Ap Macro Chapter Two Test
The consumer price index (CPI) does not measure the true cost of inflation because A improvements in the quality of goods or services are not fully reflected B lenders are better off when actual inflation is less than anticipated inflation C borrowers are better off when actual inflation is greater than anticipated inflation D changes in consumers' real income are not accounted for E consumers may substitute toward more expensive goods without being significantly worse off
A improvements in the quality of goods or services are not fully reflected
A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's A labor force B potential gross domestic product C number of employed D working-age population E total population
A labor force
Which of the following would most likely benefit from unexpected deflation? A Lenders B Borrowers C Retail shop owners D Governments in debt E Automobile manufacturing firms
A Lenders
The consumer price index measures which of the following? A The change over time of the weighted prices of a particular group of goods and services B The change over time of the weighted wholesale price index C The change over time of the difference between the gross domestic product deflator and the wholesale price index D Inflation corrected for changes in the real gross domestic product E Inflation corrected for changes in the wholesale price index
A The change over time of the weighted prices of a particular group of goods and services
Gross domestic product has been criticized as a measure of well-being because it fails to take into account which of the following? A The distribution of income B The value of services C The value of intermediate goods D The value of financial transactions and sales of used items E The value of government services
A The distribution of income
Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product? A Government bonds B Shares of a company stock C Corporate bonds D A new car for personal use E A newly constructed home
E A newly constructed home
Which of the following is included in the computation of gross domestic product? A Government transfer payments, such as unemployment benefits B Purchases of used goods, such as used cars C Child care tasks performed by househusbands D Total value of business inventories E Additions to business inventories
E Additions to business inventories
Which of the following types of unemployment is caused by a recession? A Hidden B Frictional C Seasonal D Structural E Cyclical
E Cyclical
hich of the following typically occurs during an expansionary phase of a business cycle? A Nominal interest rates decrease. B Income taxes decrease. C The price level decreases. D Government transfer payments increase. E Employment increases.
E Employment increases.
An increase in the number of discouraged workers causes the unemployment rate to A decrease along with the labor-force participation rate B increase while the labor-force participation rate decreases C stay the same because the workers are still unemployed D decrease while the labor-force participation rate stays the same E increase along with the labor-force participation rate
A decrease along with the labor-force participation rate
The consumer price index (CPI) is criticized for A overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change B overstating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change C understating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change D understating the true burden of inflation because it recognizes consumers' ability to substitute goods and services as prices change E overstating the true burden of inflation because it reflects the prices of both intermediate goods and final goods
A overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change
If the consumer price index increases from 200 to 240 in a one-year period, then the inflation rate is A 16.67 percent B 20 percent C 25 percent D 40 percent E 140 percent
B 20 percent
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 A -7% B 7% C 8% D 11% E 15%
B 7%
Which of the following groups of people would benefit from unanticipated inflation? Savers Borrowers Lenders A I only B II only C III only D I and II only E I and III only
B II only (Borrowers)
An increase in inventories will increase which component of gross domestic product? A Personal consumption expenditures B Investment expenditures C Government purchases D Exports E Imports
B Investment expenditures
In an economy, the price index in 20062006 was 100100 and the real gross domestic product (GDPGDP) was $1,000$1,000. In 20102010, the price index was 110110 and the nominal GDPGDP was $2,200$2,200. Based on that information, which of the following can be inferred about the economy's nominal GDPGDP in 20062006 and real GDPGDP in 20102010 ? A Nominal GDPGDP in 2006=$2,0002006=$2,000; Real GDPGDP in 2010=$1,0002010=$1,000 B Nominal GDPGDP in 2006=$1,0002006=$1,000; Real GDPGDP in 2010=$2,0002010=$2,000 C Nominal GDPGDP in 2006=$1,1002006=$1,100; Real GDPGDP in 2010=$2,4202010=$2,420 D Nominal GDPGDP in 2006=$1,0002006=$1,000; Real GDPGDP in 2010=$2,4202010=$2,420 E Nominal GDPGDP in 2006=$1,1002006=$1,100; Real GDPGDP in 2010=$2,200
B Nominal GDPGDP in 2006=$1,0002006=$1,000; Real GDPGDP in 2010=$2,000
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? A Real national income B Nominal national income C The international value of the currency D Real interest rates E Nominal interest rates
B Nominal national income
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? A Prices fell by 50% between year 1 and year 2. B Prices doubled between year 1 and year 2. C Prices remained the same between year 1 and year 2. D More goods and services were produced in year 2 than in year 1. E Fewer goods and services were produced in year 2 than in year 1.
