Economics Quiz Questions With Answers

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  • 1/41 Questions

     GDP is calculated including

    • Intermediate products but not final products.
    • Manufactured goods but not services.
    • Final products but not intermediate products.
    • Only good purchased by consumers in a given year.
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Economics Quizzes & Trivia
About This Quiz

This Economics Quiz assesses understanding of concepts like GDP, net exports, government purchases, and inflation through CPI. It's designed to enhance knowledge of economic fundamentals, crucial for academic and professional growth in the field of Economics.

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  • 2. 

    Net exports are defined as:

    • Exports plus imports.

    • Exports minus imports.

    • Imports minus exports.

    • exports plus imports minus tariffs

    Correct Answer
    A. Exports minus imports.
    Explanation
    Net exports are defined as the value of a country's exports minus the value of its imports. This measure reflects the difference between the amount a country sells to other nations and the amount it purchases from them. A positive net export value indicates a trade surplus, meaning that a country is exporting more than it is importing. Conversely, a negative net export value indicates a trade deficit, indicating that a country is importing more than it is exporting. Therefore, the correct answer is "exports minus imports."

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  • 3. 

    . If the United States imported $1.5 billion worth of goods and services and sold $2.9 billion worth of goods and services outside its borders, net exports would equal

    • $-4.4 billion.

    • $4.4 billion.

    • $1.4 billion.

    • $-1.4 billion.

    • None of the above.

    Correct Answer
    A. $1.4 billion.
    Explanation
    exports minus imports = net exports

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  • 4. 

    Which of the following is included in government purchases?

    • Government purchases of investment goods

    • Transfer payments.

    • Government spending on services.

    • All of the above are included in government purchases

    • Both a) and c) are included in government purchases, but b) is not.

    Correct Answer
    A. Both a) and c) are included in government purchases, but b) is not.
    Explanation
    Government purchases refer to the expenditure made by the government on goods and services. This includes both investment goods, which are long-term assets that contribute to economic growth, and spending on services provided by the government. Transfer payments, on the other hand, are payments made by the government to individuals or other entities without receiving any goods or services in return. Therefore, transfer payments are not included in government purchases.

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  • 5. 

     The consumer price index is used to:

    • Track changes in the level of wholesale prices in the economy

    • Monitor changes in the level of real GDP.

    • C) monitor changes in the cost of living of typical households.

    • track changes in the stock market.

    Correct Answer
    A. C) monitor changes in the cost of living of typical households.
    Explanation
    The consumer price index (CPI) is a measure that tracks changes in the cost of living of typical households. It measures the average price level of a basket of goods and services consumed by households, such as food, housing, transportation, and healthcare. By monitoring changes in the CPI, policymakers and economists can assess the rate of inflation and its impact on the purchasing power of consumers. This information is crucial for making informed decisions regarding monetary policy, wage adjustments, and social welfare programs.

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  • 6. 

    6. The CPI in year 1 (the base year) equals 100 and in year 2 equals 106. It can be concluded that:   

    • The rate of inflation from year 1 to year 2 equals +106 percent

    • The rate of inflation from year 1 to year 2 equals +6 percent.

    • The rate of inflation from year 1 to year 2 equals -6 percent.

    • National income has increased by 6 percent from year 1 to year 2.

    • National income has decreased by 6 percent from year 1 to year 2.

    Correct Answer
    A. The rate of inflation from year 1 to year 2 equals +6 percent.
    Explanation
    (CPI current-CPI previous/ CPI previous X 100

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  • 7. 

    7. If the CPI increases from one year to the next, it can be concluded that the economy has experienced:   

    • Growth.

    • Stagnation.

    • Stagflation.

    • Inflation.

    • Deflation.

    Correct Answer
    A. Inflation.
    Explanation
    If the CPI (Consumer Price Index) increases from one year to the next, it indicates that the general level of prices for goods and services has risen. This suggests that the economy has experienced inflation, as the purchasing power of money has decreased.

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  • 8. 

    8. If the CPI decreases from one year to the next, it can be concluded that the economy has experienced:

    • Growth.

    • Stagnation.

    • Stagflation. (Low Economic growth- High Inflation rate)

    • Inflation.

