Midterm Exam — Cumulative (Weeks 1–7) · Objectives 1–6

Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
Scope: Cumulative — Weeks 1–7, Objectives 1–6 (the macro perspective, the PPF & positive vs. normative · GDP & the expenditure approach; real vs. nominal; the GDP deflator · the CPI, the inflation rate & real vs. nominal values; the unemployment rate & LFPR · growth rates & the rule of 70 · the AD–AS model, comparative statics & output gaps · fiscal policy, the spending multiplier & deficits vs. debt).
Format: 20 items, 100 points (5 each) · mixed item types (multiple-choice, matching, true/false, multiple-answer) · no free-response. AI is not permitted on the midterm.
Points: 100 · Assignment group: Midterm (20% of the course grade) · Window: opens at the start of the Week 8 module; due 6 days later · allowed attempts: 1.

This is the human-readable exam with its vetted answer key and one-line feedback. The import-ready Classic QTI 1.2 is in L-midterm-week-08-qti.xml (generated by a validated Python script — parses with 20 items, every single-answer item exactly one correct).

This is the live exam. Its paired ungraded rehearsal — O-practice-exam-week-08.md — mirrors this blueprint with fresh variants and shares none of these items (verified by full stem comparison below). Every numeric item here is a fresh-engineered value — none are copied from the Weeks 1–7 quizzes or workshops.

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Blueprint (items → objective → source week)

Coverage is proportional to teaching time: Obj 1 = 3 · Obj 2 = 3 · Obj 3 = 4 · Obj 4 = 2 · Obj 5 = 5 · Obj 6 = 3. No trick questions; every single-answer item has exactly one correct option; the matching items pair one-to-one; the multiple-answer items list every correct option.

#	Type	Concept	Objective	Week
1	Multiple choice	Scarcity & the macro perspective	1	1
2	Multiple choice	PPF opportunity cost (fresh: 18 consumer / 6 capital goods)	1	1
3	True / False	Interior PPF point is unattainable	1	1
4	Multiple choice	GDP via expenditure approach (fresh: C=600, I=250, G=175, X=120, M=90)	2	2
5	Multiple choice	What's counted in GDP (transfer payments)	2	2
6	Multiple choice	GDP deflator computation (fresh: nominal 1000 / real 800)	2	2
7	Multiple choice	CPI & inflation rate (fresh basket: widgets/gadgets)	3	3
8	Multiple choice	Unemployment rate & LFPR (fresh: 88M employed, 12M unemployed, 125M adult pop.)	3	3
9	Matching	Types of unemployment → example	3	3
10	True / False	Discouraged workers counted as unemployed	3	3
11	Multiple choice	Growth rate computation (fresh: real GDP 600→660)	4	4
12	Multiple choice	Rule of 70 (fresh: 4% growth)	4	4
13	Multiple choice	AD–AS comparative statics — fresh linear system, AD shifts right	5	5
14	Multiple choice	Movement along AD vs. shift of AD	5	5
15	Multiple choice	SRAS shift direction & P/Y outcome (oil-shock scenario)	5	5
16	Multiple choice	Recessionary gap identification & diagnosis (fresh: potential 1200, actual 1140)	5	6
17	Matching	Policy tool / event → AD–AS effect	5	5/6
18	Multiple choice	Spending multiplier (fresh: MPC 0.75, ΔG=+30)	6	7
19	Multiple choice	Deficit vs. debt (fresh: revenue 380, spending 410, prior debt 900)	6	7
20	Multiple answer	Fiscal vs. monetary policy — which body wields which tool	6	7

Objective totals: Obj 1 = 3 items (15 pts) · Obj 2 = 3 items (15 pts) · Obj 3 = 4 items (20 pts) · Obj 4 = 2 items (10 pts) · Obj 5 = 5 items (25 pts) · Obj 6 = 3 items (15 pts, includes Q20 which also touches Obj 5/6 boundary) → 20 items, 100 points.

