AP Macro Unit 2

Which of the following is true according to the circular flow model? Responses Firms are suppliers in both the product and factor markets. Firms are demanders in the product markets and suppliers in the factor markets. Households are demanders in both the product and factor markets. Households are demanders in the product markets and suppliers in the factor markets. The government is a demander in the product market only.

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

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

II only

The consumer price index measures which of the following? Responses The change over time of the weighted prices of a particular group of goods and services The change over time of the weighted wholesale price index The change over time of the difference between the gross domestic product deflator and the wholesale price index Inflation corrected for changes in the real gross domestic product Inflation corrected for changes in the wholesale price index

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

As a measure of economic performance, the United States gross domestic product (GDP) accounts for which of the following? Responses The use of open-source, free Web browsers A parent's care of children in the home The street sale of illegal substances The cleanup of an oil spill The production of vegetables grown in the backyard and consumed by the family

The cleanup of an oil spill

Ying has just graduated from college and is now interviewing for jobs. Ying would best be described as Responses cyclically unemployed frictionally unemployed structurally unemployed not in the labor force a discouraged worker

frictionally unemployed

As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in Responses the production of military goods the production of antipollution devices crime prevention services household production legal services

household production

Question 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 Responses cyclically unemployed not in the labor force employed structurally unemployed a seasonal worker

not in the labor force

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 Responses in expansion in contraction at the peak at the trough on the potential line

on the potential line

A criticism of the consumer price index as a measure of the cost of living is that it Responses understates the rate of inflation because the base year is outdated understates the rate of inflation because it only considers spending by typical urban consumers understates the rate of inflation because it reflects the increase in prices due to the introduction of new goods overstates the rate of inflation because it ignores consumers' ability to substitute among similar items when prices change overstates the rate of inflation to compensate for statistical errors in data collection

overstates the rate of inflation because it ignores consumers' ability to substitute among similar items when prices change

The consumer price index (CPI) is criticized for Responses overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change overstating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change understating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change understating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change overstating the true burden of inflation because it reflects the prices of both intermediate goods and final goods

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

In 2007, the nominal gross domestic product (GDP) was $50 billion and the GDP deflator was 200. Thus real GDP was Responses $150 billion $100 billion $50 billion $25 billion $4 billion

$25 billion

Suppose Miguel wants to know the value of real gross domestic product (GDP) for 2011 in terms of the base year 1984 dollars. In 1984 nominal GDP was $10 billion. In 2011 nominal GDP was $15 billion and the price deflator was 200. Real GDP in 1984 dollars would be equal to which of the following? Responses $5 billion $7.5 billion $10 billion $20 billion $30 billion

$7.5 billion

The table above gives population and labor-market data for an economy. The unemployment rate in this economy is Responses 3.3% 5% 10% 33.3% 50%

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 Responses 57.1 66.7 100 175 250

175

Calculate Country X's nominal gross domestic product (GDP) for 2017 using the expenditures approach. Responses 14 billion dollars 18 billion dollars 19 billion dollars 20 billion dollars 21 billion dollars

19 billion dollars

If the consumer price index increases from 200 to 240 in a one-year period, then the inflation rate is Responses 16.67 percent 20 percent 25 percent 40 percent 140 percent

20 percent

The economy of Galactica is expanding and the actual unemployment rate exceeds the natural rate of unemployment for which year in the above diagram? Responses 1992 1996 2002 2007 2011

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? Responses 2006 2007 No change Increase 2006 2007 Decrease Increase 2006 2007 Increase No change 2006 2007 Increase Decrease 2006 2007 No change No change

2006 2007 Increase No change

According to the data above, in which year was real gross domestic product (GDP) the largest? Responses 1980 1990 2000 2010 2015

2010

The economy of Fisherland is at full employment for which year in the above diagram? Responses 2009 2010 2013 2015 2017

2015

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 Responses -7% 7% 8% 11% 15%

7%

Which of the following is an example of frictional unemployment? Responses A former mayor doing volunteer work A factory worker who loses her job because of recession A college student working part-time at the campus bookstore A college graduate interviewing for two available positions An architect whose job is replaced by computer software that designs buildings

A college graduate interviewing for two available positions

Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product? Responses Government bonds Shares of a company stock Corporate bonds A new car for personal use A newly constructed home

A newly constructed home

Which of the following is included in the computation of gross domestic product? Responses Government transfer payments, such as unemployment benefits Purchases of used goods, such as used cars Child care tasks performed by househusbands Total value of business inventories Additions to business inventories

Additions to business inventories

Which of the following is most likely included in gross domestic product? Responses Matt gives his secondhand bicycle to his brother. Sal paints his own bicycle. Ali buys a new bicycle. Mike buys a share of stock in a bicycle firm. Daniel bikes to school every day.

