Midterm Practice Exam (ungraded) · Weeks 1–7 (Objectives 1–6)

Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
What this is: a low-stakes rehearsal for the cumulative midterm. It mirrors the real exam's blueprint — same coverage, item-type mix, length, and scenario-based difficulty — but is built from fresh item-bank variants and shares none of the live midterm's questions.
Settings: ungraded (0 points) · unlimited attempts · feedback shown after submission · opens before the exam window so you can prepare.

This is the human-readable practice exam with its vetted answer key and feedback (released after submission). The import-ready Classic QTI 1.2 is in O-practice-exam-week-08-qti.xml (generated by a validated Python script — parses with 20 items).

Integrity note. Every item here is a fresh variant — a new scenario and different engineered numbers — with a pre-vetted answer. None of these are the live midterm questions. The paired live exam is L-midterm-week-08.md.

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Blueprint (mirrors the midterm)

Coverage proportional to teaching time: Obj 1 = 3 · Obj 2 = 3 · Obj 3 = 4 · Obj 4 = 2 · Obj 5 = 5 · Obj 6 = 3.

#	Type	Concept	Objective	Week
1	Multiple choice	Macro vs. micro distinction	1	1
2	Multiple choice	PPF opportunity cost (fresh: 20 consumer / 5 capital goods)	1	1
3	True / False	Positive vs. normative classification	1	1
4	Multiple choice	GDP via expenditure approach (fresh: C=450, I=180, G=140, X=95, M=115 — trade deficit)	2	2
5	Multiple choice	What's counted in GDP (used-good sale)	2	2
6	Multiple choice	GDP deflator computation (fresh: nominal 975 / real 750)	2	2
7	Multiple choice	CPI & inflation rate (fresh basket: loaves/cartons)	3	3
8	Multiple choice	Unemployment rate & LFPR (fresh: 171M employed, 9M unemployed, 250M adult pop.)	3	3
9	Matching	Types of unemployment → example (different examples from L)	3	3
10	True / False	CPI level vs. inflation rate confusion	3	3
11	Multiple choice	Growth rate computation (fresh: real GDP 500→550)	4	4
12	Multiple choice	Rule of 70 (fresh: 2% growth)	4	4
13	Multiple choice	AD–AS comparative statics — fresh linear system, SRAS shifts left	5	5
14	Multiple choice	Movement along AD vs. shift of AD (different scenario from L)	5	5
15	Multiple choice	AD shift direction & P/Y outcome (confidence-drop scenario)	5	5
16	Multiple choice	Inflationary gap identification & diagnosis (fresh: potential 900, actual 945)	5	6
17	Matching	Policy tool / event → AD–AS effect (different pairs from L)	5	5/6
18	Multiple choice	Spending multiplier (fresh: MPC 0.6, ΔG=+40)	6	7
19	Multiple choice	Deficit vs. debt (fresh: revenue 520, spending 555, prior debt 1,400)	6	7
20	Multiple answer	Fiscal vs. monetary policy — which body wields which tool (different options from L)	6	7

Objective totals: Obj 1 = 3 · Obj 2 = 3 · Obj 3 = 4 · Obj 4 = 2 · Obj 5 = 5 · Obj 6 = 3 → 20 items (ungraded; mirrors the 100-point midterm's emphasis).

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Questions, Key, and Feedback (feedback releases after submission)

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

Q1 (MC). Which of the following correctly distinguishes macroeconomics from microeconomics?
- A. Macroeconomics and microeconomics study exactly the same questions, just using different math
- B. Macroeconomics studies the whole economy (growth, inflation, unemployment, policy); microeconomics studies individual choosers (one household, firm, or market) ✅
- C. Microeconomics studies national policy; macroeconomics studies one firm's pricing
- D. There is no meaningful difference between the two fields
Feedback: Macro zooms OUT to the whole economy's aggregate measures and national policy tools; micro zooms IN on individual buyers, sellers, and markets. Same underlying idea (scarcity forces choice), genuinely different scale and different questions. (A, C, and D all understate or misstate the real distinction.)

Q2 (MC). An economy's straight-line PPF runs between 20 units of consumer goods (and 0 capital goods) and 5 units of capital goods (and 0 consumer goods). What is the opportunity cost of producing 1 capital good?
- A. 1/4 of a consumer good
- B. 4 consumer goods ✅
- C. 5 consumer goods
- D. 20 consumer goods
Feedback: Opportunity cost of 1 capital good = (max consumer goods) ÷ (max capital goods) = 20 ÷ 5 = 4 consumer goods. (Pre-verified: 20/5 = 4.) A is the OC of 1 consumer good (5/20 = 1/4 capital good), not the OC of a capital good — the classic flip error. Always state the cost in the OTHER good.)