    • Deflation

    Correct Answer
    A. Deflation
    Explanation
    If the CPI (Consumer Price Index) decreases from one year to the next, it can be concluded that the economy has experienced deflation. This means that the overall price level of goods and services has decreased, indicating a decrease in inflation. Deflation can occur due to various factors such as decrease in demand, decrease in money supply, or increase in productivity. It is often seen as a negative sign for the economy as it can lead to reduced consumer spending, lower business profits, and potentially a downward spiral in economic activity.

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  • 9. 

    The current cost of a market basket of goods is $6,000. The cost of the same basket of goods in the base year was $4,000. The current price index is:     CPI=  Cost in current year/ cost in base year X 100        d)    133.      e)    66.7.

    • 600.

    • 160.

    • 150.

    • 133.

    • 66.7

    Correct Answer
    A. 150.
    Explanation
    CPI= Cost in current year/ cost in base year X 100

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  • 10. 

     If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is

    • 80, and this indicates that the price level has decreased by 20 percent since the base year

    • 80, and this indicates that the price level has increased by 80 percent since the base year.

    • 125, and this indicates that the price level has increased by 25 percent since the base year.

    • 125, and this indicates that the price level has increased by 125 percent since the base year.

    Correct Answer
    A. 80, and this indicates that the price level has decreased by 20 percent since the base year
    Explanation
    8/10 x 100= 80 (Price deflator)

    80-100/100 X 100 = 20%
    GDP deflator(index of price) = Nominal GDP/ Real Gdp X 100

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  • 11. 

    Refer to Table 10-4.  In 2008, this country’s

    • Nominal GDP was greater than real GDP, and the GDP deflator was greater than 100.

    • Nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.

    • Nominal GDP was less than real GDP, and the GDP deflator was less than 100

    • Nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.

    Correct Answer
    A. Nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
    Explanation
    The question states that in 2008, the nominal GDP was equal to real GDP and the GDP deflator was equal to 100. This means that the price level in 2008 remained constant compared to the base year, resulting in no inflation or deflation. Nominal GDP measures the current value of goods and services produced in an economy, while real GDP adjusts for changes in price levels. The GDP deflator is a measure of the overall price level in an economy. Therefore, when nominal GDP is equal to real GDP and the GDP deflator is equal to 100, it indicates that the economy experienced no inflation or deflation in 2008.

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  • 12. 

    Refer to Table 10-4.  In 2009, this country’s

    • Real GDP was $660, and the GDP deflator was 113.4

    • Real GDP was $670, and the GDP deflator was 115.2

    • Real GDP was $660, and the GDP deflator was 115.2.

    • Real GDP was $670, and the GDP deflator was 113.4.

    Correct Answer
    A. Real GDP was $670, and the GDP deflator was 113.4.
    Explanation
    GDP deflator
    Nominal/ real x 100

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  • 13. 

    13. Refer to Table 10-4.  In 2010, this country’s

    • Real GDP was $780, and the GDP deflator was 141.0.

    • Real GDP was $825, and the GDP deflator was 133.3.

    • Real GDP was $780, and the GDP deflator was 133.3

    • Real GDP was $825, and the GDP deflator was 141.0

    Correct Answer
    A. Real GDP was $780, and the GDP deflator was 141.0.
  • 14. 

    Refer to Table 10-4.  In 2011, this country’s

    • Real GDP was $900, and the GDP deflator was 150.2.

    • Real GDP was $900, and the GDP deflator was 177.8

    • Real GDP was $1065, and the GDP deflator was 177.8

    • Real GDP was $1065, and the GDP deflator was 150.2.

    Correct Answer
    A. Real GDP was $900, and the GDP deflator was 177.8
    Explanation
    The correct answer is "real GDP was $900, and the GDP deflator was 177.8". This means that in 2011, the country's real GDP was $900, which represents the value of goods and services produced adjusted for inflation. The GDP deflator of 177.8 indicates that prices increased by 77.8% compared to the base year.

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  • 15. 

      15. Refer to Table 10-4.  This country’s output grew 

    • 29.9% from 2008 to 2009.

    • 33.3% from 2009 to 2010.

    • 24.3% from 2009 to 2010.

    • 15.4% from 2010 to 2011.

    Correct Answer
    A. 15.4% from 2010 to 2011.
    Explanation
    GR = real gdp ( current year) – real gdp ( previous year/ real gdp previous year x 100

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  • 16. 

    16. Refer to Table 10-4.  This country’s inflation rate from 2009 to 2010 was    

    • 16.4%.

    • 24.3%.

