Question 1

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

The total market value of all final goods and services produced within a country in a given period of time.

Question 2

Why are only final goods and services included in GDP calculations?

Accepted Answer

To avoid double counting, as intermediate goods are already included in the value of final goods.

Question 3

A U.S. company produces shoes in Vietnam and sells them in the U.S. Which country's GDP increases as a result of this production?

Accepted Answer

Vietnam's GDP increases because the production occurs within its borders.

Question 4

Which of the following transactions would be included in the calculation of U.S. GDP?

Accepted Answer

A U.S. government purchase of newly produced airplane parts from a U.S. manufacturer.

Question 5

Given the GDP expenditure equation $$Y = C + I + G + NX$$, what does $$NX$$ represent?

Accepted Answer

Net exports, calculated as exports minus imports.

Question 6

If nominal GDP in 2015 is $$850$$ and the CPI (base year 2010) is $$1.25$$, what is the real GDP in 2015?

Accepted Answer

$$680$$

Question 7

Which of the following is NOT a limitation of GDP as a measure of economic well-being?

Accepted Answer

GDP includes the value of illegal activities.

Question 8

Suppose the CPI in 2010 is $$1.00$$ and in 2015 is $$1.25. If a $$family's nominal income was $$40,000 in 2010 $$and $$44,000 in 2015$$, which year had higher real income?

Accepted Answer

2010, because $$\40$$,000 / 1.00 = \$$40,000$$ and $$\44$$,000 / 1.25 = \$$35,200.$$

Question 9

Which of the following best explains the 'shoe leather cost' of inflation?

Accepted Answer

The increased cost and inconvenience of reducing cash holdings due to higher inflation.

Question 10

If the nominal interest rate is $$6\%$$ and the inflation rate is $$3\%$$, what is the real interest rate?

Accepted Answer

$$3\%$$

Question 11

Which of the following is an example of a flow variable?

Accepted Answer

National savings per year.

Question 12

Which of the following would increase the value of the marginal product of capital for a business?

Accepted Answer

A technological innovation that increases productivity.

Question 13

A government bond with a principal of $$1,000$$ and a coupon rate of $$5\% is $$sold when the market interest rate is $$6\%. $$What is the price of the bond?

Accepted Answer

$$991$$

Question 14

Which of the following best describes the velocity of money?

Accepted Answer

The speed at which the typical dollar bill circulates through the economy.

Question 15

According to the quantity equation $$M 	imes V = P 	imes Y$$, if the money supply ($$M) $$increases and velocity ($$V) is $$constant, what happens to the price level ($$P) if $$output ($$Y) is $$unchanged?

Accepted Answer

The price level ($$P) $$increases.

Question 16

Which of the following is a reason why the Reserve Bank of Australia (RBA) uses the cash rate as its policy instrument rather than controlling the money supply directly?

Accepted Answer

The RBA cannot control the amount of money households choose to hold as deposits.

Question 17

Which of the following best describes the Fisher effect?

Accepted Answer

The tendency for nominal interest rates to rise with expected inflation.

Question 18

If the government runs a budget deficit, what is the effect on public saving?

Accepted Answer

Public saving is negative (dissaving).

Question 19

Which of the following is an example of a capital gain?

Accepted Answer

An increase in the market value of your shares of stock.

Question 20

Which of the following would be included in the current account of a country's balance of payments?

Accepted Answer

Net exports (exports minus imports).

Macroeconomic Foundations: GDP, Inflation, Savings, and Money

Study Guide - Practice Questions

Study Guide - Flashcards