AP Macroeconomics GDP, Unemployment, and Inflation

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Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

1



AP Macroeconomics


GDP, Unemployment, and Inflation


Questions from the 2005 AP Macroeconomics Released Exam


1.

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

a.

Excludes government transfer payments

b.

Excludes impo
rts

c.

I s adjusted for price
-
level changes using a price index

d.

Measures only the value of final goods and services that are
consumed

e.

Measures the prices of a market basket of goods purchased by a
typical urban consumer


2.

Which of the following statements exemp
lifies the concept of structural
unemployment?

a.

New entrants into the labor force have trouble finding jobs.

b.

Workers leave their current jobs to find better jobs.

c.

Workers are laid off because of aggregate demand has declined.

d.

Workers are fired because consu
mers have reduced their total
expenditures.

e.

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


3.

The unemployment rate measures the percentage of

a.

People in the labor force who do not have jobs

b.

People in the labor force who have a part
-
time job

but are looking
for a full
-
time job

c.

People who do not have jobs and have given up looking for work

d.

People in the adult population who do not have jobs

e.

People in the adult population who have temporary jobs


4.

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

a.

I nvestment

b.

Government expenditures

c.

Consumption

d.

Exports

e.

Saving





5.

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

a.

Government transfer payments, such as unemployment bene
fits

Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

2

b.

Purchases of goods, such as used cars

c.

Child care tasks performed by househusbands

d.

Total value of business inventories

e.

Additions to business inventories


6.

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 government expenditures, and government
expenditures are excluded from gross domestic p
roduct.

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 from gross domestic product.

e.

Recipients

of transfer payments are sometimes not citizens of the
United States.


7.

Suppose that a typical consumer buys the following quantities of three
commodities in 1993 and 1994.


Commodity

Quantity

1993 per Unit
Price

1994 per Unit
Price

Food

5 units

$6.00

$5
.00

Clothing

2 units

$7.00

$9.00

Shelter

3 units

$12.00

$19.00


Which of the following can be concluded about the consumer price index
(CPI ) for this individual from 1993 to 1994?

a.

I t remained unchanged

b.

I t decreased by 25%

c.

I t decreased by 20%

d.

I t increase
d by 20%

e.

I t increased by 25%


8.

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

a.

I nflation has been under
-
predicted.

b.

The real interest rate had exceeded the nominal interest rate.

c.

The real in
terest rate had been negative.

d.

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

e.

The economy would expand because of the increased investment
and spending.


Questions from the 2000 AP Macroeconomics Released Exa
m


Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

3

9.

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

a.

Ms. Smith purchases a share of stock in an automobile company.

b.

A retailer increases her stock of imported shoes.

c.

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

d.

A corporation sells shoes from last year’s inventory.

e.

A mother sells her car to her daughter.


10.

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

a.

Firms are suppliers in both the product a
nd 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 market and suppliers in
the factor markets.

e.

The gove
rnment is a demander in the product market only.


11.


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

a.

Structural unemployment is greater than cyclical unemployment at
the going wage rate

b.

Full employmen
t is greater than natural unemployment

c.

The unemployment rate is less than natural unemployment

d.

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

e.

The official rate does not reflect the number of people receiving
unemployment comp
ensation


12.

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.

H
ousehold production

e.

Legal services








13.

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

a.

Not change, because there is no change in total expenditures

Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

4

b.

I ncrease, because investment
is included in gross domestic
product but consumption is not

c.

I ncrease, because consumption is included in gross domestic
product but investment is not

d.

Decrease, because investment is weighted more heavily than
consumption in calculating gross domestic prod
uct

e.

Decrease, because consumption is weighted more heavily than
investment in calculating gross domestic product


Answers to 2005 Questions w/Explanation


1.

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


c.

I s adjus
ted for price
-
level changes using a price index


Explanation:
Nominal GDP is measured in current year dollars. Real GDP is
measured through dividing Nominal GDP by a price index and then
multiplying by 100. Real GDP is useful for making comparisons over ti
me by
holding the value of the dollar constant.



2.

Which of the following statements exemplifies the concept of structural

unemployment?