    • 41.0%

    • 44.7%

    Correct Answer
    A. 24.3%.
    Explanation
    IR = GDP deflator ( current year) – GDP deflator ( previous year ) /
    Gdp deflator preveius year X 100

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  • 17. 

    17. Refer to Table 10-4.  This country’s inflation rate from 2010 to 2011 was

    • 15.4%.

    • 26.1%

    • 45.5%.

    • 77.8%

    Correct Answer
    A. 26.1%
  • 18. 

    18.   When the consumer price index rises, the typical family

    • Has to spend more dollars to maintain the same standard of living.

    • Can spend fewer dollars to maintain the same standard of living.

    • Finds that its standard of living is not affected.

    • Can offset the effects of rising prices by saving more.

    Correct Answer
    A. Has to spend more dollars to maintain the same standard of living.
    Explanation
    When the consumer price index rises, it indicates that the overall cost of goods and services has increased. As a result, the typical family will have to spend more dollars to purchase the same amount of goods and services, meaning they have to spend more to maintain the same standard of living. This is because the prices of goods and services have increased, making it more expensive for families to afford the same level of consumption.

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  • 19. 

    19. The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

    • The CPI is easier to measure.

    • The CPI is calculated more often than the GDP deflator is.

    • The CPI better reflects the goods and services bought by consumers.

    • The GDP deflator cannot be used to gauge inflation.

    Correct Answer
    A. The CPI better reflects the goods and services bought by consumers.
    Explanation
    The CPI (Consumer Price Index) is more commonly used as a gauge of inflation than the GDP deflator because it better reflects the goods and services bought by consumers. The CPI specifically measures the changes in prices of a basket of goods and services that are commonly purchased by households, making it a more accurate representation of inflation from a consumer's perspective. On the other hand, the GDP deflator measures the average price level of all final goods and services produced in an economy, which may not necessarily align with what consumers are actually buying.

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  • 20. 

    Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year.  In 2002, the basket’s cost was $50; in 2004, the basket’s cost was $52; and in 2006, the basket’s cost was $57.25.  The value of the CPI in 2006 was Cost of basket current year/ Cost of basket previous year  X 100

    • 91.6.

    • 104.6

    • 109.2.

    • 114.5.

    Correct Answer
    A. 114.5.
    Explanation
    Cost of basket current year/ Cost of basket previous year X 100

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  • 21. 

    22.   The price index was 220 in one year and 260 in the next year.  What was the inflation rate?

    • 9.0 percent

    • 114.6 percent

    • 18.2 percent

    • 40.0 percent

    Correct Answer
    A. 18.2 percent
    Explanation
    260-220/220 x 100

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  • 22. 

    For an imaginary economy, the value of the consumer price index was 140 in 2006 and 149.10 in 2007. The economy’s inflation rate for 2007 was

    • 6.1 percent.

    • 6.5 percent.

    • 9.1 percent

    • 49.1 percent.

    Correct Answer
    A. 6.5 percent.
    Explanation
    The inflation rate is calculated by taking the difference between the consumer price index (CPI) in two consecutive years and dividing it by the CPI of the earlier year. In this case, the CPI in 2007 is 149.10 and the CPI in 2006 is 140. The difference between these two values is 9.10. Dividing this by 140 gives a result of 0.065, which is 6.5 percent when expressed as a percentage. Therefore, the correct answer is 6.5 percent.

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  • 23. 

    Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3.  What were the inflation rates for Canada and Mexico over this one-year period?    

    • 2.8 percent for Canada and 9.1 percent for Mexico

    • 2.8 percent for Canada and 9.8 percent for Mexico

    • 3.3 percent for Canada and 9.1 percent for Mexico

    • 3.3 percent for Canada and 9.8 percent for Mexico

    Correct Answer
    A. 2.8 percent for Canada and 9.8 percent for Mexico
    Explanation
    The inflation rate for Canada can be calculated by subtracting the initial CPI (116.5) from the final CPI (119.8), dividing that difference by the initial CPI, and then multiplying by 100. This gives us a result of approximately 2.8 percent. Similarly, the inflation rate for Mexico can be calculated using the same formula, resulting in an inflation rate of approximately 9.8 percent.

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  • 24. 

    The price index was 128.96 in 2006, and the inflation rate was 24 percent between 2005 and 2006.  The price index in 2005 was

    • 104.

    • 104.96.

    • 152.96.

