Q: Suppose the GDP deflator in Year 1 is 120 and in Year 2 is 132. What is the inflation rate between these two years? Use the formula $$ \text{Inflation Rate} = \frac{\text{Deflator Year 2} - \text{Deflator Year 1}}{\text{Deflator Year 1}} \times 100 .$$

$$ \frac{132 - 120}{120} \times 100 = 10\% $$

Q: If nominal GDP is $$1,000$$ and the GDP deflator is $$125$$, what is real GDP? Use the formula $$ \text{Real GDP} = \frac{\text{Nominal GDP}}{\text{GDP Deflator}} \times 100 .$$

$$ \frac{1,000}{125} \times 100 = 800 $$

Q: A country has a population of 300 million, of which 200 million are in the adult civilian non-institutional population. If 130 million are employed and 10 million are unemployed, what is the labor force participation rate? Use $$ \text{Labor Force Participation Rate} = \frac{\text{Labor Force}}{\text{Adult Population}} \times 100 .$$

$$ \frac{140}{200} \times 100 = 70\% $$

Question 1

Which of the following best describes the 'shoe leather costs' of inflation?

Accepted Answer

The resources wasted when people reduce their money holdings to avoid the inflation tax.

Question 2

Suppose the GDP deflator in Year 1 is 120 and in Year 2 is 132. What is the inflation rate between these two years? Use the formula $$ 	ext{Inflation Rate} = \frac{	ext{Deflator Year 2} - 	ext{Deflator Year 1}}{	ext{Deflator Year 1}} 	imes 100 .$$

Accepted Answer

$$ \frac{132 - 120}{120} 	imes 100 = 10\% $$

Question 3

If nominal GDP is $$1,000$$ and the GDP deflator is $$125$$, what is real GDP? Use the formula $$ 	ext{Real GDP} = \frac{	ext{Nominal GDP}}{	ext{GDP Deflator}} 	imes 100 .$$

Accepted Answer

$$ \frac{1,000}{125} 	imes 100 = 800 $$

Question 4

Which of the following is NOT a type of unemployment described in the materials?

Accepted Answer

Permanent unemployment

Question 5

A country has a population of 300 million, of which 200 million are in the adult civilian non-institutional population. If 130 million are employed and 10 million are unemployed, what is the labor force participation rate? Use $$ 	ext{Labor Force Participation Rate} = \frac{	ext{Labor Force}}{	ext{Adult Population}} 	imes 100 .$$

Accepted Answer

$$ \frac{140}{200} 	imes 100 = 70\% $$

Question 6

Which of the following best explains why inflation can lead to arbitrary redistributions of wealth?

Accepted Answer

Because unexpected inflation benefits borrowers at the expense of lenders.

Question 7

If the nominal interest rate on a loan is 7% and the inflation rate is 2%, what is the real interest rate? Use $$ 	ext{Real Interest Rate} = 	ext{Nominal Interest Rate} - 	ext{Inflation Rate} .$$

Accepted Answer

$$ 7\% - 2\% = 5\% $$

Question 8

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

Accepted Answer

The cost to businesses of frequently changing their posted prices.

Question 9

Suppose a country’s real GDP grows at 3.5% per year. According to the Rule of 70, approximately how many years will it take for real GDP to double? Use $$ 	ext{Years to Double} = \frac{70}{	ext{Growth Rate}} .$$

Accepted Answer

$$ \frac{70}{3.5} = 20 $$ years

Question 10

Which of the following policies is most likely to reduce structural unemployment?

Accepted Answer

Implementing job training programs.

Question 11

If the price of a good in 2024 is $$10 and the quantity sold is 500 units, what is the nominal value of sales for that good in 2024? Use $$ 	ext{Nominal Value} = 	ext{Price} 	imes 	ext{Quantity} $.

Accepted Answer

$$ 10 	imes 500 = 5,000 $$

Question 12

Which of the following is a direct consequence of cyclical unemployment?

Accepted Answer

It rises during economic recessions and falls during expansions.

Question 13

If a country’s real GDP per capita increases by 2% and its population grows by 1%, what is the growth rate of real GDP?

Accepted Answer

3%

Question 14

Which of the following best explains why economic growth is important for improving quality of life?

Accepted Answer

It is the ultimate determinant of variables such as nutrition, literacy, and life expectancy.

Question 15

If the GDP deflator in 2023 is 110 and nominal GDP is $$2,200$$, what is real GDP? Use $$ 	ext{Real GDP} = \frac{	ext{Nominal GDP}}{	ext{GDP Deflator}} 	imes 100 .$$

Accepted Answer

$$ \frac{2,200}{110} 	imes 100 = 2,000 $$

Question 16

Which of the following is a likely effect of an increase in the minimum wage above the equilibrium wage?

Accepted Answer

An increase in unemployment among low-skilled workers.

Question 17

If a country’s nominal GDP increases by 5% and the GDP deflator increases by 2%, what is the approximate growth rate of real GDP?

Accepted Answer

3%

Question 18

Which of the following best describes frictional unemployment?

Accepted Answer

Unemployment due to workers transitioning between jobs.

Question 19

If the adult civilian non-institutional population is 250 million, the labor force is 150 million, and 10 million are unemployed, what is the unemployment rate? Use $$ 	ext{Unemployment Rate} = \frac{	ext{Unemployed}}{	ext{Labor Force}} 	imes 100 .$$

Accepted Answer

$$ \frac{10}{150} 	imes 100 = 6.67\% $$

Macroeconomics Study Notes: Inflation, Unemployment, GDP, and Economic Growth

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