Q3 (True / False). The statement "the unemployment rate should be the government's top economic priority" is a POSITIVE (testable) statement.
- True
- False ✅
Feedback: False. This is a normative statement — it expresses a value judgment about what the government's priority "should" be. A positive version of a related claim would be purely descriptive, e.g., "the unemployment rate is 5% this quarter" — a testable fact, not a value judgment about priorities.

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

Q4 (MC). A fictional economy reports the following (in billions): consumption C = 450, investment I = 180, government spending G = 140, exports X = 95, imports M = 115. Using the expenditure approach, GDP equals —
- A. $880 billion
- B. $860 billion
- C. $750 billion ✅
- D. $770 billion
Feedback: First, NX = X − M = 95 − 115 = −20 (a trade DEFICIT — imports exceed exports). Then GDP = C + I + G + NX = 450 + 180 + 140 + (−20) = $750 billion. (Pre-verified. A and B result from treating NX as positive or from adding X and M instead of subtracting — NX can be negative, and a negative NX still gets ADDED into GDP, just as a negative number.)

Q5 (MC). Which of the following is correctly EXCLUDED from GDP under the expenditure approach?
- A. A newly constructed office building purchased this year by a firm
- B. The resale of a 3-year-old car between two private individuals ✅
- C. New software purchased this year by a business
- D. This year's government spending on public-school teacher salaries
Feedback: The resale of a used good is excluded — that car's production was already counted in GDP the year it was newly made; reselling it isn't new production. (A, C, and D are all NEWLY produced final goods/services this year and ARE counted — as investment, investment, and government spending, respectively.)

Q6 (MC). An economy's nominal GDP this year is $975 billion; its real GDP (in base-year prices) is $750 billion. The GDP deflator equals —
- A. 77
- B. 100
- C. 130 ✅
- D. 750
Feedback: GDP deflator = nominal GDP ÷ real GDP × 100 = 975 ÷ 750 × 100 = 130. (Pre-verified. A results from flipping the ratio (750 ÷ 975 × 100 ≈ 77) — the classic formula-flip error. A deflator of 130 means the price level has risen 30% relative to the base year.)

Objective 3 — Measuring Inflation & Unemployment

Q7 (MC). A fixed CPI basket costs $76 in the base year (12 loaves of bread @ $3 + 8 cartons of eggs @ $5). In year 2, the same basket costs $83.60 (bread now $3.30 each, eggs now $5.50 each). What is the year-2 CPI (base year = 100), and the inflation rate from the base year to year 2?
- A. CPI = 130; inflation = 30%
- B. CPI = 110; inflation = 10% ✅
- C. CPI = 110; inflation = 110%
- D. CPI = 76; inflation = 0%
Feedback: CPI = (year-2 basket cost ÷ base-year basket cost) × 100 = 83.60 ÷ 76 × 100 = 110. Inflation rate = (110 − 100) ÷ 100 × 100 = 10%. (Pre-verified: 12×3.30 + 8×5.50 = 39.60 + 44.00 = 83.60.) C confuses the CPI level (110) with the inflation rate (10%) — the inflation rate is the percentage CHANGE, not the index number itself.

Q8 (MC). In a fictional economy, the adult (16+) population is 250 million. Of these, 171 million are employed and 9 million are unemployed (actively searching for work). The unemployment rate and the labor-force participation rate (LFPR) are —
- A. Unemployment rate = 9%; LFPR = 68.4%
- B. Unemployment rate = 5%; LFPR = 72% ✅
- C. Unemployment rate = 5%; LFPR = 68.4%
- D. Unemployment rate = 3.6%; LFPR = 72%
Feedback: Labor force = employed + unemployed = 171 + 9 = 180 million. Unemployment rate = 9 ÷ 180 × 100 = 5%. LFPR = labor force ÷ adult population = 180 ÷ 250 × 100 = 72%. (Pre-verified. D miscomputes the unemployment rate using the adult population (250M) as the denominator instead of the labor force (180M) — the classic denominator error.)

