ECON202 Midterm Practice

Which of the following best describes the Consumer Price Index (CPI)?

• A measure of nominal interest rates

• The total value of goods produced by a country’s citizens

• The unemployment rate adjusted for inflation

• A weighted average of prices for a fixed basket of goods

If the marginal propensity to consume (MPC) is 0.8, the spending multiplier is:

• 1.25

• 3.2

• 1.8

• 5

Frictional unemployment is best described as:

• Being unemployed due to a downturn in the economy

• Being replaced by automation

• Being underemployed in part-time work

• Being between jobs while seeking new employment

Which component is not included in the investment part of aggregate demand (I)?

• New factory equipment

• Construction of a home

• Business software purchases

• Purchase of existing stocks and bonds

An appreciation of the domestic currency will likely:

• Boost exports and reduce imports

• Reduce both exports and imports

• Increase net exports

• Reduce exports and increase imports

Which of the following is a limitation of using GDP as a measure of national well-being?

• It excludes government spending

• It includes only transfer payments

• It includes inflation-adjusted figures

• It ignores income inequality and non-market activity

If nominal GDP increases by 10% and prices increase by 6%, the approximate real GDP growth is:

• 2%

• 16%

• 6%

• 4%

The formula to calculate the unemployment rate is:

• (Employed / Population) × 100

• (Labor Force / Population) × 100

• (Labor Force / Employed) × 100

• (Unemployed / Labor Force) × 100

Suppose the government increases spending by $300 billion and MPC is 0.75. By how much will GDP increase?

• $600 billion

• $900 billion

• $1.05 trillion

• $1.2 trillion

Disposable income equals:

• Consumption minus savings

• Income minus interest rates

• Government revenue minus expenditures

• Total income minus taxes plus transfers