B Prices doubled between year 1 and year 2.
Which of the following necessarily occurs during an economic recession? A Cost-push inflation decreases. B Real gross domestic product decreases. C Cyclical unemployment decreases. D Demand-pull inflation increases. E Nominal wages increase.
B Real gross domestic product decreases.
GDPGDP does NOT account for which of the following? A The value added by all firms in the economy B The depletion of natural resources C Wages, rent, profit, and interest payments D The value of final goods and services produced domestically E Imports from foreign countries
B The depletion of natural resources
Using 2010 as the base year, the gross domestic product (GDP)(GDP) deflator in 2011 was 97. Which of the following must be true? A The inflation rate in 2011 was positive. B The inflation rate in 2011 was negative. C The inflation rate in 2011 was zero. D The purchasing power of a dollar decreased by 3 percent. E The real output increased by 3 percent.
B 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? A Unemployment increased. B The inflation rate was negative. C Net exports were negative. D The average of stock prices rose while bond prices fell. E Nominal interest rates rose by less than the rate of inflation.
B The inflation rate was negative.
If an economy is at the peak of the business cycle, then which of the following is true about the state of the economy? A There is a recessionary gap. B There is an inflationary gap. C The economy is producing at its potential output level. D The economy is producing below its potential output level. E The unemployment rate is higher than the natural rate of unemployment.
B There is an inflationary gap.
Ying has just graduated from college and is now interviewing for jobs. Ying would best be described as A cyclically unemployed B frictionally unemployed C structurally unemployed D not in the labor force E a discouraged worker
B frictionally unemployed
As an indicator of an impending recession, inventories will most likely A decrease as a result of a decrease in consumption B increase as a result of a decrease in consumption C increase as a result of a decrease in aggregate supply D decrease as a result of an increase in aggregate supply E remain constant as a result of economic uncertainty
B increase as a result of a decrease in consumption
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 A cyclically unemployed B not in the labor force C employed D structurally unemployed E a seasonal worker
B not in the labor force
Year 11Year 22PriceQuantityPriceQuantityApples$1$1100100$2$28080Bananas$2$25050$2$26060 Assuming year 11 is the base year, what is the nominal and real gross domestic product (GDP)(GDP) for year 22 ? A Nominal GDPGDPReal GDPGDP$200$200$280$280 B Nominal GDPGDPReal GDPGDP$200$200$200$200 C Nominal GDPGDPReal GDPGDP$280$280$200$200 D Nominal GDPGDPReal GDPGDP$280$280$560$560 E Nominal GDPGDPReal GDPGDP$560$560$280$280
C Nominal GDPGDPReal GDPGDP$280$280$200$200
The table above gives population and labor-market data for an economy. The unemployment rate in this economy is A 3.3% B 5% C 10% D 33.3% E 50%
C 10%
The economy of Galactica is expanding and the actual unemployment rate exceeds the natural rate of unemployment for which year in the above diagram? A 1992 B 1996 C 2002 D 2007 E 2011
C 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? A 20062007No changeIncrease B 20062007DecreaseIncrease C 20062007IncreaseNo change D 20062007IncreaseDecrease E 20062007No changeNo change
C 20062007IncreaseNo change
Which of the following is most likely included in gross domestic product? A Matt gives his secondhand bicycle to his brother. B Sal paints his own bicycle. C Ali buys a new bicycle. D Mike buys a share of stock in a bicycle firm. E Daniel bikes to school every day.
