Free Master of Economics: Introduction to Macroeconomics Questions and Answers — Questions and Answers
Question 1: Which of the following claims regarding economic expansion is untrue?
- Economic growth can be helped with more education.
- Economic growth can be helped by using tidal power.
- Economic growth solves the economic problem. (Correct answer)
- Economic growth can be helped by having new technology.
Correct answer: Economic growth solves the economic problem.
The economic problem, or scarcity, is the fundamental issue that human wants for goods, services, and resources exceed what is available. While economic growth can increase the availability of goods and services, it does not eliminate the inherent problem of unlimited wants versus limited resources, thus it doesn't 'solve' the economic problem.
Question 2: Assume that year 1 is used as the starting point. That year's nominal GDP is £500 billion. The nominal GDP has increased to £700 billion by year 2, yet the GDP deflator is only 125. What will the annual real GDP be?
- £500 billion in year 1 and £560 billion in year 2. (Correct answer)
- £500 billion in year 1 and £700 billion in year 2.
- £625 billion in year 1 and £560 billion in year 2.
- £625 billion in year 1 and £700 billion in year 2.
Correct answer: £500 billion in year 1 and £560 billion in year 2.
Real GDP is calculated by dividing nominal GDP by the GDP deflator (expressed as a decimal) and multiplying by 100. For year 1, the base year, nominal GDP equals real GDP, so £500 billion. For year 2, Real GDP = (£700 billion / 125) * 100 = £560 billion, reflecting the output adjusted for price changes.
Question 3: What conditions define a recession in an economy?
- If real GDP falls for two consecutive years.
- If real GDP falls in one quarter compared with the quarter before.
- If real GDP falls for two consecutive quarters. (Correct answer)
- If real GDP falls in one year compared with the year before.
Correct answer: If real GDP falls for two consecutive quarters.
A recession is conventionally defined as a significant decline in economic activity spread across the economy, lasting more than a few months. The most common rule of thumb for identifying a recession is two consecutive quarters of negative real GDP growth, indicating a sustained contraction.
Question 4: Which of the following is considered to be a member of the labor force?
- People who have chosen to care for their families or homes rather than seek paid employment.
- People who have lost their jobs because of the recession and cannot at present find another job. (Correct answer)
- People aged 60 who have retired early.
- Full-time students who do not have paid employment.
Correct answer: People who have lost their jobs because of the recession and cannot at present find another job.
The labor force comprises all individuals who are either employed or actively seeking employment. People who have lost their jobs due to economic conditions and are actively looking for new work are classified as unemployed, and therefore are considered members of the labor force.
Question 5: The four types of people listed below are not taken into account when calculating unemployment rates based on those who receive Job-Seekers' Allowance. Which of these four categories is also not taken into account in the global measurement?
- People who work part-time but want to work full-time. (Correct answer)
- Unemployed people aged 16-17 who have left school.
- Unemployed people who have not worked long enough to be entitled to Job-Seekers' Allowance.
- Unemployed people aged 60 or more.
Correct answer: People who work part-time but want to work full-time.
The global measurement of unemployment, often based on ILO standards, counts individuals as unemployed if they are without work, available for work, and actively seeking work. People who work part-time but desire full-time employment are considered 'underemployed' rather than unemployed, as they are already engaged in some form of paid work.
Question 6: Which of the subsequent claims is untrue?
- Some people lose out if actual inflation turns out to be below the rate they expected.
- Some people lose out if actual inflation turns out to be above the rate they expected.
- Some people lose out if actual inflation turns out to be equal the rate they expected.
- Even in the worst recorded cases of hyperinflation, the price level always took at last a week to double. (Correct answer)
Correct answer: Even in the worst recorded cases of hyperinflation, the price level always took at last a week to double.
This statement is untrue because in extreme cases of hyperinflation, such as in Weimar Germany or Zimbabwe, prices have been known to double in a matter of days, or even hours. Hyperinflation signifies an extremely rapid and out-of-control increase in the general price level, far exceeding a weekly doubling period.
Question 7: Which of the following scenarios would see a rise in real GDP while maintaining the same level of prices?
- The aggregate demand curve stayed put but aggregate supply shifted right.
- The aggregate demand curve shifted right but the aggregate supply curve stayed put.
- The aggregate demand and aggregate supply curves both shifted up by the same amount.
- The aggregate demand and aggregate supply curves both shifted right by the same amount. (Correct answer)
Correct answer: The aggregate demand and aggregate supply curves both shifted right by the same amount.
A rightward shift in both the aggregate demand (AD) and aggregate supply (AS) curves by the same amount indicates an increase in both overall demand and the economy's productive capacity. If these shifts are proportional, the equilibrium quantity (real GDP) will increase, while the equilibrium price level can remain relatively stable, representing non-inflationary growth.
Free Master of Economics: Introduction to Macroeconomics Questions and Answers
Which of the following claims regarding economic expansion is untrue?