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Questions, Key, and Feedback

Objective 1 — The Macro Perspective, the PPF & Positive vs. Normative (Week 1)

Q1 (MC). Macroeconomics is best described as the study of —
- A. one household's grocery budget
- B. the economy as a whole — growth, inflation, unemployment, and the policies that affect them ✅
- C. a single firm's pricing decision
- D. the market for one specific product
Feedback: Macroeconomics zooms out to the whole economy — total output, the overall price level, the job market, and national fiscal/monetary policy. (A, C, and D are all microeconomics — individual choosers, not the aggregate economy.)

Q2 (MC). An economy's straight-line PPF runs between 18 units of consumer goods (and 0 capital goods) and 6 units of capital goods (and 0 consumer goods). What is the opportunity cost of producing 1 capital good?
- A. 1/3 of a consumer good
- B. 3 consumer goods ✅
- C. 6 consumer goods
- D. 18 consumer goods
Feedback: Opportunity cost of 1 capital good = (max consumer goods) ÷ (max capital goods) = 18 ÷ 6 = 3 consumer goods. (Pre-verified: 18/6 = 3.) Going the other way, 1 consumer good costs 6/18 = 1/3 capital good — that's option A, the classic flip error. Always state the cost in the OTHER good.

Q3 (True / False). A production point located INSIDE a country's PPF is unattainable with the country's current resources.
- True
- False ✅
Feedback: False. An interior point is attainable but inefficient — some labor and capital are sitting idle. At the scale of a whole economy, this is the macro preview of unemployment/a recession. Unattainable points lie strictly OUTSIDE the frontier.

Objective 2 — Measuring Output: GDP, Real vs. Nominal & the Deflator (Week 2)

Q4 (MC). A fictional economy reports the following (in billions): consumption C = 600, investment I = 250, government spending G = 175, exports X = 120, imports M = 90. Using the expenditure approach, GDP equals —
- A. $1,145 billion
- B. $1,235 billion
- C. $1,055 billion ✅
- D. $965 billion
Feedback: First, NX = X − M = 120 − 90 = 30. Then GDP = C + I + G + NX = 600 + 250 + 175 + 30 = $1,055 billion. (Pre-verified. A adds X and M instead of subtracting; B and D result from arithmetic slips in summing the components.)

Q5 (MC). Which of the following transfer payments, purchases, or public projects is correctly EXCLUDED from GDP under the expenditure approach?
- A. A new car purchased this year by a household
- B. A road built this year by the government
- C. A Social Security check received by a retiree ✅
- D. New factory equipment purchased by a firm this year
Feedback: Transfer payments (like Social Security) are NOT payment for current production — the government isn't buying anything in return — so they are excluded from GDP. (A, B, and D are all newly produced final goods/services this year and ARE counted — as consumption, government spending, and investment, respectively.)

Q6 (MC). An economy's nominal GDP this year is $1,000 billion; its real GDP (in base-year prices) is $800 billion. The GDP deflator equals —
- A. 80
- B. 100
- C. 125 ✅
- D. 800
Feedback: GDP deflator = nominal GDP ÷ real GDP × 100 = 1,000 ÷ 800 × 100 = 125. (Pre-verified. A results from flipping the ratio (real ÷ nominal × 100 = 80) — a classic formula-flip error. A deflator above 100 means prices have risen relative to the base year.)

Objective 3 — Measuring Inflation & Unemployment (Week 3)

Q7 (MC). A fixed CPI basket costs $250 in the base year (25 widgets @ $4 + 15 gadgets @ $10). In year 2, the same basket costs $275 (widgets now $4.40 each, gadgets now $11 each). What is the year-2 CPI (base year = 100), and the inflation rate from the base year to year 2?
- A. CPI = 125; inflation = 25%
- B. CPI = 110; inflation = 10% ✅
- C. CPI = 110; inflation = 110%
- D. CPI = 100; inflation = 0%
Feedback: CPI = (year-2 basket cost ÷ base-year basket cost) × 100 = 275 ÷ 250 × 100 = 110. Inflation rate = (110 − 100) ÷ 100 × 100 = 10%. (Pre-verified: 25×4.40 + 15×11 = 110 + 165 = 275.) C confuses the CPI level with the inflation rate — the inflation rate is the percentage CHANGE, not the index number itself.

