AP Macro Unit 2 Exam

If inflation causes people to frequently convert their dollars into other assets, the economy experiences what type of cost? A. price level B. shoe-leather C. menu D. unit-of-account E. none of the above

B. shoe-leather

A person who is unemployed because of a mismatch between the quantity of labor supplied and the quantity of labor demanded is experiencing what type of unemployment? A. frictional B. structural C. cyclical D. natural E. none of the above

B. structural

What type of unemployment describes the situation of factory workers displaced by automation? A. Cyclical B. Frictional C. Natural D. Seasonal E. Structural

E. Structural

Hyperinflation is typically caused by (A) high tax rate that discourage work effort (B) continuous expansion of the money supply (C) trade surpluses that are caused by strong protectionist policies (D) bad harvests that lead to widespread shortages (E) a large decline in corporate profits that leads to a decrease in production

(B) continuous expansion of the money supply

In the circular flow model, the factors of production are traded (A) in the stock market (B) in the resource market (C) in the product market (D)in the foreign exchange market (E) by the central government

(B) in the resource market

If the nominal GDP for 2019 was $400 billion and the price index was 90, real GDP would be (A) more than $400 billion (B) less than $400 billion (C) equal to $400 billion (D) equal to gross imports minus gross exports (E) none of the above

(B) less than $400 billion

If the current price of a basket of goods is $300 and the price in the base year was $200, when the price index was 100, the price index will be (A) 50 (B) 100 (C) 150 (D) 200 (E) 300

(C) 150

Which of the following will be counted as unemployed by the Bureau of Labor Statistics? (A) Persons who quit their previous jobs to stay at home to care for sick parents (B) Persons who were laid off from their previous jobs and have not applied for a job in two years (C) Persons who were fired from their previous jobs and are actively applying for work (D) Persons who have given up looking for jobs after long searches (E) Persons who quit their previous jobs to start their own business

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

A good that would NOT be included in GDP would be (A) a new truck (B) a box of soft drinks (C) a used truck (D) a loaf of bread (E) a hamburger

(C) a used truck

Bob purchased a new house in 2019 for $900,000. The purchase would be included in GDP as (A) consumer savings (B) government investment (C) investment (D) consumption of private fixed capital (E) consumer spending

(C) investment

GDP calculations would NOT include (A) the sale of a new airplane to an airline (B) government construction expenses for a superhighway (C) grocery receipts from a supermarket (D) the sale of sheet metal to an auto factory (E) rent paid by a law firm for its office space

(D) the sale of sheet metal to an auto factory

When constructing a price index, a base year refers to (A) the average price level of goods and services (B) the percentage change in the price index over time (C) the top of the business cycle signaling the end of expansion (D) a collection of goods and services that represent what is consumed in an economy for the year (E) a point of reference to compare real values over time

(E) a point of reference to compare real values over time

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

Which of the following would be included in the calculation of gross domestic product? A. Government purchase of a new submarine B. Social security payment to a retired military officer C. The purchase of a home built 10 years ago D. Contribution to a charity organization E. Work performed by a barber who cuts the hair of his on her own children

A. Government purchase of a new submarine

Which of the costs of inflation does the following statement illustrate? "When there is inflation, grocery stores have to update the prices associated with the bar codes on their products." A. Menu costs B. Shoe leather costs C. Unit of accounts costs D. Nominal costs E. Time costs

A. Menu costs

Which of the following is the correct calculation of Real Gross Domestic Product (GDP)? A. Real GDP=Nominal GDP/GDP deflator B. Real GDP=GDP deflator/Nominal GDP C. Real GDP=Nominal GDP×GDP deflator D. Real GDP=Nominal GDP + GDP deflator E. Real GDP=Nominal GDP−GDP deflator

A. Real GDP=Nominal GDP/GDP deflator

Which of the following is leakage from the circular flow of economic activity? A. Savings B. Investment C. Exports D. Government spending E. Income

A. Savings

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? A. The inflation rate was 10 percent. B. The inflation rate was −10 percent. C. Real wages increased by 10 percent. D. There was disinflation of 10% E. Nominal GDP decreased by 10 percent

A. The inflation rate was 10 percent.

When an economy is at the trough of the business cycle, which of the following is then 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 above its potential output level. E. The unemployment rate is lower than the natural rate of unemployment.

