AP Econ Unit 2

Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to which of the following?

$2,500 billion

According to the business cycle represented in the diagram above, the actual rate of unemployment equals the natural rate of unemployment when the economy is

on the potential line

A country's real gross domestic product is the annual value of all final goods and services that are

produced in that country, adjusted for changes in the price level

Suppose that in a particular country, nominal gross domestic product (GDP) grew by 8 percent, and the GDP deflator increased by 10 percent. The country's growth rate of real GDP would be approximately equal to

—2%

Which of the following is true according to the circular flow model?

Households are demanders in the product markets and suppliers in the factor markets.

Which of the following statements about the simple circular flow model of a market economy is correct?

Households are on the demand side of the product market and the supply side of the resource market.

For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?

Households are suppliers of resources and consumers of goods and services.

The circular flow of economic activity between consumers and producers includes which of the following? I. Households buy factor services from firms. II. Households sell factor services to firms. III. Households buy outputs from firms. IV. Households sell outputs to firms.

II and III only

Which of the following groups of people would benefit from unanticipated inflation? I.Savers II.Borrowers III.Lenders

II only

A short-run increase in national income could be caused by a decrease in which of the following?

Imports

Which of the following represents a leakage from the circular flow in an economy?

Imports

Which of the following will most likely result from deflation?

Increased real value of fixed incomes

GDP does NOT account for which of the following?

The depletion of natural resources

Ying has just graduated from college and is now interviewing for jobs. Ying would best be described as

frictionally unemployed

The official unemployment rate understates the unemployment level in the economy because the official unemployment rate

ignores underemployed and discouraged workers

The consumer price index (CPI) does not measure the true cost of inflation because

improvements in the quality of goods or services are not fully reflected

In one year, spending on consumption, investment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if

net exports were negative

If purchases of education and medical care were counted as investment rather than consumption, gross domestic product would

not change, because there is no change in total expenditures

The consumer price index (CPI) is criticized for

overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change

The unemployment rate measures the percentage of

people in the labor force who do not have jobs

The consumer price index (CPI) measures the

prices of a specific group of goods and services purchased by consumers

If the nominal gross domestic product (GDP) of the nation of Hypothetica increased in 2007 relative to the previous year, it must be true that in Hypothetica in 2007

the price level and/or the real GDP has increased

Suppose that the consumer price index rises from 100 to 200. From this information we may conclude that

the prices in an average consumer's market basket are doubled

The natural rate of unemployment is the unemployment rate when

there is no cyclical unemployment

Which of the following individuals is considered officially unemployed?

Pat, who recently left a job to look for a different job in another town

Which of the following describes a typical business cycle in the correct sequence?

Peak, recession, trough, and expansion

In the circular flow diagram of a market economy, which of the following supplies the factors of production?

The household sector

An increase in the number of discouraged workers causes the unemployment rate to

decrease along with the labor-force participation rate

Unexpected increases in inventories usually precede

decreases in production

The natural rate of unemployment can be defined as the

economy's long-run equilibrium rate of unemployment

As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in

household production

Olivia volunteers full time at an animal shelter and will not accept any offers for a paid job for the next six months. Olivia is

not in the labor force

What is the nation's unemployment rate?

9%

The circular flow model illustrates the equality of which of the following?

Total expenditure and total income

Which of the following is an example of structural unemployment?

An autoworker who is replaced by a robot

The table below shows a country's macroeconomic data in 2013. Consumption spending: 175 billion Individual Income Tax: 32 billion Private Investment Spending: 30 billion Corporate Taxes: 25 billion Exports: 75 billion Government Purchases: 40 billion Imports: 100 billion The country's gross domestic product is

$220 billion

In 2007, the nominal gross domestic product (GDP) was $50 billion and the GDP deflator was 200. Thus real GDP was

$25 billion

The table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929 ?

$300

In 2016 the nominal GDP for Country X was $330 billion and the GDP deflator was 110. The real GDP for 2016 was

$300 Billion

Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars?

$4,500

The table above gives population and labor-market data for an economy. The unemployment rate in this economy is

10%

Assume that an economy produces just two goods, X and Y, as shown in the table above. If year 1 is the base year, the consumer price index for year 2 in this economy is

175

If the consumer price index increases from 200 to 240 in a one-year period, then the inflation rate is

20 percent

The business cycle diagram below shows the cyclical movement of actual real GDP relative to potential real GDP over time for the nation of Galactica.

2002

If an automobile was manufactured in 2006 and sold to a consumer in 2007, what was the effect on gross domestic product in 2006 and 2007?

2006 Increase; 2007 No change

According to the data above, in which year was real gross domestic product (GDP) the largest? Year Nominal GDP Deflator GDP 1980 $14,000 70 1990 $18,000 100 2000 $22,000 220 2010 $50,000 200 2015 $60,000 300

2010

Based on the information in the table above, what is the unemployment rate for Country X?