Ali buys a new bicycle

Which of the following is true about gross domestic product (GDP)? Responses Calculations of G D P include the monetary value of non-market production activities such as households preparing their own meals at home., Calculations of G D P do not include the monetary value of production activities., Calculations of G D P include the monetary value of illegal production activities such as drug cartels. Calculations of G D P include the sale of used goods. Calculations of GDP include the unsold inventories of goods produced within the borders of the country.

Calculations of GDP include the unsold inventories of goods produced within the borders of the country.

Which of the following types of unemployment is caused by a recession? Responses Hidden Frictional Seasonal Structural Cyclical

Cyclical

Which of the following terms describes a slowdown in the rate of increase in the consumer price index? Responses Deflation Disinflation Hyperinflation Inflation Stagflation

Disinflation

Which of the following typically occurs during an expansionary phase of a business cycle? Responses Nominal interest rates decrease. Income taxes decrease. The price level decreases. Government transfer payments increase. Employment increases.

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 ? Responses Financial assets, including stocks, in China Firms located within the borders of China Final goods and services consumed in China Final goods and services produced within the borders of China Final goods and services exported by China to the rest of the world

Final goods and services produced within the borders of China

Which of the following will most likely result from deflation? Responses Increased nominal interest rates Increased business profits Increased real value of fixed incomes Decreased purchasing power of cash Decreased real wealth

Increased real value of fixed incomes

An increase in inventories will increase which component of gross domestic product? Responses Personal consumption expenditures Investment expenditures Government purchases Exports Imports

Investment expenditures

Which of the following describes a limitation of gross domestic product (GDP)? Responses It overstates the value of output by counting non-market transactions such as mowing your neighbor's lawn. It understates the value of output by accounting for negative environmental side effects of production. It does not account for the distribution of income in a nation or income inequality. It overstates economic well-being by including all do-it-yourself activities. It overstates the value of output by making adjustments for the value of services consumed for free such as browsing on the Web.

It does not account for the distribution of income in a nation or income inequality.

Jan works a 30-hour week for a minimum wage of $10 per hour. Suppose that last year is the base year for the Consumer Price Index (CPI). Which of the following is true about Jan's real wage if at the end of this year the CPI is 125 ? Responses Jan's real wage at the end of this year is $10 per hour because the base year equals 100. Jan's real wage is $2.50 per hour at the end of the year due to inflation. Jan's real wage is 25% higher at the end of the year because the CPI increased from 100 to 125. Jan's real wages are equal to her nominal wages at the end of the year. Jan's real wage is $8 per hour at the end of the year.

Jan's real wage is $8 per hour at the end of the year.

Which of the following would most likely benefit from unexpected deflation? Responses Lenders Borrowers Retail shop owners Governments in debt Automobile manufacturing firms

Lenders

Last year, Myron purchased a $10,000 certificate of deposit with a fixed 3% interest rate from his bank. The government reported that prices, on average, have fallen by 5% during the current year. Which of the following can be concluded as a result of this transaction? Responses Myron loses, while the bank gains. Myron gains, while the bank remains unaffected. Myron gains, while the bank loses. Both Myron and the bank equally gain. The bank gains, while Myron remains unaffected.

Myron gains, while the bank loses.