A. There is a recessionary gap.

When the actual inflation rate is greater than the anticipated inflation rate, which of the following is most likely to suffer? A. Those who lend at a fixed interest rate B. Those who borrow at a fixed interest rate C. Retired persons with a cost-of living adjustment in their benefits D. Employers who hire workers with long-term labor contracts E. Those who lend with flexible interest rates

A. Those who lend at a fixed interest rate

Which of the following is included in GDP? A. changes to inventories B. intermediate goods C. used goods D. financial assets (stocks and bonds) E. foreign-produced goods

A. changes to inventories

In the gross domestic product, the largest dollar amount is A. consumer spending B. rental payments C. net exports of good and services D. gross private domestic investment E. government purchases of goods and services

A. consumer spending

Which of the following components makes up the largest percentage of GDP measured by aggregate spending? A. consumer spending B. investment spending C. government purchases of goods and services D. exports E. imports

A. consumer spending

A person who moved to a new state and took two months to find a new job experienced which type of unemployment? A. frictional B. structural C. cyclical D. natural E. none of the above

A. frictional

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? A. $5 billion B. $7.5 billion C. $10 billion D. $20 billion E. $30 billion

B. $7.5 billion (To obtain Real GDP from nominal GDP and the GDP deflator requires the following calculation: Real GDP=Nominal GDP/(GDP deflator in hundredths)Real GDP=Nominal⁡GDP/(GDP deflator in hundredths). In this problem we are asked for 2011 Real GDP converted into 1984 dollars. Therefore we need to divide the 2011 Nominal GDP by the GDP deflator (in hundredths) to deflate 2011 dollars down to 1984 dollars. 2011 Real GDP in 1984 dollars=2011 Nominal GDP/GDP deflator in hundredths=$15 billion/(200/100)2011 Real GDP in 1984 dollars=2011 Nominal GDP/GDP deflator in hundredths=$15 billion/(200/100) or $7.5. The incorrect answers all use some combination of incorrect values in the numerator or denominator)

The value of a price index in the base year is A. 0. B. 100. C. 200. D. the inflation rate. E. the average cost of a market basket of goods.

B. 100.

Which of the following people would be considered unemployed? A. A person who quits work to care for aging parents B. A person who stayed home to raise his children and noe starts looking for a job. C. A person who quits a job to return to school full time D. A person who is qualified to teach but is driving a bus until a teaching job is available E. A person who works two part-time jobs but is looking for full-time job

B. A person who stayed home to raise his children and now starts looking for a job.

Which of the following terms describes a slowdown in the rate of increase in the consumer price index? A. Deflation B. Disinflation C. Hyperinflation D. Inflation E. Stagflation

B. Disinflation

Which of the following would be an example of an intermediate good or service? A. A calculator purchased by a college student for taking exams B. Gasoline purchased by an insurance agent to visit clients at their homes C. A house purchased by a family with four children D. A car purchased by a student's parents and given to the student E. Tuition paid by a student at a state university

B. Gasoline purchased by an insurance agent to visit clients at their homes

Which of the following purchases is included in the calculation of gross domestic product? A. A used economics textbook from the bookstore B. New harvesting equipment for the farm C. 1,000 shares of stock in a computer firm D. A car produced in a foreign country E. Government bonds issued by a foreign firm

B. New harvesting equipment for the farm

Which of the following describes a difference between nominal gross domestic product (GDP) and real GDP? A. Nominal GDP uses constant prices to measure the value of final output, while real GDP uses current prices. B. Nominal GDP uses current prices to measure the value of final output, while real GDP uses constant prices. C. 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. D. Nominal GDP includes sales of used goods while real GDPGDP does not. E. Nominal GDP takes into account the size of the population while real GDP does not.

