Q: Suppose a country’s nominal GDP in 2022 is \$$5,000 billion and its real GDP (in 2022 base-year prices) is \4$$,000 billion. What is the GDP deflator for 2022?

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{5,000}{4,000} \times 100 = 125$$

Q: A student is deciding between spending 3 hours studying for an exam or working at a job that pays \$15 per hour. If the student chooses to study, what is the opportunity cost of this decision?

$$Opportunity\ cost = 3\ hours \times \15/$$hour = \$$45$$

Q: If the price index (CPI) was 120 last year and 132 this year, what is the inflation rate?

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

Question 1

Which of the following best illustrates the concept of opportunity cost?

Accepted Answer

Choosing to attend a concert instead of working an extra hour at your job, where the opportunity cost is the wage you forgo.

Question 2

Suppose a country’s nominal GDP in 2022 is \$$5,000 billion and its real GDP (in 2022 base-year prices) is \4$$,000 billion. What is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{5,000}{4,000} 	imes 100 = 125$$

Question 3

A student is deciding between spending 3 hours studying for an exam or working at a job that pays \$15 per hour. If the student chooses to study, what is the opportunity cost of this decision?

Accepted Answer

$$Opportunity\ cost = 3\ hours 	imes \15/$$hour = \$$45$$

Question 4

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Household purchases of used cars

Question 5

If the price index (CPI) was 120 last year and 132 this year, what is the inflation rate?

Accepted Answer

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

Question 6

Which of the following scenarios best demonstrates the difference between correlation and causation?

Accepted Answer

A study finds that ice cream sales and drowning incidents both increase in summer, but eating ice cream does not cause drowning.

Question 7

Suppose the market for apples is perfectly competitive. If the price of apples rises, what is the most likely immediate effect?

Accepted Answer

Quantity demanded decreases, causing a movement along the demand curve.

Question 8

A country has the following data for a given year: Consumption (C) = \$$2,000 billion, Investment (I) = \500 $$billion, Government spending (G) = \$$800 billion, Exports (X) = \400 $$billion, Imports (M) = \$600 billion. What is the country’s GDP using the expenditure approach?

Accepted Answer

$$GDP = C + I + G + X - M = 2,000 + 500 + 800 + 400 - 600 = \3$$,100\ billion$

Question 9

Which of the following would cause a rightward shift in the demand curve for electric cars?

Accepted Answer

An increase in consumer income, assuming electric cars are normal goods

Question 10

If a firm’s sales revenue is \$$1,000,000 and its purchases of intermediate products are \600$$,000, what is its value added?

Accepted Answer

$$Value\ added = Sales\ revenue - Purchases\ of\ intermediate\ products = 1,000,000 - 600,000 = \400$$,000$

Question 11

Which of the following is an example of a positive economic statement?

Accepted Answer

"Raising the minimum wage will increase unemployment among teenagers."

Question 12

Suppose the CPI basket includes only bread and milk. In the base year, bread costs \$$2 (quantity 100) and milk costs \3 ($$quantity 50). In the current year, bread costs \$$3 and milk costs \4. $$What is the CPI for the current year (base year = 100)?

Accepted Answer

$$CPI = \frac{(3 	imes 100) + (4 	imes 50)}{(2 	imes 100) + (3 	imes 50)} 	imes 100 = \frac{300 + 200}{200 + 150} 	imes 100 = \frac{500}{350} 	imes 100 \approx 143$$

Question 13

If the labor force is 200 million and 10 million people are unemployed, what is the unemployment rate?

Accepted Answer

$$Unemployment\ rate = \frac{10\ million}{200\ million} 	imes 100 = 5\%$$

Question 14

Which of the following is a direct cost, not an indirect cost, for a student attending college?

Accepted Answer

Tuition fees paid to the university

Question 15

If the price of a complement to good X increases, what is the likely effect on the demand for good X?

Accepted Answer

The demand for good X decreases, shifting the demand curve to the left.

Question 16

A country’s nominal GDP grew from \$$1,000 billion to \1$$,100 billion in one year. What is the nominal GDP growth rate?

Accepted Answer

$$Growth\ rate = \frac{1,100 - 1,000}{1,000} 	imes 100 = 10\%$$

Question 17

Which of the following is a reason why GDP may not accurately reflect a country’s standard of living?

Accepted Answer

GDP does not account for the value of home production and leisure.

Question 18

If the equilibrium price in a market is \$$10, but the current market price is \15$$, what is the result?

Accepted Answer

There is excess supply, since quantity supplied exceeds quantity demanded.

Question 19

Suppose the price index in 2010 was 150 and in 2020 it is 180. If a worker earned \$30,000 in 2010, what is the equivalent value in 2020 dollars?

Accepted Answer

$$Value\ in\ 2020\ dollars = \frac{180}{150} 	imes 30,000 = 1.2 	imes 30,000 = \36$$,000$

Principles of Macroeconomics: Study Guide (Chapters 1–5) – Structured Study Notes

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