Assuming year 1 is the base year, what is the nominal and real gross domestic product (GDP) for year 2 ? Responses Nominal GDP Real GDP $200 $280 Nominal GDP Real GDP $200 $200 Nominal GDP Real GDP $280 $200 Nominal GDP Real GDP $280 $560 Nominal GDP Real GDP $560 $280

Nominal GDP Real GDP $280 $200

In an economy, the price index in 2006 was 100 and the real gross domestic product (GDP) was $1,000. In 2010, the price index was 110 and the nominal GDP was $2,200. Based on that information, which of the following can be inferred about the economy's nominal GDP in 2006 and real GDP in 2010 ? Responses Nominal GDP in 2006=$2,000; Real GDP in 2010=$1,000 Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,000 Nominal GDP in 2006=$1,100; Real GDP in 2010=$2,420 Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,420 Nominal GDP in 2006=$1,100; Real GDP in 2010=$2,200

Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,000

Which of the following describes a difference between nominal gross domestic product (GDP) and real GDP? Responses Nominal GDP uses constant prices to measure the value of final output, while real GDP uses current prices. Nominal GDP uses current prices to measure the value of final output, while real GDP uses constant prices. Nominal GDP measures how much output is produced within the borders of a country, while real GDP measures how much output is produced around the world by domestic companies. Nominal GDP includes sales of used goods while real GDP does not. Nominal GDP takes into account the size of the population while real GDP does not.

Nominal GDP uses current prices to measure the value of final output, while real GDP uses constant prices.

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? Responses Real national income Nominal national income The international value of the currency Real interest rates Nominal interest rates

Nominal national income

Which of the following describes a typical business cycle in the correct sequence? Responses Peak, trough, recession, and expansion Peak, trough, expansion, and recession Peak, recession, trough, and expansion Peak, recession, expansion, and trough Peak, expansion, trough, and recession

Peak, recession, trough, and expansion

If an economy is experiencing deflation, which of the following is most likely to happen? Responses People consume more in the present. The government decreases its spending. People who took a fixed-rate loan become worse off. The real interest rate is lower than the nominal interest rate. The nominal interest rate increases.

People who took a fixed-rate loan become worse off.

An increase in the number of which of the following will lead to an increase in the unemployment rate? Responses Discouraged workers Business start-ups Self-employed persons Persons working 30 instead of 40 hours per week Persons quitting part-time jobs to look for full-time ones

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

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? Responses Prices fell by 50% between year 1 and year 2. Prices doubled between year 1 and year 2. Prices remained the same between year 1 and year 2. More goods and services were produced in year 2 than in year 1. Fewer goods and services were produced in year 2 than in year 1.

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? Responses Energy prices have a higher impact on inflation than other input costs do. New products are always overrepresented in the CPI. The CPI assigns greater weight to measures of welfare than it does to economic activity. Product improvements are not always fully reflected in the calculation of the CPI. The CPI adjusts for the substitution of less expensive goods by consumers.

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

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? Responses Real GDP decreased by 20%. Real GDP decreased by 10%. Real GDP increased by 20%. Real GDP increased by 10%. Real GDP did not change.

Real GDP decreased by 10%.

Which of the following is the correct calculation of Real Gross Domestic Product (GDP)? Responses Real GDP=(Nominal GDP/GDP deflator)×100 Real GDP=(GDP deflator/Nominal GDP)×100 Real GDP=(Nominal GDP×GDP deflator)×100 Real GDP=(Nominal GDP+GDP deflator)×100 Real GDP=(Nominal GDP−GDP deflator)×100

Real GDP=(Nominal GDP/GDP deflator)×100

Which of the following necessarily occurs during an economic recession? Responses Cost-push inflation decreases. Real gross domestic product decreases. Cyclical unemployment decreases. Demand-pull inflation increases. Nominal wages increase.

Real gross domestic product decreases.

Which of the following best explains why transfer payments are not included in the calculation of gross domestic product? Responses Transfer payments are used to pay for intermediate goods, and intermediate goods are excluded from gross domestic product. Transfer payments are a government expenditure, and government expenditures are excluded from gross domestic product. Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments. Recipients of transfer payments are usually children, and income earned by children is excluded in gross domestic product. Recipients of transfer payments are sometimes not citizens of the United States.

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

Which of the following is classified as a discouraged worker? Responses Javier earned a degree in business and is actively seeking a job in the financial sector. Sara has been unable to find a job and abandoned her job search. Raphael decided to be a stay-at-home dad after he lost his job. Ida was laid off during a downturn in the economy and is looking for a new job. Zack volunteers at the local elementary school all year long.

Sara has been unable to find a job and abandoned her job search.

