers, and bread. In 2022, the quantities and prices are as follows: 100 cars at $$20,000 each, 200 computers at 1$$,000 each, and 10,000 loaves of bread at $$2 each. In 2023, the quantities are the same, but prices rise to 22$$,000 per car, $$1,100 per computer, and 2.20 $$per loaf of bread. What is the GDP deflator for 2023, using 2022 as the base year?

Accepted Answer

$$\frac{	ext{Nominal GDP}_{2023}}{	ext{Real GDP}_{2023}} 	imes 100 = \frac{2,200,000 + 220,000 + 22,000}{2,000,000 + 200,000 + 20,000} 	imes 100 = \frac{2,442,000}{2,220,000} 	imes 100 \approx 110$$

Question 2

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

Accepted Answer

The value of intermediate goods used in production

Question 3

If the Consumer Price Index (CPI) was 120 in 2021 and 126 in 2022, what was the inflation rate between 2021 and 2022?

Accepted Answer

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

Question 4

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment due to a mismatch between workers’ skills and the skills needed for available jobs

Question 5

A country has a population of 100 million. 60 million are in the labor force, and 54 million are employed. What is the unemployment rate?

Accepted Answer

$$\frac{6	ext{ million}}{60	ext{ million}} 	imes 100 = 10\%$$

Question 6

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

Accepted Answer

GDP does not account for the value of leisure time

Question 7

If nominal GDP grows by 8% and the GDP deflator increases by 5%, what is the approximate real GDP growth rate?

Accepted Answer

$$8\% - 5\% = 3\%$$

Question 8

Which of the following best explains the 'wealth effect' as a reason for the downward slope of the aggregate demand curve?

Accepted Answer

As the price level falls, the real value of household wealth increases, leading to higher consumption

Question 9

Suppose the government runs a budget deficit. According to the loanable funds model, what is the likely effect on the real interest rate and investment?

Accepted Answer

The real interest rate rises and investment falls

Question 10

If the labor force participation rate increases while the unemployment rate remains unchanged, what must be true?

Accepted Answer

The number of people in the labor force has increased

Question 11

Which of the following is an example of a 'menu cost' associated with inflation?

Accepted Answer

A restaurant must print new menus to reflect higher prices

Question 12

If the nominal interest rate is 7% and the inflation rate is 3%, what is the real interest rate?

Accepted Answer

$$7\% - 3\% = 4\%$$

Question 13

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

Accepted Answer

An increase in the capital stock due to foreign investment

Question 14

According to the Rule of 70, how many years will it take for an economy growing at 2% per year to double its real GDP?

Accepted Answer

$$\frac{70}{2} = 35$$ years

Question 15

Which of the following best describes 'creative destruction'?

Accepted Answer

The process by which new products and technologies replace old ones, leading to economic growth

Question 16

If a country’s GDP per capita increases but its population grows faster than its GDP, what happens to GDP per capita?

Accepted Answer

GDP per capita decreases

Question 17

Which of the following is a likely effect of an adverse supply shock (such as a sudden increase in oil prices) in the short run?

Accepted Answer

Higher price level and lower output (stagflation)

Question 18

Which of the following is a reason why the CPI may overstate the true rate of inflation?

Accepted Answer

It does not account for substitution between goods when prices change

Question 19

If the aggregate demand curve shifts to the right while the short-run aggregate supply curve remains unchanged, what is the likely short-run effect on output and the price level?

Accepted Answer

Output increases and the price level increases

Question 20

Which of the following best describes the S=I relationship in a closed economy?

Accepted Answer

National saving equals investment: $$S = I$$

Macroeconomics Study Guide: Business Cycles, GDP, Unemployment, Inflation, Economic Growth, and AD-AS Model

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