    • 159.91.

    Correct Answer
    A. 104.
    Explanation
    Find CPI?

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  • 25. 

    The table below pertains to Iowan, an economy in which the typical consumer’s basket consists of 3 pounds of pork and 4 bushels of corn. Year Price of Pork Price of Corn 2008 $20 per pound $12 per bushel 2009 $25 per pound $18 per bushel   Refer to Table 11-2.  The cost of the basket in 2008 was

    • $108.

    • $147.

    • $160.

    • $224

    Correct Answer
    A. $108.
    Explanation
    20x3 + 12 x 4

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  • 26. 

    Year Price of Pork Price of Corn 2008 $20 per pound $12 per bushel 2009 $25 per pound $18 per bushel Refer to Table 11-2.  The cost of the basket in 2009 was  

    • $108.

    • $147.

    • $160.

    • $301.

    Correct Answer
    A. $147.
  • 27. 

    28. Refer to Table 11-2.  If 2008 is the base year, then the CPI for 2008 was Year Price of Pork Price of Corn 2008 $20 per pound $12 per bushel 2009 $25 per pound $18 per bushel  

    • 73.5.

    • 100.

    • 108.

    • 136.1.

    Correct Answer
    A. 100.
    Explanation
    The CPI (Consumer Price Index) measures the average change in prices over time for a fixed basket of goods and services. In this question, the CPI for 2008 is being asked. To calculate the CPI, we need to compare the prices of the goods in the base year (2008) to the prices in the given year (2008). According to the table, the price of pork in 2008 was $20 per pound and the price of corn was $12 per bushel. Since the CPI is calculated relative to the base year, the CPI for 2008 would be 100, indicating no change in prices compared to the base year.

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  • 28. 

    . Refer to Table 11-2.  If 2008 is the base year, then the CPI for 2009 was Year Price of Pork Price of Corn 2008 $20 per pound $12 per bushel 2009 $25 per pound $18 per bushel  

    • 73.5

    • 100.

    • 136.1.

    • 147.

    Correct Answer
    A. 136.1.
    Explanation
    The CPI (Consumer Price Index) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. To calculate the CPI for a specific year, we need to compare the prices of the goods and services in that year to the prices in the base year. In this case, the base year is 2008. The CPI for 2009 can be found by dividing the price of the market basket in 2009 by the price of the market basket in 2008 and multiplying by 100. Given that the price of pork increased from $20 to $25 per pound and the price of corn increased from $12 to $18 per bushel, the CPI for 2009 would be (25/20) * (18/12) * 100 = 136.1.

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  • 29. 

    Refer to Table 11-2.  If 2009 is the base year, then the CPI for 2008 was

    • 73.5.

    • 100.

    • 108.

    • 136.1.

    Correct Answer
    A. 73.5.
  • 30. 

    . Refer to Table 11-2.  If 2009 is the base year, then the CPI for 2009 was

    • 73.5.

    • 100.

    • 136.1.

    • 147.

    Correct Answer
    A. 100.
    Explanation
    The CPI (Consumer Price Index) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In this question, it is stated that 2009 is the base year. The base year is used as a reference point to compare the prices of goods and services in other years. By definition, the CPI for the base year is always 100. Therefore, the correct answer is 100.

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  • 31. 

    Refer to Table 11-2.  If 2008 is the base year, then the inflation rate in 2009 was

    • 26.5 percent.

    • 36.1 percent.

    • 39 percent.

    • 47 percent.

    Correct Answer
    A. 36.1 percent.
    Explanation
    Cpi 2009- cpi 2008/ cpi 2008

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  • 32. 

    . Refer to Table 11-2.  If 2009 is the base year, then the inflation rate in 2009 was

    • 26.5 percent.

    • 36.1 percent.

    • 39 percent.

    • 47 percent.

    Correct Answer
    A. 36.1 percent.
  • 33. 

    Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

    • Substitution bias

    • Introduction of new goods

    • Unmeasured quality change

    • Unmeasured price change

    Correct Answer
    A. Unmeasured price change
    Explanation
    The CPI (Consumer Price Index) is a commonly used measure of the cost of living. It takes into account factors such as substitution bias, introduction of new goods, and unmeasured quality change. However, unmeasured price change is not considered a widely acknowledged problem with using the CPI. This means that the CPI is generally able to accurately reflect changes in the overall cost of living, despite potential issues with substitution bias, introduction of new goods, and unmeasured quality change.