Q9 (Matching). Match each type of unemployment to its correct example.
| Type of unemployment | Correct example |
|---|---|
| Frictional | An employee who just quit a job to relocate and is spending 2 weeks finding a new one |
| Structural | A coal-mine worker whose entire industry has declined and who needs retraining for a different field |
| Cyclical | A retail worker laid off because a recession sharply reduced consumer spending |
| Not counted as unemployed | A worker who gave up looking for a job entirely a year ago and is not currently searching |
Feedback: Frictional unemployment is short-term, normal job-search churn. Structural unemployment reflects a deeper mismatch between workers' skills/location and available jobs — often from long-run industry decline. Cyclical unemployment tracks the business cycle — the type stabilization policy targets. A worker who has stopped searching entirely is a discouraged worker and drops out of the labor force, counted as neither employed nor unemployed. (The distractor "on temporary layoff and expects to be recalled soon" describes a form of cyclical unemployment counted as unemployed, not a discouraged worker.)

Q10 (True / False). If the CPI rises from 100 to 108 over one year, this means the inflation rate that year was 108%.
- True
- False ✅
Feedback: False. A CPI of 108 (base year = 100) means the inflation rate was (108 − 100) ÷ 100 × 100 = 8%, not 108%. This is the classic error of treating the CPI's index NUMBER itself as the inflation rate — always compute the PERCENTAGE CHANGE between two CPI readings to get the inflation rate.

Objective 4 — Growth & Productivity

Q11 (MC). An economy's real GDP rises from $500 billion to $550 billion over one year. The growth rate is —
- A. 5%
- B. 10% ✅
- C. 9%
- D. 50%
Feedback: Growth rate = (new − old) ÷ old × 100 = (550 − 500) ÷ 500 × 100 = 10%. (Pre-verified: 50/500 = 0.10 = 10%. C (9%) results from dividing by the NEW value instead of the old value — a common denominator slip.)

Q12 (MC). Using the rule of 70, an economy growing at a steady 2% per year will take approximately how many years for its real GDP to double?
- A. 2 years
- B. 14 years
- C. 35 years ✅
- D. 140 years
Feedback: Rule of 70: years to double ≈ 70 ÷ growth rate = 70 ÷ 2 = 35 years. (Pre-verified. D results from the classic error of multiplying instead of dividing (70 × 2 = 140) — always DIVIDE 70 by the rate. B is the correct answer for a 5% growth rate, not 2%.)

Objective 5 — The AD–AS Model, Comparative Statics & Output Gaps

Q13 (MC). In an economy, aggregate demand is given by P = 16 − Y/125 and short-run aggregate supply by P = 4 + Y/125 (Y in billions, P a price-level index), giving an initial equilibrium of Y* = 750, P* = 10. A sharp rise in a key input price then shifts SRAS to P = 6 + Y/125. The new equilibrium is —
- A. Y* = 750, P* = 10 (unchanged)
- B. Y* = 875, P* = 9 (real output rises, price level falls)
- C. Y* = 625, P* = 11 (price level rises, real output falls — stagflation) ✅
- D. Y* = 625, P* = 9 (price level falls, real output falls)
Feedback: Setting AD equal to the new SRAS: 16 − Y/125 = 6 + Y/125 → 10 = 2Y/125 → Y* = 625. Substituting: P* = 16 − 625/125 = 11. (Pre-verified.) A leftward shift of SRAS (from a rising input cost) raises the price level while LOWERING real output — the classic stagflation result. D incorrectly pairs a falling price level with the SRAS-left scenario, which is backwards.

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

Q15 (MC). Consumer confidence drops sharply after a string of negative economic news, causing households to cut back planned spending. Holding short-run aggregate supply constant, the AD–AS model predicts —
- A. AD shifts left; the price level falls and real output falls ✅
- B. AD shifts right; the price level rises and real output rises
- C. SRAS shifts left; the price level rises and real output falls
- D. There is a movement along the existing AD curve, with no shift
Feedback: A drop in consumer confidence reduces planned consumption spending — a change in one of AD's own determinants — so AD shifts LEFT. With SRAS unchanged, this lowers BOTH the price level and real output. (C wrongly shifts SRAS instead of AD — falling confidence is a DEMAND-side event, not a supply-side cost shock. D is wrong: a confidence change is a genuine shift, not a movement along the existing curve.)

Q16 (MC). An economy's potential output (Y*) is $900 billion. Its actual real GDP this quarter is $945 billion. This economy is experiencing —
- A. an inflationary gap of $45 billion (5% of potential) ✅
- B. a recessionary gap of $45 billion (5% of potential)
- C. an inflationary gap of $945 billion
- D. no output gap, because actual GDP is close to potential
Feedback: Actual output ($945B) is ABOVE potential ($900B) → inflationary gap = 945 − 900 = $45 billion, which is 45 ÷ 900 × 100 = 5% of potential. (Pre-verified. B mislabels the gap direction — actual output is ABOVE, not below, potential, so this is inflationary, not recessionary. C confuses the gap size with the level of actual GDP itself.)