Q8 (MC). In a fictional economy, the adult (16+) population is 125 million. Of these, 88 million are employed and 12 million are unemployed (actively searching for work). The unemployment rate and the labor-force participation rate (LFPR) are —
- A. Unemployment rate = 12%; LFPR = 88%
- B. Unemployment rate = 12%; LFPR = 80% ✅
- C. Unemployment rate = 9.6%; LFPR = 80%
- D. Unemployment rate = 12%; LFPR = 100%
Feedback: Labor force = employed + unemployed = 88 + 12 = 100 million. Unemployment rate = 12 ÷ 100 × 100 = 12%. LFPR = labor force ÷ adult population = 100 ÷ 125 × 100 = 80%. (Pre-verified. C miscomputes the unemployment rate using the adult population instead of the labor force as the denominator — the classic denominator error.)

Q9 (Matching). Match each type of unemployment (frictional, structural, cyclical) — or a worker not counted as unemployed at all — to its correct example.
| Type of unemployment | Correct example |
|---|---|
| Frictional | A recent college graduate spending 3 weeks searching for their first job |
| Structural | A factory worker whose assembly-line job was automated and who now needs retraining in a new skill |
| Cyclical | A construction worker laid off because a recession collapsed demand for new housing |
| Not counted as unemployed | A worker who wanted a job but stopped searching entirely six months ago |
Feedback: Frictional unemployment is normal job-search churn. Structural unemployment reflects a skills/location mismatch (often from automation or industry decline). Cyclical unemployment rises and falls with the business cycle — the type policy targets most directly. A person who has stopped searching is a discouraged worker and is not counted in the labor force at all (not even as unemployed). (The distractor "actively interviewing for two jobs this week" describes someone correctly counted as unemployed, not a discouraged worker.)

Q10 (True / False). A worker who wants a job but has stopped actively searching for one for the past several months is counted as UNEMPLOYED in the official unemployment rate.
- True
- False ✅
Feedback: False. To be counted as unemployed, a person must be actively searching for work. A person who has stopped searching is a discouraged worker and drops out of the labor force entirely — they are counted as neither employed nor unemployed. This is exactly why the official unemployment rate can understate the true extent of joblessness, and why the LFPR is tracked alongside it.

Objective 4 — Growth & Productivity (Week 4)

Q11 (MC). An economy's real GDP rises from $600 billion to $660 billion over one year. The growth rate is —
- A. 6%
- B. 10% ✅
- C. 11%
- D. 60%
Feedback: Growth rate = (new − old) ÷ old × 100 = (660 − 600) ÷ 600 × 100 = 10%. (Pre-verified: 60/600 = 0.10 = 10%. C results from dividing by the NEW value (60/660 ≈ 9.09%, which also isn't 11% — a pure arithmetic slip distractor) instead of the old value.)

Q12 (MC). Using the rule of 70, an economy growing at a steady 4% per year will take approximately how many years for its real GDP to double?
- A. 4 years
- B. 7 years
- C. 17.5 years ✅
- D. 280 years
Feedback: Rule of 70: years to double ≈ 70 ÷ growth rate = 70 ÷ 4 = 17.5 years. (Pre-verified. D results from the classic error of multiplying instead of dividing (70 × 4 = 280) — always DIVIDE 70 by the rate.)

Objective 5 — The AD–AS Model, Comparative Statics & Output Gaps (Weeks 5–6)

Q13 (MC). In an economy, aggregate demand is given by P = 18 − Y/150 and short-run aggregate supply by P = 6 + Y/150 (Y in billions, P a price-level index), giving an initial equilibrium of Y* = 900, P* = 12. Government spending then rises, shifting AD to P = 20 − Y/150. The new equilibrium is —
- A. Y* = 900, P* = 12 (unchanged)
- B. Y* = 1,050, P* = 13 (both price level and real output rise) ✅
- C. Y* = 750, P* = 11 (both price level and real output fall)
- D. Y* = 1,050, P* = 11 (real output rises but price level falls)
Feedback: Setting the new AD equal to SRAS: 20 − Y/150 = 6 + Y/150 → 14 = 2Y/150 → Y* = 1,050. Substituting: P* = 20 − 1050/150 = 13. (Pre-verified.) A rightward shift of AD (from higher government spending, an expansionary fiscal move) raises BOTH the price level and real output — the classic expansionary result. D incorrectly pairs higher output with a lower price level, which never happens from a pure AD shift.