C Ali buys a new bicycle.
Which of the following will most likely result from deflation? A Increased nominal interest rates B Increased business profits C Increased real value of fixed incomes D Decreased purchasing power of cash E Decreased real wealth
C Increased real value of fixed incomes
Which of the following describes a typical business cycle in the correct sequence? A Peak, trough, recession, and expansion B Peak, trough, expansion, and recession C Peak, recession, trough, and expansion D Peak, recession, expansion, and trough E Peak, expansion, trough, and recession
C Peak, recession, trough, and expansion
If an economy is experiencing deflation, which of the following is most likely to happen? A People consume more in the present. B The government decreases its spending. C People who took a fixed-rate loan become worse off. D The real interest rate is lower than the nominal interest rate. E The nominal interest rate increases.
C People who took a fixed-rate loan become worse off.
Which of the following best explains why transfer payments are not included in the calculation of gross domestic product? A Transfer payments are used to pay for intermediate goods, and intermediate goods are excluded from gross domestic product. B Transfer payments are a government expenditure, and government expenditures are excluded from gross domestic product. C Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments. D Recipients of transfer payments are usually children, and income earned by children is excluded in gross domestic product. E Recipients of transfer payments are sometimes not citizens of the United States.
C Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments.
Which statement is true about the circular flow diagram of an economy? A The market for goods and services connects household spending to government spending. B The market for factors of production connects household spending to goods produced by firms. C The market for factors of production connects spending by firms to household income. D The market for goods and services connects labor income to firms as employers. E The market for goods and services connects labor income to household spending.
C 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)(GDP) in 2020? A The sale of corporate stocks B The exchange of a used automobile for a used boat C The purchase of new construction equipment D Social Security checks received by retirees E Carrots grown in a household's backyard and consumed by the family
C The purchase of new construction equipment
Which of the following is correct according to the circular flow model of an economy? A Taxes received from the public equal government spending. B Imports equal exports. C Total spending equals total income. D Consumption plus saving equals investment. E Saving plus investment equals imports plus exports.
C Total spending equals total income.
A continuous increase in the consumer price index (CPI)(CPI) is A deflation B stagflation C inflation D recession E disinflation
C inflation
In 2007, the nominal gross domestic product (GDP) was $50 billion and the GDP deflator was 200. Thus real GDP was A $150 billion B $100 billion C $50 billion D $25 billion E $4 billion
D $25 billion
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 A 57.1 B 66.7 C 100 D 175 E 250
D 175
According to the data above, in which year was real gross domestic product (GDP) the largest? A 1980 B 1990 C 2000 D 2010 E 2015
D 2010
Which of the following is an example of frictional unemployment? A A former mayor doing volunteer work B A factory worker who loses her job because of recession C A college student working part-time at the campus bookstore D A college graduate interviewing for two available positions E An architect whose job is replaced by computer software that designs buildings
D A college graduate interviewing for two available positions
The nominal gross domestic product of China in 2010 is a measure of the total value of which of the following in 2010 ? A Financial assets, including stocks, in China B Firms located within the borders of China C Final goods and services consumed in China D Final goods and services produced within the borders of China E Final goods and services exported by China to the rest of the world
D Final goods and services produced within the borders of China
Which of the following is true according to the circular flow model? A Firms are suppliers in both the product and factor markets. B Firms are demanders in the product markets and suppliers in the factor markets. C Households are demanders in both the product and factor markets. D Households are demanders in the product markets and suppliers in the factor markets. E The government is a demander in the product market only.
D Households are demanders in the product markets and suppliers in the factor markets.
Which of the following is an example of how the consumer price index (CPI)(CPI) exhibits bias in its estimates of changes in the cost of living? A Energy prices have a higher impact on inflation than other input costs do. B New products are always overrepresented in the CPICPI. C The CPICPI assigns greater weight to measures of welfare than it does to economic activity. D Product improvements are not always fully reflected in the calculation of the CPICPI. E The CPICPI adjusts for the substitution of less expensive goods by consumers.