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

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

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

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

B. The difference between actual and potential GDP.

The unemployment problem in an economy may be understated by the unemployment rate due to A. people lying about seeking a job. B. discouraged workers. C. job candidates with one offer but waiting for more. D. overemployed workers. E. none of the above.

B. discouraged workers.

If your wage doubles at the same time as the consumer price index goes from 100 to 300, your real wage A. doubles. B. falls. C. increases. D. stays the same. E. cannot be determined.

B. falls.

Which of the following is not included in GDP? A. capital goods such as machinery B. imports C. the value of domestically produced services D. government purchases of goods and services E. the construction of structures

B. imports

The best measure for comparing a country's aggregate output over time is A. nominal GDP. B. real GDP. C. nominal GDP per capita. D. real GDP per capita. E. average GDP per capita.

B. real GDP.

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.

If the consumer price index increases from 80 to 120 from one year to the next, the inflation rate over that time period was A. 20% B. 40% C. 50% D. 80% E. 120%

C. 50%

Which of the following is the best measure of the production (output) of an economy? A. Consumer price index B. Unemployment rate C. Gross domestic product D. Prime rate E. Index of leading indicators

C. Gross domestic product

In the circular flow diagram, which of the following is true in the resource (factor) market? A. Households buy resources from business firms. B. Households sell products to business firms. C. Households sell resources to business firms. D. Business firms sell goods and services to households E. Business firms sell resources to households.

C. Households sell resources to business firms.

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

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

Last year, Myron purchased a $10,000 certificate of deposit with a 3% rate of interest 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? A. Myron loses, while the bank gains. B. Myron gains, while the bank remains unaffected. C. Myron gains, while the bank loses. D. Both Myron and the bank equally gain. E. The bank gains, while Myron remains unaffected.

C. Myron gains, while the bank loses. (Prices have fallen by 5% on average, which results in an increase in the real interest rate (real interest rate = nominal interest rate - inflation). Myron is better off because the dollars that Myron will receive back from the bank when the certificate of deposit matures will buy more goods and services than when Myron purchased the certificate of deposit. And conversely, the money that the bank pays back to Myron when the certificate of deposit matures is worth more than that money was worth during the time the bank had this money)

Which of the following would be counted as investment when calculating gross domestic product? A. The purchase of a used computer by an auto manufacturer B. The purchase of a share of IBM stock by an employee C. The construction of a new house D. The construction of roads by the government E. The profit earned when selling shares of stock

C. The construction of a new house

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

C. This will harm lenders with fixed-interest rate loans.

What type of unemployment is created by a recession? A. frictional B. structural C. cyclical D. natural E. none of the above

C. cyclical

The circular-flow diagram is a simple model of the macroeconomy in which A. the flow of money into each market or sector exceeds the flow of money coming out of that market or sector. B. the value of stocks equals the value of bonds. C. households own the factors of production. D. there is only one household and one firm. E. goods and services are sold in factor markets.

C. households own the factors of production.

Real GDP per capita is an imperfect measure of the quality of life in part because it A. includes the value of leisure time. B. excludes expenditures on education. C. includes expenditures on natural disasters. D. excludes expenditures on entertainment. E. includes the value of housework.

C. includes expenditures on natural disasters.

Changing the listed price when inflation leads to a price increase is an example of which type of cost? A. price level B. shoe-leather C. menu D. unit-of-account E. none of the above

C. menu

If your nominal wage doubles at the same time as prices double, your real wage will A. increase. B. decrease. C. not change. D. double. E. be impossible to determine.

C. not change.

If the cost of a market basket of goods increases from $100 in year 1 to $108 in year 2, the consumer price index in year 2 equals if year 1 is the base year. A. 8 B. 10 C. 100 D. 108 E. 110

D. 108

Of the following, which is the best example of structural unemployment? A. A computer programmer who quits her job to move to a warmer climate B. A construction worker who loses his job in the winter C. An auto worker who loses her job during a recession D. A steel worker who is replaced by a robot E. A toy maker who worked for a company that closed because consumers did not want to buy its toys

D. A steel worker who is replaced by a robot

In the circular flow diagram, which of the following is true in the product market? A. Households sell goods and services to business firms. B. Households sell resource to business firms. C. Business firms sell resources to households. D. Business firms sell goods and services to households. E. Households buy resources from business firms.