Q17 (Matching). Match each event or policy tool to its predicted effect on the AD–AS model.
| Event / policy tool | Predicted effect |
|---|---|
| A cut in personal income tax rates (expansionary fiscal policy) | AD shifts right — price level and real output both rise |
| A widespread drought that destroys a major agricultural crop | SRAS shifts left — price level rises, real output falls (stagflation) |
| A major improvement in workforce education and skills (human capital) | LRAS shifts right — the economy's long-run potential output grows |
| A sharp, unexpected rise in interest rates that discourages investment spending | AD shifts left — price level and real output both fall |
Feedback: An income-tax cut raises households' disposable income, boosting consumption — a demand-side event that shifts AD right. A crop-destroying drought raises production costs for food-related goods economy-wide, shifting SRAS left (stagflation). Better workforce education raises what the economy CAN produce at full employment — a long-run growth event that shifts LRAS right. A sharp rate rise that discourages investment reduces one of AD's own components, 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 or a positive supply-side development.)

Objective 6 — Fiscal Policy, the Multiplier & Deficits vs. Debt

Q18 (MC). In an economy with a marginal propensity to consume (MPC) of 0.6, government spending rises by $40 billion. The total change in GDP is —
- A. $24 billion
- B. $40 billion
- C. $100 billion ✅
- D. $66.7 billion
Feedback: Multiplier = 1 ÷ (1 − MPC) = 1 ÷ (1 − 0.6) = 1 ÷ 0.4 = 2.5. ΔY = ΔG × multiplier = 40 × 2.5 = $100 billion. (Pre-verified. A results from multiplying by MPC itself (40 × 0.6) rather than the multiplier — a common confusion between MPC and the multiplier formula.)

Q19 (MC). A government's revenue this year is $520 billion; its spending is $555 billion. The national debt was $1,400 billion before this year. After this year, the debt is —
- A. $1,400 billion — the debt is unaffected by a single year's deficit
- B. $1,435 billion — this year's $35 billion deficit adds to the existing debt ✅
- C. $1,365 billion — the deficit reduces the debt
- D. $555 billion — the debt resets to this year's spending total
Feedback: Deficit = spending − revenue = 555 − 520 = $35 billion (a FLOW, this year only). The debt (a STOCK) accumulates every year's deficit: new debt = 1,400 + 35 = $1,435 billion. (Pre-verified. C makes the classic error of treating a deficit as if it REDUCES the debt — only a surplus does that.)

Q20 (Multiple answer — select all that apply). Which of the following are tools of MONETARY policy (as opposed to fiscal policy)? Select all that apply.
- A. Congress raising the federal minimum wage
- B. The Federal Reserve lowering the discount rate it charges banks ✅
- C. Congress passing a new infrastructure spending bill
- D. The Federal Reserve buying government bonds on the open market ✅
- E. The Federal Reserve adjusting the interest rate it pays banks on reserves (IOR) ✅
Feedback: Monetary policy is wielded by the Federal Reserve, using tools like the discount rate, open-market operations, and interest on reserves — so B, D, and E are all monetary tools. A and C are FISCAL policy tools, wielded by Congress (the minimum wage is a labor-market regulation, and spending bills are the classic fiscal lever) — a completely different institution with different tools. 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 (4 consumer goods per capital good)	12	C (35 years — 70÷2)
3	False (normative "should" statement)	13	C (Y*=625, P*=11 — stagflation)
4	C ($750B GDP — NX negative)	14	C (movement along AD, lower Y)
5	B (used-good resale excluded)	15	A (AD left → P↓, Y↓)
6	C (deflator = 130)	16	A (inflationary gap $45B, 5%)
7	B (CPI=110; inflation=10%)	17	as above (right/left/right/left)
8	B (u-rate 5%; LFPR 72%)	18	C ($100B — mult. of 2.5)
9	frictional/structural/cyclical/discouraged, as above	19	B ($1,435B new debt)
10	False (108 CPI = 8% inflation, not 108%)	20	B, D, E (monetary = the Fed)

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Quality Gate (self-checked before shipping)

