Q: Which formula correctly calculates the Consumer Price Index (CPI)?

$ CPI = \frac{\text{Cost of basket in current year}}{\text{Cost of basket in base year}} \times 100 $

Q: Which of the following best describes the GDP deflator?

$ GDP\ deflator = \frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100 $

Question 1

Which of the following best describes the model of perfect competition in macroeconomics?

Accepted Answer

A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit.

Question 2

Suppose the government increases its spending by $100 million. If the marginal propensity to consume (MPC) is 0.8, what is the total increase in GDP according to the simple multiplier model?

Accepted Answer

The multiplier is $ \frac{1}{1-0.8} = 5 $, so the total increase in GDP is $ 100 	imes 5 = 500 $ million.

Question 3

Which of the following is NOT a component of GDP in the expenditure approach?

Accepted Answer

Transfer payments

Question 4

If the actual GDP is below potential GDP, which of the following policies is most appropriate to close the gap?

Accepted Answer

Increase government spending or cut taxes (expansionary fiscal policy)

Question 5

A country experiences a rise in nominal GDP but no change in real GDP. What does this indicate?

Accepted Answer

There has been an increase in the price level but not in actual output.

Question 6

Which formula correctly calculates the Consumer Price Index (CPI)?

Accepted Answer

$ CPI = \frac{	ext{Cost of basket in current year}}{	ext{Cost of basket in base year}} 	imes 100 $

Question 7

Which of the following best explains the difference between frictional and structural unemployment?

Accepted Answer

Frictional unemployment is due to workers changing jobs, while structural unemployment is due to mismatches between workers' skills and job requirements.

Question 8

If the central bank wants to decrease aggregate demand, which of the following actions is most effective?

Accepted Answer

Raising the interest rate

Question 9

Which of the following is a limitation of monetary policy?

Accepted Answer

There may be time lags between policy implementation and its effects on the economy.

Question 10

Suppose the economy is experiencing demand-pull inflation. Which policy would be most appropriate to stabilize prices?

Accepted Answer

Raise interest rates to reduce aggregate demand

Question 11

Which of the following best describes the GDP deflator?

Accepted Answer

$ GDP\ deflator = \frac{	ext{Nominal GDP}}{	ext{Real GDP}} 	imes 100 $

Question 12

If the natural rate of unemployment is 5% and the actual unemployment rate is 8%, what is the cyclical unemployment rate?

Accepted Answer

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

Question 13

Which of the following is most likely to cause cost-push inflation?

Accepted Answer

An increase in wages or raw material prices

Question 14

Which of the following is a function of money?

Accepted Answer

A medium of exchange

Question 15

If the economy is in long-run equilibrium, which statement is true?

Accepted Answer

Actual GDP equals potential GDP.

Question 16

Which of the following best describes the effect of an increase in the money supply on interest rates and investment?

Accepted Answer

Interest rates fall and investment rises.

Question 17

Which of the following is a reason why GDP may not accurately measure economic welfare?

Accepted Answer

GDP does not account for environmental degradation or income distribution.

Question 18

If the marginal propensity to consume (MPC) is 0.75, what is the value of the simple multiplier?

Accepted Answer

$ \frac{1}{1-0.75} = 4 $

Question 19

Which of the following is most likely to shift the aggregate demand curve to the right?

Accepted Answer

An increase in government spending

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