D. Business firms sell goods and services to households.

If GDP is declining, the economy is most likely in which phase of the business cycle? A. Recovery B. Expansionary C. Trough D. Contractionary E. Peak

D. Contractionary

Which of the following is true of the natural rate of unemployment? I. It includes frictional unemployment. II. It includes structural unemployment. III. It is equal to 0%. A. I only B. II only C. III only D. I and II E. I, II, and III

D. I and II

Which of the following is true of real GDP? I. It is adjusted for changes in prices. II. It is always equal to nominal GDP. III. It increases whenever aggregate output increases. A. I only B. II only C. III only D. I and III E. I, II, and III

D. I and III

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

D. The cleanup of an oil spill

Which of the following is the highest at the at the trough of a business cycle? A. Employment B. Inflation C. Economic Growth D. Unemployment E. Gross domestic product

D. Unemployment

The market value of all final goods and services produced in the economy in a given year is A. net national product B. national income C. personal income D. gross domestic product E. producer price index

D. gross domestic product

Because dollars are used as the basis for contracts, inflation leads to which type of cost? A. price level B. shoe-leather C. menu D. unit-of-account E. none of the above

D. unit-of-account

Which of the following is true about gross domestic product (GDP)? A. Calculations of GDP include the monetary value of non-market production activities such as households preparing own meals at home. B. Calculations of GDP do not include the monetary value of production activities involving negative environmental side effects such as pollution. C. Calculations of GDP include the monetary value of illegal production activities such as drug cartels. D. Calculations of GDP include the sale of used goods. E. Calculations of GDP include the unsold inventories of goods produced within the borders of the country.

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

To be considered unemployed, a person must I. not be working. II. be actively seeking a job. III. be available for work. A. I only B. II only C. III only D. II and III E. I, II, and III

E. I, II, and III

Which of the following is true of the CPI? I. It is the most common measure of the price level. II. It measures the price of a typical market basket of goods. III. It currently uses a base period of 1982- 1984. (Hint: This statement is true.) A. I only B. II only C. III only D. I and II only E. I, II, and III

E. I, II, and III

Which of the following is true regarding prices in an economy? I. An increase in the price level is called inflation. II. The level of prices doesn't matter. III. The rate of change in prices matters. A. I only B. II only C. III only D. II and III only E. I, II, and III

E. I, II, and III

Jan works a 30-hour week for a minimum wage of $10 an 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 ? A. Jan's real wage at the end of this year is $10 an hour because the base year equals 100. B. Jan's real wage is $2.50 per hour at the end of the year due to inflation. C. Jan's real wage is 25% higher because the CPI increased from 100 to 125. D. Jan's real wages are equal to the nominal wages. E. Jan's real wage is $8 per hour at the end of the year.

E. Jan's real wage is $8 per hour at the end of the year. Jan's real wage is $8 per hour =Nominal Wage/(CPI) = $10/(125/100)= Nominal⁢wage/(CPI) = $10/(125/100) at the end of the year.

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

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

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? A. Workers would be better off, and the employers would be worse off. B. Workers would be better off, and the employers would be unaffected. C. Workers and employers would be equally well off. D. Workers would be worse off, and the employers would be unaffected. E. Workers would be worse off, and the employers would be better off.

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

Which of the following can affect the natural rate of unemployment in an economy over time? A. labor force characteristics such as age and work experience B. the existence of labor unions C. advances in technologies that help workers find jobs D. government job-training programs E. all of the above

E. all of the above

GDP is equal to A. the total value of all goods and services produced in an economy during a given period. B. C + I + G + IM. C. the total value of intermediate goods plus final goods. D. the total income received by producers of final goods and services. E. none of the above.

E. none of the above.

The largest dollar amount of national income is A. rental payments B. government expenditures on goods and services C. profit D. net interest E. wages and salaries to employees

E. wages and salaries to employees