Free Master of Economics: Introduction to Macroeconomics Questions and Answers

Question 1

Which of the following claims regarding economic expansion is untrue?

Accepted Answer

Economic growth solves the economic problem.

Answer

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?

Accepted Answer

£500 billion in year 1 and £560 billion in year 2.

Answer

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?

Accepted Answer

If real GDP falls for two consecutive quarters.

Answer

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?

Accepted Answer

People who have lost their jobs because of the recession and cannot at present find another job.

Answer

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?

Accepted Answer

People who work part-time but want to work full-time.

Answer

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.

MEcon Master of Economics Practice Test

MEcon Master of Economics Practice Test

Free Master of Economics: Introduction to Macroeconomics Questions and Answers