Q14 (MC). In the AD–AS model, a FALL in the overall price level (holding AD's determinants constant) causes —
- A. the AD curve to shift rightward
- B. the AD curve to shift leftward
- C. a movement ALONG the existing AD curve to a higher quantity of real output ✅
- D. no change in quantity demanded at all
Feedback: The price level is AD's own axis variable. A change in the price level itself — with C, I, G, NX, and policy unchanged — is a movement along the AD curve, not a shift. As the price level falls, real spending rises via the wealth, interest-rate, and exchange-rate effects, tracing out a higher quantity along the SAME curve. (A and B wrongly treat an own-axis change as a shift — only a change in a determinant of AD, such as consumer spending or government policy, shifts the curve.)

Q15 (MC). A sudden spike in global oil prices raises production costs economy-wide. Holding aggregate demand constant, the AD–AS model predicts —
- A. SRAS shifts right; the price level falls and real output rises
- B. SRAS shifts left; the price level rises and real output falls (stagflation) ✅
- C. AD shifts left; the price level falls and real output falls
- D. LRAS shifts left permanently, reducing the economy's long-run potential
Feedback: A rise in a key input price (oil) raises firms' costs at every output level → SRAS shifts LEFT. With AD unchanged, this raises the price level AND lowers real output simultaneously — the classic stagflation outcome. (A reverses the shift direction. C wrongly shifts AD instead of SRAS — the oil shock is a SUPPLY-side cost shock, not a demand event. D confuses a short-run cost shock with a long-run change in productive capacity — LRAS only shifts with a genuine change in capital, labor, or technology.)

Q16 (MC). An economy's potential output (Y*) is $1,200 billion. Its actual real GDP this quarter is $1,140 billion. This economy is experiencing —
- A. an inflationary gap of $60 billion (5% of potential)
- B. a recessionary gap of $60 billion (5% of potential) ✅
- C. a recessionary gap of $1,140 billion
- D. no output gap, because actual GDP is close to potential
Feedback: Actual output ($1,140B) is BELOW potential ($1,200B) → recessionary gap = 1,200 − 1,140 = $60 billion, which is 60 ÷ 1,200 × 100 = 5% of potential. (Pre-verified. A mislabels the gap direction — actual output is BELOW, not above, potential, so this is recessionary, not inflationary. C confuses the gap size with the level of actual GDP itself.)

Q17 (Matching). Four different economic shocks are described below. Match each one to the curve it shifts and the resulting predicted effect on the price level and real output.
| Event / policy tool | Predicted effect |
|---|---|
| An increase in government spending (expansionary fiscal policy) | AD shifts right — price level and real output both rise |
| A sharp, unexpected rise in the price of a key imported input | SRAS shifts left — price level rises, real output falls (stagflation) |
| An increase in the economy's capital stock and technology | LRAS shifts right — the economy's long-run potential output grows |
| A fall in consumer confidence that reduces planned spending | AD shifts left — price level and real output both fall |
Feedback: Expansionary fiscal policy raises G, one of AD's own components, shifting AD right. A key-input cost shock raises production costs at every output level, shifting SRAS left (stagflation). More capital and technology raise what the economy CAN produce at full employment, shifting LRAS right — a long-run growth event, distinct from a short-run demand or supply shock. A confidence drop lowers planned consumption/investment, shifting AD left. (The distractor "SRAS shifts right" does not belong to any of these four events — it would instead follow a FALL in input costs.)