6.0%

If in a specified year nominal gross domestic product grew by 11 percent and real gross domestic product grew by 4 percent, inflation for this year would be

7%

The value of which of the following is counted in the United States gross domestic product?

A car produced in the United States and sold in Europe

Which of the following is an example of frictional unemployment?

A college graduate interviewing for two available positions

The value of which of the following would be included in the United States gross domestic product?

A movie ticket purchased at a local theater

Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product?

A newly constructed home

Which of the following is an example of frictional unemployment?

A person quits a job to search for another job.

Which of the following individuals is classified as unemployed?

A recent college graduate who is looking for her first job

Frictional unemployment occurs when which of the following happens?

A worker voluntarily quits a job to search for a better one.

Which of the following is included in the computation of gross domestic product?

Additions to business inventories

Which of the following is most likely included in gross domestic product?

Ali buys a new bicycle.

Which of the following will happen if the actual inflation rate is greater than the expected inflation rate?

Borrowers of fixed interest rate loans will be better off.

Which of the following allows an individual to gain from unexpected inflation?

Borrowing money at a fixed interest rate

Gross private domestic investment includes which of the following?

Changes in business inventories

Which of the following means of reducing military spending would have the greatest positive impact on gross domestic product for the United States?

Closing overseas military bases and relocating those operations to the United States

Which of the following explains why the rate of change of the consumer price index (CPI) tends to overstate the actual inflation rate?

Consumers tend to substitute lower-priced goods that may not be represented in the basket of goods.

Which of the following types of unemployment is caused by a recession?

Cyclical

Which type of unemployment would increase if workers lost their jobs because of a recession?

Cyclical

Which of the following would cause the official unemployment rate to understate the problem of unemployment?

Discouraged workers

Which of the following typically occurs during an expansionary phase of a business cycle?

Employment increases.

The nominal gross domestic product of China in 2010 is a measure of the total value of which of the following in 2010 ?

Final goods and services produced within the borders of China

Which of the following will lead to an increase in the United States gross domestic product?

Foreign companies build new assembly plants in the United States.

Melanie quits her job to look for a better one that has opportunity for advancement. Melanie will be classified in which category of unemployment?

Frictional

Which of the following groups would most likely gain from unanticipated inflation?

Individuals who have borrowed money at fixed interest rates

An increase in inventories will increase which component of gross domestic product?

Investment expenditures

Suppose that a typical consumer buys the following quantities of three commodities in 1993 and 1994. Which of the following can be concluded about the consumer price index (CPI) for this individual from 1993 to 1994 ?

It increased by 25%.

Which of the following statements is true of unanticipated inflation?

It increases the economic well-being of net debtors.

Which of the following is true about the real GDP?

It measures aggregate output using constant prices.

Which of the following unemployed individuals represents frictional unemployment?

Janet, an accounting graduate who is interviewing with a number of accounting firms.

Which of the following would most likely benefit from unexpected deflation?

Lenders

Which of the following would best explain a decline in potential gross domestic product?

Negative net investment

The nation of Turboland produces only two goods, X and Y. The prices and final quantities produced of the two goods in 1993 and the base year of 1992 are shown in the table below. What are the nominal GDP and real GDP in 1993?

Nominal GDP is $96, Real GDP is $90

Which of the following situations will benefit lenders of fixed interest rate loans?

The actual inflation rate is less than the expected inflation rate.

Country X produces only apples and bananas. The following table shows prices and quantities of both products in two years. Assuming year 1 is the base year, what is the nominal and real gross domestic product (GDP) for year 2 ?

Nominal GDP:$280 Real GDP: $200

In 2017 Sabrina earned an annual salary of $100,000 as an engineer. In 2018, her income rose to $105,000. The inflation rate in 2018 was 2%. How did Sabrina's nominal income and real income change in 2018 compared to 2017?

Nominal income increased and real income increased.

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

Nominal national income

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?

Number of Workers Employed:No change Unemployment Rate: Decrease

Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?

People who borrowed funds at the nominal interest rate during this time period would lose.

An increase in the number of which of the following will lead to an increase in the unemployment rate?

Persons quitting part-time jobs to look for full-time ones

Which of the following will be counted as unemployed by the United States Bureau of Labor Statistics?

Persons who were fired from their previous jobs and are actively applying for work

Suppose that a country's nominal gross domestic product (GDP) was $1,000 in year 1 and $2,000 in year 2. If year 1 is the base year and real (GDP) in year 2 was $1,000, which of the following is true?

Prices doubled between year 1 and year 2.

Which of the following is an example of how the consumer price index (CPI) exhibits bias in its estimates of changes in the cost of living?

Product improvements are not always fully reflected in the calculation of the CPI.

If a nation's actual real GDP is less than potential real GDP, which of the following must be true?

