AP Macro Review

Unit 2Measurement of Economic Systems

1. In the simple circular flow model:

a) Individuals and households are sellers of resources and demanders of products

b) Households are sellers of products and demanders of resources

c) The GDP is represented by the number of households and businesses in the economy

d) Businesses are sellers of resources and demanders of products

e) Businesses are sellers of products and sellers of resources

2. When economists refer to the gross domestic product (GDP), they mean:

a) All final goods and services produced in an economy in a year

b) All intermediate and final goods and services produced in an economy in a year

c) All final goods and services produced in an economy in a five-year time period

d) All final goods and services produced in an economy in a year, including overseas branches and divisions

e) The total expenditure of consumer and government spending in an economy in a given year

3. The most significant difference between gross domestic product and gross national product would be:a) Government spendingb) Consumer incomec) Net income from foreign investmentsd) Consumer spending minus government

investmentse) A and C

4. An example of a final good calculated into the GDP for the year would be:

a) A computer chip bought by IBM to be used in a computer

b) A used car sold to a consumerc) A new car sold to a consumerd) The lumber used to construct a new housee) All of the above

5. An example of an intermediate good would be:

a) A new car sold to a consumerb) A car enginec) A new laptopd) A new textbook to use for a college classe) All of the above

6. The formula for calculating gross domestic product is:

a) C – I + G + (X –M)b) C + I + G – (X + M)c) C + G + (X – M)d) (C + G)(I +((X – M))e) C + I + G + (X – M)

7. Jason and Mary purchased a new house in 2012 for $300,000. This purchase would be included in the GDP as:a) Consumer savingsb) Government investmentc) Investmentd) Consumption of private fixed capitale) Consumer spending

8. Elaine quit her job as a teaching assistant and went back to school to be a guidance counselor. Last year she received her master’s degree and is currently looking for a job. Elaine is considered:

a) Cyclically unemployedb) Frictionally unemployedc) Structurally unemployedd) Seasonally unemployede) Not part of the labor force

9. Full employment occurs when:

a) Cyclical unemployment does not existb) Seasonal unemployment does not existc) Frictional unemployment does not existd) Structural unemployment does not existe) Both cyclical and frictional unemployment do

not exist

10. Stagflation occurs when:

a) Real GDP increases and price levels decreaseb) Real GDP decreases and price levels decreasec) Unemployment and price levels increased) Nominal GDP decreases and price levels

increasee) GDP decreases and the price level decreases

11. If a teacher loses his or her job due to low student enrollment, he or she would be considered:a) Cyclically unemployedb) Seasonally unemployedc) Frictionally unemployedd) Structurally unemployede) Not part of the labor force

12. Dennis decides to loan his friend some money. He would like to see a 5% return on the loan. If the current rate of inflation is 15%, what should he charge as an interest rate?

a) 10%b) 20%c) 25%d) 3%e) 12%

13. Jessica received her college degree in computer science and was offered a job at IBM. She decides to take a year off and travel throughout Europe. What would this decision do to the unemployment rate?

a) An increase in the unemployment rateb) A decrease in the unemployment ratec) An increase in cyclical unemploymentd) A decrease in structural unemploymente) No change in the unemployment rate

14. Suppose the gross domestic product is $15 million, where consumer spending is $4 million, investments are $2 million, government spending is $5 million, and exports are $4 million. How much is spend on imports?

a) $2 millionb) $3 millionc) $5 milliond) $4 millione) $0

15. When constructing a price index, a base year refers to:

a) The average price level of goods and servicesb) A point of reference to compare real values over

timec) The percentage change in the price index over

timed) The top of the business cycle signaling the end

of expansione) A collection of goods and services that represent

what is consumed in an economy for the year

16. Nominal GDP refers to:

a) The value of current production, but using prices from a set point in time

b) The value of current production, but using prices gathered over the past five years

c) The value of current production at current pricesd) Prices at the peak of the business cyclee) The value of current production at the trough of

the business cycle subtracted from that at the peak of the business cycle

Answer Key1) A2) A3) C4) C5) B6) E7) C8) B9) A10) C11) A12) B13) E14) E15) B16) C