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  • 34. 

    The CPI and the GDP deflator

    • Generally move together.

    • Generally show different patterns of movement.

    • Always show identical changes.

    • Always show different patterns of movement.

    Correct Answer
    A. Generally move together.
    Explanation
    The CPI (Consumer Price Index) and the GDP deflator are both measures of inflation, but they use different methodologies to calculate price changes. However, in general, they tend to move together because they both capture changes in the overall price level. When there is inflation or deflation in the economy, it is likely to be reflected in both the CPI and the GDP deflator. However, there may be some periods where they show different patterns of movement due to variations in the specific goods and services included in their calculations.

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  • 35. 

    . In 1931, President Herbert Hoover was paid a salary of $75,000.  Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009.  President Hoover’s 1931 salary was equivalent to a 2009 salary of about

    • $5,507.

    • $1,058,388.

    • $1,140,000.

    • $15,525,000

    Correct Answer
    A. $1,058,388.
    Explanation
    Value in year 2 dollars = value in year 1 dollars x Price level in y2/ price level in y1

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  • 36. 

    You know that a candy bar cost five cents in 1962.  You also know the CPI for 1962 and the CPI for today.  Which of the following would you use to compute the price of the candy bar in today's prices?

    • Five cents X (1962 CPI / today's CPI)

    • Five cents X ((today's CPI - 1962 CPI)/1962 CPI)

    • Five cents X (today's CPI / 1962 CPI)

    • Five cents - today's CPI - five cents X 1962 CPI.

    Correct Answer
    A. Five cents X (today's CPI / 1962 CPI)
    Explanation
    To compute the price of the candy bar in today's prices, you would use the formula "five cents X (today's CPI / 1962 CPI)". This formula takes into account the change in the Consumer Price Index (CPI) from 1962 to today. By dividing today's CPI by the 1962 CPI and multiplying it by the original price of five cents, you can adjust for inflation and determine the price of the candy bar in today's prices.

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  • 37. 

    . The CPI was 172 in 2007, and the CPI was 46.5 in 1982.  If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?

    • $270.35

    • $1,255.00

    • $2,698.92

    • $3,698.92

    Correct Answer
    A. $3,698.92
    Explanation
    Value in year 2 dollars = value in year 1 dollars x Price level in y2/ price level in y1

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  • 38. 

     Social Security payments are indexed for inflation using

    • The CPI.

    • The PPI

    • The GDP deflator.

    • Real interest rates.

    Correct Answer
    A. The CPI.
    Explanation
    Social Security payments are indexed for inflation using the CPI, or Consumer Price Index. The CPI measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. By using the CPI, Social Security payments can be adjusted to ensure that beneficiaries' purchasing power remains relatively stable as the cost of living increases. The PPI (Producer Price Index) measures changes in prices received by domestic producers for their goods and services, while the GDP deflator is a measure of the overall price level in an economy. Real interest rates are not directly related to indexing Social Security payments for inflation.

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  • 39. 

    40. If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is . d.  

    • -5 percent.

    • 1.67 percent.

    • 5 percent.

    • 11 percent.

    Correct Answer
    A. 5 percent.
    Explanation
    Nom- infl rate

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  • 40. 

    The consumer price index was 225 in 2006 and 234 in 2007.  The nominal interest rate during this period was 6.5 percent.  What was the real interest rate during this period?

    • 2.5 percent

    • 4.0 percent

    • 6.76 percent

    • 10.5 percent

    Correct Answer
    A. 2.5 percent
    Explanation
    ( inflation rate )

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  • 41. 

    The CPI was 120 in 2008 and 126 in 2009.  Phil borrowed money in 2008 and repaid the loan in 2009.  If the nominal interest rate on the loan was 8 percent, then the real interest rate was

    • -2 percent.

    • 3 percent.

    • 5 percent.

    • 13 percent.

    Correct Answer
    A. 3 percent.
    Explanation
    The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. In this case, we can calculate the inflation rate by finding the percentage change in CPI. The percentage change is (126-120)/120 = 0.05 or 5%. Since the nominal interest rate is 8%, we subtract the inflation rate of 5% from it to get the real interest rate of 3%. Therefore, the correct answer is 3 percent.

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  • Mar 21, 2023
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  • Mar 21, 2012
    Quiz Created by
    Rinscoe

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