D Product improvements are not always fully reflected in the calculation of the CPICPI.
As a measure of economic performance, GDPGDP accounts for which of the following? A Used books donated to a local library B Depletion of durable consumer goods C Increased leisure time D Souvenir gifts purchased by tourists domestically E Cash transactions in the underground economy
D Souvenir gifts purchased by tourists domestically
Which of the following can be concluded from the data above? A The base year for the price index was year 1. B The base year for the price index was year 3. C The economy was producing higher-quality goods and services in years 2 and 3 than in year 1. D The economy was experiencing inflation during years 2 and 3. E The economy was experiencing deflation during years 1, 2, and 3.
D The economy was experiencing inflation during years 2 and 3.
The term "value added" for a firm is best defined as which of the following? A The firm's sales B The firm's sales minus depreciation C The firm's sales minus its losses D The firm's sales minus the cost of inputs purchased from other firms E The firm's profits from its sales
D The firm's sales minus the cost of inputs purchased from other firms
Unexpected increases in inventories usually precede A increases in inflation B increases in imports C stagflation D decreases in production E decreases in unemployment
D decreases in production
People who have given up looking for jobs are classified as A cyclically unemployed B frictionally unemployed C structurally unemployed D discouraged workers E underemployed workers
D discouraged workers
The measured unemployment rate is often criticized for understating the level of joblessness because A individuals working in the underground economy are counted as employed B individuals working more than one job are counted more than once C discouraged workers are counted as unemployed D discouraged workers are not counted in the labor force E part-time workers are counted as unemployed
D discouraged workers are not counted in the labor force
During recessions caused by changes in aggregate demand, the economy typically experiences A rising income and a rising price level B rising income and rising employment C rising income and a falling price level D falling income and falling employment E falling income and a rising price level
D falling income and falling employment
As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in A the production of military goods B the production of antipollution devices C crime prevention services D household production E legal services
D household production
A criticism of the consumer price index as a measure of the cost of living is that it A understates the rate of inflation because the base year is outdated B understates the rate of inflation because it only considers spending by typical urban consumers C understates the rate of inflation because it reflects the increase in prices due to the introduction of new goods D overstates the rate of inflation because it ignores consumers' ability to substitute among similar items when prices change E overstates the rate of inflation to compensate for statistical errors in data collection
D overstates the rate of inflation because it ignores consumers' ability to substitute among similar items when prices change
An increase in the number of which of the following will lead to an increase in the unemployment rate? A Discouraged workers B Business start-ups C Self-employed persons D Persons working 30 instead of 40 hours per week E Persons quitting part-time jobs to look for full-time ones
E Persons quitting part-time jobs to look for full-time ones
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? A Real GDP decreased by 20%. B Real GDP decreased by 10%. C Real GDP increased by 20%. D Real GDP increased by 10%. E Real GDP did not change.
E Real GDP did not change.
The figure above shows data for actual real GDPGDP and potential real GDPGDP from year 11 to year 66 for an economy. Which of the following is true based on this figure? A The economy is in expansion from year 11 to year 33. B The economy is in recession from year 33 to year 55. C There is an inflationary gap from year 22 to year 44. D The economy is at full employment in year 55. E The economy is in long-run equilibrium in year 22.
E The economy is in long-run equilibrium in year 22.
The consumer price index (CPI) is designed to measure changes in the A spending patterns of urban consumers only B spending patterns of all consumers C wholesale price of manufactured goods D prices of all goods and services produced in an economy E cost of a select market basket of goods and services
E cost of a select market basket of goods and services
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 A in expansion B in contraction C at the peak D at the trough E on the potential line
E on the potential line
A country's real gross domestic product is the annual value of all final goods and services that are A purchased in that country, adjusted for changes in the price level B produced in that country, expressed in current prices C produced in that country, less exports D produced in that country, less depreciation E produced in that country, adjusted for changes in the price level
E produced in that country, adjusted for changes in the price level
