Q: Suppose the nominal GDP of a country in 2020 is $$20 trillion, and the real GDP (in 2012 dollars) is 18 $$trillion. What is the GDP deflator for 2020?

$$\frac{20}{18} \times 100 = 111.1$$

Q: If the Consumer Price Index (CPI) was 200 in 2010 and 220 in 2011, what was the inflation rate between 2010 and 2011?

$$\frac{220 - 200}{200} \times 100 = 10\%$$

Q: A country has 150 million employed workers, 10 million unemployed workers, and a working-age population of 200 million. What is the labor force participation rate?

$$\frac{160}{200} \times 100 = 80\%$$

Q: Suppose the government increases its purchases by $100 billion, and the government purchases multiplier is 1.5. By how much will real GDP increase, all else equal?

$$100 \text{ billion} \times 1.5 = 150 \text{ billion}$$

Q: If the required reserve ratio is 10%, what is the maximum potential increase in the money supply from a new deposit of $1,000?

$$\frac{1}{0.10} \times 1,000 = 10,000$$

Question 1

Suppose the nominal GDP of a country in 2020 is $$20 trillion, and the real GDP (in 2012 dollars) is 18 $$trillion. What is the GDP deflator for 2020?

Accepted Answer

$$\frac{20}{18} 	imes 100 = 111.1$$

Question 2

If the Consumer Price Index (CPI) was 200 in 2010 and 220 in 2011, what was the inflation rate between 2010 and 2011?

Accepted Answer

$$\frac{220 - 200}{200} 	imes 100 = 10\%$$

Question 3

Which of the following best describes structural unemployment?

Accepted Answer

Unemployment caused by a mismatch between workers’ skills and the requirements of available jobs.

Question 4

A country has 150 million employed workers, 10 million unemployed workers, and a working-age population of 200 million. What is the labor force participation rate?

Accepted Answer

$$\frac{160}{200} 	imes 100 = 80\%$$

Question 5

If the nominal interest rate is 6% and the inflation rate is 4%, what is the real interest rate?

Accepted Answer

$$6\% - 4\% = 2\%$$

Question 6

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 7

Suppose the money supply is $$2 trillion and the monetary base is 0.5 $$trillion. What is the value of the money multiplier?

Accepted Answer

$$\frac{2}{0.5} = 4$$

Question 8

If the growth rate of the money supply is 8% and the growth rate of real output is 3%, what does the quantity theory of money predict for the inflation rate?

Accepted Answer

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

Question 9

Which of the following would cause a rightward shift in the aggregate demand (AD) curve?

Accepted Answer

A decrease in personal income taxes

Question 10

Why is the long-run aggregate supply (LRAS) curve vertical?

Accepted Answer

Because in the long run, output is determined by resources and technology, not by the price level.

Question 11

Suppose the government increases its purchases by $100 billion, and the government purchases multiplier is 1.5. By how much will real GDP increase, all else equal?

Accepted Answer

$$100 	ext{ billion} 	imes 1.5 = 150 	ext{ billion}$$

Question 12

If a country can produce either 10 units of good A or 20 units of good B with all its resources, what is the opportunity cost of producing one unit of good A?

Accepted Answer

2 units of good B

Question 13

Which of the following is an example of an automatic stabilizer?

Accepted Answer

Unemployment insurance payments

Question 14

If the required reserve ratio is 10%, what is the maximum potential increase in the money supply from a new deposit of $1,000?

Accepted Answer

$$\frac{1}{0.10} 	imes 1,000 = 10,000$$

Question 15

During a recession, which of the following typically occurs?

Accepted Answer

Real GDP decreases and unemployment increases

Question 16

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 rises, leading to higher consumption.

Question 17

If the unemployment rate is 5%, the labor force is 100 million, and the working-age population is 150 million, how many people are unemployed?

Accepted Answer

$$0.05 	imes 100 	ext{ million} = 5 	ext{ million}$$

Question 18

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

Accepted Answer

GDP does not account for the value of household production or the underground economy.

Question 19

If the price level in 2010 is 120 and in 2020 is 180, and a worker earned $30,000 in 2010, what is the equivalent amount in 2020 dollars?

Accepted Answer

$$30,000 	imes \frac{180}{120} = 45,000$$

Question 20

Which of the following would be considered a supply shock that shifts the short-run aggregate supply (SRAS) curve to the left?

Accepted Answer

A sudden increase in oil prices

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