The actual rate of unemployment exceeds the natural rate of unemployment.

Inflation occurs when there is a sustained increase in which of the following?

The average price level

The consumer price index measures which of the following?

The change over time of the weighted prices of a particular group of goods and services

The table above shows the nominal gross domestic product (GDP) and the price index for an economy during the period 2012 and 2013. Which of the following would have occurred from 2012 to 2013? Year Nominal Price Index 2012 $100,000 200 2013 $110,000 220

Real GDP did not change.

Which of the following necessarily occurs during an economic recession?

Real gross domestic product decreases.

Which of the following best explains why transfer payments are not included in the calculation of gross domestic product?

Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments.

Which of the following can be considered a leakage from the circular flow of economic activity?

Saving

As a measure of economic performance, GDP accounts for which of the following?

Souvenir gifts purchased by tourists domestically

The table below shows the cost of the same representative basket of goods in the base year 2012 and in 2013, and the average weekly nominal wage rate in 2012 and 2013. If 2012 is the base year, which of the following is true?

The CPI in year 2013 is 120.

Gross domestic product has been criticized as a measure of well-being because it fails to take into account which of the following?

The distribution of income

Which of the following can be concluded from the data above? Year Real GDP Nominal GDP 1 $100 billion $70 billion 2 $120 billion $120 billion 3 $130 billion $150 billion

The economy was experiencing inflation during years 2 and 3.

An increase in which of the following is most likely to increase the long-run growth rate of an economy's real per capita income?

The educational attainment of the population

Which of the following statements about inflation is true?

The expected inflation rate is the difference between nominal and real interest rates.

The term "value added" for a firm is best defined as which of the following?

The firm's sales minus the cost of inputs purchased from other firms

Which of the following transactions would represent an addition to a nation's current gross domestic product?

The government increases its domestic purchases of food for use by the military.

Using 2010 as the base year, the gross domestic product (GDP) deflator in 2011 was 97. Which of the following must be true?

The inflation rate in 2011 was negative.

If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true?

The inflation rate was negative.

Which of the following statements exemplifies the concept of structural unemployment?

Workers are fired because their skills are no longer in demand.

Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true?

The lender would benefit.

Based on the above table which of the following is most likely correct?

The natural rate of unemployment is 5 percent.

If real gross domestic product is increasing at 3 percent per year and nominal gross domestic product is increasing at 7 percent per year, which of the following is necessarily true?

The price level is increasing.

Which of the following transactions will be included in the calculation of Country X's Gross Domestic Product (GDP) in 2020?

The purchase of new construction equipment

Gross domestic product is equal to which of the following?

The sum of income paid to all the factors of production

The table below shows the sales and intermediate purchases of automobile manufacturers, glass manufacturers, and steel manufacturers in a country. Assuming these are the only three manufacturers in the country, which of the following is true?

The total value added of the glass, steel, and automobile manufacturers is $100 million.

If an economy is at the peak of the business cycle, then which of the following is true about the state of the economy?

There is an inflationary gap.

Which of the following is true if the economy is producing at the full-employment level of output?

There is frictional unemployment.

Which of the following best describes an economy at full employment?

There is frictional, but not cyclical, unemployment.

Which of the following is correct according to the circular flow model of an economy?

Total spending equals total income.

The recent popularity of job search Web sites that enable job seekers and potential employers to more efficiently contact each other is most likely to cause

a reduction in the frictional unemployment rate

A lender will realize unexpected benefit when the

actual inflation rate is lower than the anticipated inflation rate

If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has

approximately increased by 10%

Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT

borrowers

In the measurement of gross domestic product, investment includes spending by

businesses on capital goods and changes in inventories

The consumer price index (CPI) is designed to measure changes in the

cost of a select market basket of goods and services

People who have given up looking for jobs are classified as

discouraged workers

The measured unemployment rate is often criticized for understating the level of joblessness because

discouraged workers are not counted in the labor force

The circular-flow model indicates that final goods are produced by

firms and sold in the product markets

As an indicator of an impending recession, inventories will most likely

increase as a result of a decrease in consumption

A continuous increase in the consumer price index (CPI) is

inflation

The major difference between real and nominal gross domestic product (GDP) is that real GDP

is adjusted for price-level changes using a price index

A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's

labor force

An increase in the labor force participation rate will

make it more difficult to reduce unemployment

A country's infrastructure refers to its

public capital goods such as highways

An industry historically used employees with specific skills. If this industry experiences technological advances that require new skills, there will most likely be

structural unemployment

Structural unemployment is best described as unemployment arising from

the elimination of jobs as a result of technological change

The real value of the United States dollar is determined by

the goods and services it will buy

The unemployment rate is calculated as

the number of people not working but actively seeking employment divided by the number of people in the labor force

The official unemployment rate is not an accurate indicator of actual unemployment in the economy because

the official rate does not include persons who have given up looking for work