ECON 232 Final Exam Questions with Verified Solutions Latest Update 2025/2026
How is GDP calculated? - Answers GDP can be calculated by summing Consumption,
Investment, Government Purchases, and Net Exports (Exports minus Imports).
What does economic investment refer to? - Answers Economic investment refers to spending
on new capital goods like machinery, buildings, and equipment, not on buying stocks and bonds.
What are the two main concerns of macroeconomics? - Answers The two main concerns are
short-run fluctuations in output and employment, and long-run economic growth.
What does 'investment' mean in a macroeconomic context? - Answers In macroeconomics,
'investment' means devoting resources to new capital that increases future output.
What types of goods are counted in GDP? - Answers Only final goods are counted in GDP;
intermediate goods are not included.
Provide an example of GDP calculation using fish oil. - Answers If 20 fish are turned into 40
gallons of fish oil and only the oil is final, GDP is $800 (the value of the oil).
What is the marginal propensity to consume (MPC)? - Answers The MPC is the fraction of an
extra dollar of income that is spent on consumption.
How is the government spending multiplier calculated if MPC is 0.6? - Answers The government
spending multiplier is calculated as 1 ÷ (1 − 0.6) = 2.5.
What is the tax multiplier if MPC is 0.6? - Answers The tax multiplier is calculated as −MPC ÷ (1
− MPC) = −0.6 ÷ 0.4 = −1.5.
How is the labor force defined? - Answers The labor force is defined as the sum of employed
individuals and unemployed individuals who are actively looking for work.
How is the labor force participation rate calculated? - Answers The labor force participation rate
is calculated as the labor force divided by the adult population.
What is the unemployment rate formula? - Answers The unemployment rate is calculated as the
number of unemployed individuals divided by the labor force.
How do you calculate the nominal interest rate? - Answers The nominal interest rate is
calculated as (Future payment − principal) ÷ principal.
What is the expected real interest rate? - Answers The expected real interest rate is calculated
as the nominal rate minus expected inflation.
How is the present value of a perpetuity calculated? - Answers The present value of a perpetuity
is calculated as Payment ÷ interest rate.
How is GDP calculated? - Answers GDP can be calculated by summing Consumption,
Investment, Government Purchases, and Net Exports (Exports minus Imports).
What does economic investment refer to? - Answers Economic investment refers to spending
on new capital goods like machinery, buildings, and equipment, not on buying stocks and bonds.
What are the two main concerns of macroeconomics? - Answers The two main concerns are
short-run fluctuations in output and employment, and long-run economic growth.
What does 'investment' mean in a macroeconomic context? - Answers In macroeconomics,
'investment' means devoting resources to new capital that increases future output.
What types of goods are counted in GDP? - Answers Only final goods are counted in GDP;
intermediate goods are not included.
Provide an example of GDP calculation using fish oil. - Answers If 20 fish are turned into 40
gallons of fish oil and only the oil is final, GDP is $800 (the value of the oil).
What is the marginal propensity to consume (MPC)? - Answers The MPC is the fraction of an
extra dollar of income that is spent on consumption.
How is the government spending multiplier calculated if MPC is 0.6? - Answers The government
spending multiplier is calculated as 1 ÷ (1 − 0.6) = 2.5.
What is the tax multiplier if MPC is 0.6? - Answers The tax multiplier is calculated as −MPC ÷ (1
− MPC) = −0.6 ÷ 0.4 = −1.5.
How is the labor force defined? - Answers The labor force is defined as the sum of employed
individuals and unemployed individuals who are actively looking for work.
How is the labor force participation rate calculated? - Answers The labor force participation rate
is calculated as the labor force divided by the adult population.
What is the unemployment rate formula? - Answers The unemployment rate is calculated as the
number of unemployed individuals divided by the labor force.
How do you calculate the nominal interest rate? - Answers The nominal interest rate is
calculated as (Future payment − principal) ÷ principal.
What is the expected real interest rate? - Answers The expected real interest rate is calculated
as the nominal rate minus expected inflation.
How is the present value of a perpetuity calculated? - Answers The present value of a perpetuity
is calculated as Payment ÷ interest rate.