Objective 6 — Fiscal Policy, the Multiplier & Deficits vs. Debt (Week 7)

Q18 (MC). In an economy with a marginal propensity to consume (MPC) of 0.75, government spending rises by $30 billion. The total change in GDP is —
- A. $22.5 billion
- B. $30 billion
- C. $120 billion ✅
- D. $400 billion
Feedback: Multiplier = 1 ÷ (1 − MPC) = 1 ÷ (1 − 0.75) = 1 ÷ 0.25 = 4. ΔY = ΔG × multiplier = 30 × 4 = $120 billion. (Pre-verified. A results from multiplying by MPC itself (30 × 0.75) rather than the multiplier — a common confusion between MPC and the multiplier formula. D results from using 1/MPC instead of 1/(1−MPC).)

Q19 (MC). A government's revenue this year is $380 billion; its spending is $410 billion. The national debt was $900 billion before this year. After this year, the debt is —
- A. $900 billion — the debt is unaffected by a single year's deficit
- B. $930 billion — this year's $30 billion deficit adds to the existing debt ✅
- C. $870 billion — the deficit reduces the debt
- D. $410 billion — the debt resets to this year's spending total
Feedback: Deficit = spending − revenue = 410 − 380 = $30 billion (a FLOW, this year only). The debt (a STOCK) accumulates every year's deficit: new debt = 900 + 30 = $930 billion. (Pre-verified. C makes the classic error of treating a deficit as if it REDUCES the debt — only a surplus does that. A wrongly assumes deficits don't accumulate at all.)

Q20 (Multiple answer — select all that apply). Which of the following are tools of FISCAL policy (as opposed to monetary policy)? Select all that apply.
- A. Congress increasing government spending on infrastructure ✅
- B. The Federal Reserve buying government bonds on the open market
- C. Congress cutting personal income tax rates ✅
- D. The Federal Reserve raising the reserve requirement for banks
- E. An automatic stabilizer like unemployment insurance paying out more during a downturn ✅
Feedback: Fiscal policy is wielded by Congress/the government: spending and taxes — so A (spending), C (taxes), and E (an automatic stabilizer built from the tax-and-transfer system) are all fiscal tools. B and D are monetary policy tools, wielded by the Federal Reserve (open-market operations and reserve requirements) — a completely different institution with different tools, covered starting Week 9. Confusing fiscal and monetary policy — and which body wields which tool — is one of the term's most consequential mix-ups.

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Answer Key (quick reference)

Q	Answer	Q	Answer
1	B (macro = the whole economy)	11	B (10% growth)
2	B (3 consumer goods per capital good)	12	C (17.5 years — 70÷4)
3	False (interior = inefficient/idle, not unattainable)	13	B (Y*=1,050, P*=13)
4	C ($1,055B GDP)	14	C (movement along AD)
5	C (transfer payments excluded)	15	B (SRAS left → stagflation)
6	C (deflator = 125)	16	B (recessionary gap $60B, 5%)
7	B (CPI=110; inflation=10%)	17	as above (right/left/right/left)
8	B (u-rate 12%; LFPR 80%)	18	C ($120B — mult. of 4)
9	frictional/structural/cyclical/discouraged, as above	19	B ($930B new debt)
10	False (discouraged workers not counted)	20	A, C, E (fiscal = Congress)

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Quality Gate (self-checked before shipping)