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


Explanation:
Structural unemployment is ‘permanent

unemployment’ caused
by changes in technology, lack of necessary skills or obsolescence. For
example, with the advent of the personal computer, the need for skilled
typewriter repair technicians all but vanished.



3. The unemployment rate measures the pe
rcentage of


a.

People in the labor force who do not have jobs


Explanation:
To be classified as unemployed a person must be 16 years or
older, not have a job, and have actively searched for work in the last 4
weeks. A common misconception is that the unemplo
yment rate is the
percentage of the population not working. I nstead, it is the percentage of
the civilian labor force that is not working. I n other words, not employed does
not necessarily equal unemployed.



4. Which of the following can be considered a l
eakage from the circular flow of


economic activity?

Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

5


e. Saving


Explanation:
The circular flow model traces all of the spending that occurs in
the economy between the private, public and foreign sectors. Savings is
simply defined as not spending and t
herefore reduces consumption in the
private sector. Another leakage from the circular flow is imports.



5. Which of the following is included in the computation of gross domestic


product (GDP)?


e. Additions to business inventories


Explanation:
Addi
tions to business inventories is the only answer that meets the
definition of GDP: New, final, domestic goods, for which there is a market
transaction.



6. Which of the following best explains why transfer payments are not included in


the calculation

of gross domestic product?



c. Recipients of transfer payments have not produced or supplied goods


and services in exchange for these payments.


Explanation:
I t is important to note that GDP is not a measure of all monetary
transactions that take pl
ace in an economy.


















7
.

Suppose that a typical consumer buys the following quantities of three
commodities in 1993 and 1994.


Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

6

Commodity

Quantity

1993 per Unit
Price

1994 per Unit
Price

Food

5 units

$6.00

$5.00

Clothing

2 units

$7.00

$9.00

Shelter

3 units

$12.00

$19.00


Which of the following can be concluded about the consumer price index
(CPI ) for this individual from 1993 to 1994?


e. I t increased by 25%

Explanation:
First, multiply each quantity by the 1993 per unit price and then
the

1994 per unit price. Sum the two sets. Next, calculate the percentage
change between the two sums, where the formula for percentage change is
equal to the change over the initial number multiplied by 100.


(5 * $6) + (2 * $7) + (3 * $12) = $80


(5 * $5)
+ (2 * $9) + (3 * $19) = $100

[($100


$80) / $80 ] * 100 =
25%



8. Which of the following would be true if the actual rate if inflation were less than


the expected rate of inflation?



d. People who had borrowed funds at the nominal interest rate

during this


time period would lose.



Explanation:




the nominal interest rate = real interest rate + expected inflation


I f the expected inflation rate is greater than actual inflation, then the
nominal interest rate charged to borrowers is hig
her than it should. As a
result, borrowers lose.









Answers to 2000 Questions w/Explanation



Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

7

9. Which of the following transactions would represent an addition to a nation’s


current gross domestic product?


c. The government increases its domes
tic purchases of food for use by the


military


Explanation:
Government spending on goods and services is a component of
GDP.



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



d. Households are demanders in the product marke
t and suppliers in the


factor markets.


Explanation:
I n the circular flow model, households demand goods and
services in the product market and supply the factors of production (land,
labor, capital, and entrepreneurship) in the factor market.



11. T
he official unemployment rate is not an accurate indicator of actual


unemployment in the economy because



d. The official rate does not include persons who have given up looking


for work


Explanation:
Unemployment statistics don’t measure thos
e who have given
up the job search because they are by definition no longer in the labor force.
Remember that to be considered unemployed, a person must be actively
seeking employment and not be working.



12. As a measure of economic welfare, gross domes
tic product underestimates a


country’s production of goods and services when there is an increase in



d. Household production


Explanation:
Although real output has been created
,
household production is
not included because no financial transaction

takes place.






13. I f purchases of education and medical care were counted as investment

Multiple Choice Questions


Multiple Choice Questions


Multiple Choice Questions

AP Macroeconomics


GDP, Unemployment, and Inflation

Multiple Choice Que
stions from the 2000 and 2005 AP Macroeconomics Released Exams

8


rather than consumption, gross domestic product would


a.

Not change, because there is no change in total expenditures


Explanation:
Real GDP = C + I
G

+ G +

X
N
. No change occurs by re
-
categorizing the expenditures.