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 unemployment rate is 6%, the labor force is 200 million, and the working-age population is 250 million, what is the labor force participation rate?

$$\frac{200}{250} \times 100 = 80\%$$

Q: If the Consumer Price Index (CPI) was 120 in 2019 and 126 in 2020, what was the inflation rate between 2019 and 2020?

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

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?

$$100 \times 1.5 = 150$$ billion

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

Which of the following best explains why the aggregate demand (AD) curve is downward sloping?

Accepted Answer

Because as the price level rises, the real value of household wealth falls, reducing consumption (wealth effect)

Question 3

If the unemployment rate is 6%, the labor force is 200 million, and the working-age population is 250 million, what is the labor force participation rate?

Accepted Answer

$$\frac{200}{250} 	imes 100 = 80\%$$

Question 4

A country has the following data: Exports = $$500 billion, Imports = 600 $$billion, Consumption = $$2 trillion, Investment = 400 $$billion, Government Purchases = $$700 billion. What is the value of GDP (Y$)?

Accepted Answer

$$Y = C + I + G + NX = 2,000 + 400 + 700 + (500 - 600) = 3,000$$

Question 5

If the Consumer Price Index (CPI) was 120 in 2019 and 126 in 2020, what was the inflation rate between 2019 and 2020?

Accepted Answer

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

Question 6

Which of the following is an example of structural unemployment?

Accepted Answer

A factory worker loses their job because their skills are no longer needed due to automation

Question 7

Suppose the nominal interest rate on a savings account is 4% and the inflation rate is 2%. What is the real interest rate?

Accepted Answer

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

Question 8

If a country’s real GDP grows at 2% per year, approximately how many years will it take for its real GDP to double?

Accepted Answer

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

Question 9

Which of the following would shift the long-run aggregate supply (LRAS) curve to the right?

Accepted Answer

An increase in the capital stock due to higher investment

Question 10

If the Federal Reserve wants to conduct expansionary monetary policy in the ample reserves regime, which tool is most directly used?

Accepted Answer

Lowering the interest rate on reserve balances (IORB)

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

$$100 	imes 1.5 = 150$$ billion

Question 12

Which of the following is NOT included in the M1 measure of the money supply?

Accepted Answer

Small-denomination time deposits

Question 13

A country produces only two goods: apples and bananas. In the base year, 100 apples are sold at $$1 each and 200 bananas at 0.50 $$each. In the current year, 120 apples are sold at $$1.10 each and 220 bananas at 0.55 $$each. What is the real GDP in the current year (using base year prices)?

Accepted Answer

$$120 	imes 1 + 220 	imes 0.5 = 120 + 110 = 230$$

Question 14

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 15

If the actual inflation rate is higher than expected, who is most likely to benefit?

Accepted Answer

Borrowers with fixed-rate loans

Question 16

Suppose the government imposes a quota on imported cars. Compared to a tariff that raises the same price, why is a quota generally considered worse for economic surplus?

Accepted Answer

Quotas generate rents for foreign producers rather than revenue for the government

Question 17

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

Accepted Answer

Unemployment insurance payments that increase during a recession

Question 18

If the money supply is $$2 trillion and the monetary base is 500 $$billion, what is the value of the money multiplier?

Accepted Answer

$$\frac{2,000}{500} = 4$$

Question 19

Country A can produce 10 tons of wheat or 5 tons of steel per day. Country B can produce 8 tons of wheat or 4 tons of steel per day. Which country has the comparative advantage in steel?

Accepted Answer

Country A, because it gives up less wheat per ton of steel

Question 20

Which of the following best describes the crowding-out effect?

Accepted Answer

Government borrowing increases interest rates, reducing private investment

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