As a measure of economic performance, GDP accounts for which of the following? Responses Used books donated to a local library Depletion of durable consumer goods Increased leisure time Souvenir gifts purchased by tourists domestically Cash transactions in the underground economy

Souvenir gifts purchased by tourists domestically

What type of unemployment describes the situation of factory workers displaced by automation? Responses Cyclical Frictional Natural Seasonal Structural

Structural

Given the labor market data above, what are the labor-force participation rate (LFPR) and the unemployment rate (UR) ? Responses The LFPR is 60% and the UR is 6.0%. The LFPR is 54% and the UR is 6.0%. The LFPR is 54% and the UR is 10.0%. The LFPR is 60% and the UR is 10.0%. The LFPR is 60% and the UR is 3.3%.

The LFPR is 60% and the UR is 10.0%.

GDP does NOT account for which of the following? Responses The value added by all firms in the economy The depletion of natural resources Wages, rent, profit, and interest payments The value of final goods and services produced domestically Imports from foreign countries

The depletion of natural resources

The output gap is measured by which of the following? Responses The difference between nominal and real GDP. The difference between actual and potential GDP. The difference between the expenditure side of GDP and the income side of GDP. The difference between the actual rate of unemployment and the natural rate of unemployment. The difference between the GDP deflator and the consumer price index in a given year.

The difference between actual and potential GDP.

Gross domestic product has been criticized as a measure of well-being because it fails to take into account which of the following? Responses The distribution of income The value of services The value of intermediate goods The value of financial transactions and sales of used items The value of government services

The distribution of income

The figure above shows data for actual real GDP and potential real GDP from year 1 to year 6 for an economy. Which of the following is true based on this figure? Responses The economy is in expansion from year 1 to year 3. The economy is in recession from year 3 to year 5. There is an inflationary gap from year 2 to year 4. The economy is at full employment in year 5. The economy is in long-run equilibrium in year 2.

The economy is in long-run equilibrium in year 2.

Which of the following can be concluded from the data above? Responses The base year for the price index was year 1. The base year for the price index was year 3. The economy was producing higher-quality goods and services in years 2 and 3 than in year 1. The economy was experiencing inflation during years 2 and 3. The economy was experiencing deflation during years 1, 2, and 3.

The economy was experiencing inflation during years 2 and 3.

Which statement is true about the approaches used to measure the value of a nation's gross domestic product (GDP) ? Responses The expenditures approach to calculating GDP sums the components of the supply side of the economy. The income approach to calculating G D P sums the income earned by the factors of production excluding profits. The value-added approach to calculating G D P sums the final monetary value of output at each stage of production. The expenditures approach to calculating G D P sums the market value of all final goods and services produced by foreigners in a given period of time., The expenditures approach to calculating GDP sums consumption spending, investment spending, government spending, and net exports.

The expenditures approach to calculating GDP sums consumption spending, investment spending, government spending, and net exports.

The term "value added" for a firm is best defined as which of the following? Responses The firm's sales The firm's sales minus depreciation The firm's sales minus its losses The firm's sales minus the cost of inputs purchased from other firms The firm's profits from its sales

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

Using 2010 as the base year, the gross domestic product (GDP) deflator in 2011 was 97. Which of the following must be true? Responses The inflation rate in 2011 was positive. The inflation rate in 2011 was negative. The inflation rate in 2011 was zero. The purchasing power of a dollar decreased by 3 percent. The real output increased by 3 percent.

The inflation rate in 2011 was negative.

Suppose the consumer price index (CPI) was 100 on January 1st, 2017 and 110 on January 1st, 2018 with no changes in nominal wages. Which of the following is definitely true about the economy between January of 2017 and January of 2018? Responses The inflation rate was 10 percent. The inflation rate was −10 percent. Real wages increased by 10 percent. There was disinflation of 10%. Nominal GDP decreased by 10 percent.

The inflation rate was 10 percent.

If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true? Responses Unemployment increased. The inflation rate was negative. Net exports were negative. The average of stock prices rose while bond prices fell. Nominal interest rates rose by less than the rate of inflation.

The inflation rate was negative.

Which statement is true about the circular flow diagram of an economy? Responses The market for goods and services connects household spending to government spending. The market for factors of production connects household spending to goods produced by firms. The market for factors of production connects spending by firms to household income. The market for goods and services connects labor income to firms as employers. The market for goods and services connects labor income to household spending.

The market for factors of production connects spending by firms to household income.