• Structure: 20 items, 5 points each, 100 points total. Coverage: Obj 1 = 3 (15 pts) · Obj 2 = 3 (15 pts) · Obj 3 = 4 (20 pts) · Obj 4 = 2 (10 pts) · Obj 5 = 5 (25 pts) · Obj 6 = 3 (15 pts) — matches the blueprint. Item-type mix: 14 multiple-choice + 2 matching + 2 true/false + 1 multiple-answer + 1 multiple-answer (Q20) = 20 items total (Q9 and Q17 are the two matching items; Q3 and Q10 are the two true/false items; Q20 is the one multiple-answer item).
• Single-answer integrity: every MC and T/F item has exactly one correct option. Both matching items (Q9, Q17) pair one-to-one. The one multiple-answer item (Q20) keys A, C, E.
• Quantitative gate: PASS. All numerical items re-derived in Python (see _build/logs/week-08-numbers.txt):
• Q2: 18/6 = 3 consumer goods per capital good ✓
• Q4: NX = 120−90 = 30; GDP = 600+250+175+30 = $1,055B ✓
• Q6: deflator = 1000/800×100 = 125 ✓
• Q7: CPI = 275/250×100 = 110; inflation = 10% ✓
• Q8: labor force = 88+12 = 100; u-rate = 12/100×100 = 12%; LFPR = 100/125×100 = 80% ✓
• Q11: growth = (660−600)/600×100 = 10% ✓
• Q12: rule of 70 at 4% = 70/4 = 17.5 years ✓
• Q13: fresh AD-AS system → Y*=1,050, P*=13 ✓
• Q16: gap = 1,200−1,140 = $60B = 5% of potential ✓
• Q18: multiplier = 1/(1−0.75) = 4; ΔY = 30×4 = $120B ✓
• Q19: deficit = 410−380 = $30B; new debt = 900+30 = $930B ✓
• Graph-logic check: PASS.
• AD shifts right (expansionary fiscal policy) → P↑, Y↑ ✓ (Q13, Q17)
• Price-level change → movement ALONG AD, not a shift ✓ (Q14)
• Oil-price shock → SRAS shifts LEFT → P↑, Y↓ (stagflation) ✓ (Q15, Q17)
• Capital/technology increase → LRAS shifts RIGHT (long-run growth) ✓ (Q17)
• Confidence drop → AD shifts LEFT → P↓, Y↓ ✓ (Q17)
• Actual Y below potential → recessionary gap, correctly sized and signed ✓ (Q16)
• No item overlap with O-practice-exam-week-08.md: verified by full stem comparison. Every quantitative pocket uses DIFFERENT engineered numbers — e.g., the midterm's PPF item uses 18/6 consumer/capital goods (OC = 3); the practice exam's uses 20/5 (OC = 4). The midterm's GDP item has NX = +30 (a trade surplus); the practice exam's has NX = −20 (a trade deficit). The midterm's AD–AS item shifts AD right; the practice exam's shifts SRAS left. The midterm diagnoses a recessionary gap; the practice exam diagnoses an inflationary gap. Full detail in O-practice-exam-week-08.md's own Quality Gate section.
• Factual accuracy: all named concepts (the expenditure approach, the GDP deflator, the rule of 70, the AD–AS model, the spending multiplier, fiscal vs. monetary policy) used factually as discipline content. No quotes or statistics attributed to real economists.
• Evenhandedness: this exam is purely computational/definitional review (no contested-policy items) — no evenhandedness concern arises, consistent with the brief's "auto-gradable only, contested questions test what schools claim" rule (no contested-school item appears on this cumulative Weeks-1–7 midterm, since the schools-of-thought synthesis is Week 15's territory).
• QTI parse confirmation: L-midterm-week-08-qti.xml parses as imsqti_xmlv1p2 with 20 items.

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Item-bank & coverage note

All 20 items are fresh-engineered variants built for the midterm — none copied from the Weeks 1–7 quizzes or workshops — tagged course=ECON2 · exam=midterm · weeks=1–7 · objectives=1–6.

Objective	Source weeks	Items
1	Week 1 (the macro perspective, scarcity, the PPF, positive/normative)	Q1–Q3
2	Week 2 (GDP, the expenditure approach, real vs. nominal, the deflator)	Q4–Q6
3	Week 3 (the CPI, inflation, unemployment, LFPR, types of unemployment)	Q7–Q10
4	Week 4 (growth rates, the rule of 70)	Q11–Q12
5	Weeks 5–6 (the AD–AS model, comparative statics, output gaps)	Q13–Q17
6	Week 7 (fiscal policy, the spending multiplier, deficits & debt)	Q18–Q20

Canvas placement block

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title                      = "Midterm Exam — Cumulative (Weeks 1–7)"
assignment_group           = "Midterm"
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due_offset_days            = 6        # 6 days after module start
published                  = true
allowed_attempts           = 1
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ai_permitted               = false    # AI is not permitted on the midterm
provenance                 = "~ Prof. Ashford's edition · Fall 2026 · built with thecoursemaker.com"