AP Macroeconomics Unit 2 Review Questions

Assume the price of a specific market basket in the year 2010 was $200 and the price of the same market basket in 2015 was $240. What is the CPI in 2015 based on 2010 prices?

120

If the nominal GDp in a given year is $300B and the GDP deflator for that year is 120, how much is real GDP?

250B

A slowdown in the rate of increase in price level is called a) Disinflation b) Hyperinflation c) Deflation d) Recession e) Inflationary expectations

A

All of the following are criticisms of how the government measures the economy except a) Real GDP overstates economic growth since it doesn't account for changes in price level b) CPI doesn't include the newest, up to date consumer goods c) CPI overstates inflation since consumers will buy lower priced substitute goods d) The official unemployment rate numbers don't include people that stopped looking for work e) Real GDP is a poor measure of standard of living because it doesn't account for how income is distributed

A

The income approach to calculating GDP mostly involves adding a) Spending by consumers, businesses, governments, and other countries b) Rent, wages, interest, profit c) Changes in income after government redistribution d) Money generated through household production e) Investment and savings in the private sector

B

Which of the following is true regarding full employment? a) Full employment occurs when unemployment rate is 0% b) Full employment occurs when there is no cyclical unemployment c) Full unemployment occurs when there is only frictional unemployment d) Full employment is shown as a rightward shift in the production possibilities curve e) Full employment is not possible due to structural unemployment

B

Which of the following is true regarding inflation? a) Unanticipated inflation benefits lenders b) Inflation decreases the purchasing power of a country's currency c) Inflation causes cyclical unemployment d) High inflation causes nominal interest rates to decrease e) High inflation causes the real GDP to increase

B

Which of the following is clearly not included in the calculation of GDP for the US? a) Money that consumers spend on online purchases b) Income earned by public school teachers c) A government payment to an individual on welfare d) A delivery truck purchased by an American company e) A plane produced in the US but sold in Mexico

C

Which of the following is true regarding the quantity theory of money? a) A decrease in the money supply will decrease the velocity of money b) When velocity of money doubles, the unemployment rate doubles c) An increase in money supply or the velocity of money will increase nominal GDP d) An increase in the velocity of money will increase real output e) An increase in price level will lead to an increase in interest rates

C

The value of which of the following is counted in the U.S. GDP? a) Foreign countries buying US treasury bills b) Transfer payments to the elderly c) Salary bonuses given to investment bankers d) Undeclared wages paid to illegal immigrants e) Change in value of real estate in US

C -> Salary bonus is a wage A-> Incorrect (purchase of assets) B-> Incorrect D-> Incorrect E-> Incorrect; home price is an asset

The CPI a) Measures changes in the prices of all products b) Measures the changes in the prices of all consumer goods c) Measures consumer spending and the savings rate d) Is one of several price indices that measures prices over time e) is negative when there is deflation

D

When calculating GDP, the word investment is best defined as a) Spending on stocks, bonds, and financial assets b) Spending by the central bank on government securities c) Changes in private and business spendings d) Business spending on capital goods e) Government policies to stabilize the economy

D

Which of the following is the best example of structural unemployment? a) Female workers leave the labor force because wages are decreasing b) Aircraft mechanics are laid off due to recession c) A restaurant worker quits his current job to go back to school to get better training d) Assembly line workers are replaced by robots e) High school graduates have a hard time finding high paying jobs

D -> Correct A-> Not enough info B-> Cyclical C-> No E-> not sure enough

If unemployed workers become discouraged and give up trying to find work, which of the following is true? a) Those workers would be considered frictionally unemployed b) Labor force participation rate would stay the same c) Number of people employed would decrease d) Unemployment rate would decrease e) Those workers would be considered cyclically unemployed

D-> Discouraged workers don't count as part of the labor force, therefore not considered unemployed

If a country's percent change in real GDP is positive which of the following must be true? a) Price level has increased b) Inflation rate was negative c) Real GDP per capita has increased d) Country's net exports are positive e) Country is producing more output

E-> Correct C-> we don't have any info about population so that's not the right answer

If the labor force participation rate increased at the same time that the unemployment rate stayed the same, which of the following must be true? a) Less workers were classified as part-time workers b) The total number of jobs in the economy increased c) Total number of jobs in the economy decreased d) Total number of jobs in the economy stayed the same e) Nominal GDP will increase

Total number of jobs in the economy increased

Which of the following is true regarding GDP? a) Intermediate goods are not counted because GDP does not include imports from foreign countries b) Household production, like home auto repair, is counted in GDP c) Transfer payments are not included in GDP because government expenditures are not counted d) GDP includes the purchase and sale of all goods and services in a country in one year e) GDP, adjusted for inflation, measures economic growth over time

a) Incorrect -> Intermediate goods don't count, imports do count b) Incorrect c) Government spending does count, but not all of it d) Not all goods and services e) Correct

A recession is commonly defined as two consecutive quarters of

decreasing real GDP