Which of the following transactions will be included in the calculation of Country X's Gross Domestic Product (GDP) in 2020? Responses The sale of corporate stocks The exchange of a used automobile for a used boat The purchase of new construction equipment Social Security checks received by retirees Carrots grown in a household's backyard and consumed by the family

The purchase of new construction equipment

When an economy is at the trough of the business cycle, which of the following is then true about the state of the economy? Responses There is a recessionary gap. There is an inflationary gap. The economy is producing at its potential output level. The economy is producing above its potential output level. The unemployment rate is lower than the natural rate of unemployment.

There is a recessionary gap.

If an economy is at the peak of the business cycle, then which of the following is true about the state of the economy? Responses There is a recessionary gap. There is an inflationary gap. The economy is producing at its potential output level. The economy is producing below its potential output level. The unemployment rate is higher than the natural rate of unemployment.

There is an inflationary gap.

Which of the following will happen when the actual inflation rate exceeds the expected inflation rate? Responses This will benefit lenders with fixed-interest rate loans. This will harm lenders with variable-interest rate loans. This will harm lenders with fixed-interest rate loans. This will harm borrowers with fixed-interest rate loans. This will benefit borrowers with variable-interest rate loans.

This will harm lenders with fixed-interest rate loans.

Which of the following is correct according to the circular flow model of an economy? Responses Taxes received from the public equal government spending. Imports equal exports. Total spending equals total income. Consumption plus saving equals investment. Saving plus investment equals imports plus exports.

Total spending equals total income.

Labor unions negotiated a 3-year contract with employers in the automobile industry. They agreed to a 3 percent per year increase in pay over the 3 years. How would each group be affected by an actual inflation rate of 4% next year? Responses Workers would be better off, and the employers would be worse off. Workers would be better off, and the employers would be unaffected. Workers and employers would be equally well off. Workers would be worse off, and the employers would be unaffected. Workers would be worse off, and the employers would be better off.

Workers would be worse off, and the employers would be better off.

The consumer price index (CPI) is designed to measure changes in the Responses spending patterns of urban consumers only spending patterns of all consumers wholesale price of manufactured goods prices of all goods and services produced in an economy cost of a select market basket of goods and services

cost of a select market basket of goods and services

An increase in the number of discouraged workers causes the unemployment rate to Responses decrease along with the labor-force participation rate increase while the labor-force participation rate decreases stay the same because the workers are still unemployed decrease while the labor-force participation rate stays the same increase along with the labor-force participation rate

decrease along with the labor-force participation rate

Unexpected increases in inventories usually precede Responses increases in inflation increases in imports stagflation decreases in production decreases in unemployment

decreases in production

People who have given up looking for jobs are classified as Responses cyclically unemployed frictionally unemployed structurally unemployed discouraged workers underemployed workers

discouraged workers

The measured unemployment rate is often criticized for understating the level of joblessness because Responses individuals working in the underground economy are counted as employed individuals working more than one job are counted more than once discouraged workers are counted as unemployed discouraged workers are not counted in the labor force part-time workers are counted as unemployed

discouraged workers are not counted in the labor force

During recessions caused by changes in aggregate demand, the economy typically experiences Responses rising income and a rising price level rising income and rising employment rising income and a falling price level falling income and falling employment falling income and a rising price level

falling income and falling employment

The consumer price index (CPI) does not measure the true cost of inflation because Responses improvements in the quality of goods or services are not fully reflected lenders are better off when actual inflation is less than anticipated inflation borrowers are better off when actual inflation is greater than anticipated inflation changes in consumers' real income are not accounted for consumers may substitute toward more expensive goods without being significantly worse off

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

As an indicator of an impending recession, inventories will most likely Responses decrease as a result of a decrease in consumption increase as a result of a decrease in consumption increase as a result of a decrease in aggregate supply decrease as a result of an increase in aggregate supply remain constant as a result of economic uncertainty

increase as a result of a decrease in consumption

A continuous increase in the consumer price index (CPI) is Responses deflation stagflation inflation recession disinflation

inflation

A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's Responses labor force potential gross domestic product number of employed working-age population total population

labor force

A country's real gross domestic product is the annual value of all final goods and services that are Responses purchased in that country, adjusted for changes in the price level produced in that country, expressed in current prices produced in that country, less exports produced in that country, less depreciation produced in that country, adjusted for changes in the price level

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