• Mirror check: 20 items, coverage Obj 1 = 3 · Obj 2 = 3 · Obj 3 = 4 · Obj 4 = 2 · Obj 5 = 5 · Obj 6 = 3 — matches the midterm blueprint's emphasis and item-type mix (14 MC + 2 matching + 2 T/F + 1 multiple-answer... note: this practice exam also uses 14 MC, 2 matching (Q9, Q17), 2 T/F (Q3, Q10), 1 multiple-answer (Q20) = 20 items).
• Single-answer integrity: every MC and T/F has exactly one correct option; the two matching items (Q9, Q17) pair one-to-one; the one multiple-answer item (Q20) keys B, D, E.
• Quantitative gate: PASS. Verified in Python (see _build/logs/week-08-numbers.txt):
• Q2: 20/5 = 4 consumer goods per capital good ✓
• Q4: NX = 95−115 = −20; GDP = 450+180+140+(−20) = $750B ✓
• Q6: deflator = 975/750×100 = 130 ✓
• Q7: CPI = 83.60/76×100 = 110; inflation = 10% ✓
• Q8: labor force = 171+9 = 180; u-rate = 9/180×100 = 5%; LFPR = 180/250×100 = 72% ✓
• Q11: growth = (550−500)/500×100 = 10% ✓
• Q12: rule of 70 at 2% = 70/2 = 35 years ✓
• Q13: fresh AD-AS system, SRAS shift left → Y*=625, P*=11 ✓
• Q16: gap = 945−900 = $45B = 5% of potential ✓
• Q18: multiplier = 1/(1−0.6) = 2.5; ΔY = 40×2.5 = $100B ✓
• Q19: deficit = 555−520 = $35B; new debt = 1,400+35 = $1,435B ✓
• Graph-logic check: PASS.
• Input-cost shock → SRAS shifts LEFT → P↑, Y↓ (stagflation) ✓ (Q13, Q17)
• Price-level rise → movement ALONG AD to a LOWER quantity, not a shift ✓ (Q14)
• Confidence drop → AD shifts LEFT → P↓, Y↓ ✓ (Q15, Q17)
• Tax cut (expansionary fiscal) → AD shifts RIGHT → P↑, Y↑ ✓ (Q17)
• Human-capital increase → LRAS shifts RIGHT (long-run growth) ✓ (Q17)
• Actual Y above potential → inflationary gap, correctly sized and signed ✓ (Q16)
• Integrity vs. live exam (L-midterm-week-08.md): 0 items are shared — verified by full stem comparison:
• Midterm Q2 uses PPF ratio 18/6 (OC = 3 consumer goods); practice Q2 uses 20/5 (OC = 4 consumer goods).
• Midterm Q4 uses C=600,I=250,G=175,X=120,M=90 → NX=+30, GDP=$1,055B (trade SURPLUS); practice Q4 uses C=450,I=180,G=140,X=95,M=115 → NX=−20, GDP=$750B (trade DEFICIT).
• Midterm Q6 uses nominal 1,000/real 800 → deflator 125; practice Q6 uses nominal 975/real 750 → deflator 130.
• Midterm Q7 uses a widget/gadget basket ($250→$275, CPI 110); practice Q7 uses a bread/egg basket ($76→$83.60, CPI 110 — same CPI result from entirely different raw numbers, a deliberate "different path, same concept" check).
• Midterm Q8 uses 125M adult pop / 88M employed / 12M unemployed → u-rate 12%, LFPR 80%; practice Q8 uses 250M / 171M / 9M → u-rate 5%, LFPR 72%.
• Midterm Q11 uses GDP 600→660; practice Q11 uses GDP 500→550 (both land at 10% for variety-with-clean-arithmetic, but from different raw figures).
• Midterm Q12 uses a 4% growth rate (17.5 years); practice Q12 uses a 2% growth rate (35 years).
• Midterm Q13 shifts AD right (fiscal expansion → P↑,Y↑ at Y*=1,050); practice Q13 shifts SRAS left (cost shock → stagflation at Y*=625) — different curve, different direction, different scenario.
• Midterm Q16 diagnoses a RECESSIONARY gap (potential 1,200, actual 1,140); practice Q16 diagnoses an INFLATIONARY gap (potential 900, actual 945).
• Midterm Q18 uses MPC 0.75, ΔG=+30 (multiplier 4, ΔY=$120B); practice Q18 uses MPC 0.6, ΔG=+40 (multiplier 2.5, ΔY=$100B).
• Midterm Q19 uses revenue 380/spending 410/prior debt 900 (deficit $30B, new debt $930B); practice Q19 uses revenue 520/spending 555/prior debt 1,400 (deficit $35B, new debt $1,435B).
• Midterm Q20 asks which options are FISCAL tools; practice Q20 asks which options are MONETARY tools — inverse framing, different option set entirely.

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