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AP Macro

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Unit 2

2.9 MC Answers and Review

5 min read•march 17, 2023

Dalia Savy

AP Macroeconomics 💶

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Answers and Review for Multiple Choice Practice on Economic Indicators and the Business Cycle

⛔STOP ! ⛔ Before you look at the answers, make sure you gave this practice quiz a try so you can assess your understanding of the concepts covered in Unit 2. Click here for the practice questions: AP Macro Unit 2 Multiple Choice Questions.

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Facts about the test: The AP Macroeconomics exam has 70 multiple choice questions and you will be given 1 hour to complete the section. That means it should take you around 8 minutes to complete 10 questions.

*The following questions were not written by College Board and, although they cover information outlined in the AP Macroeconomics Course and Exam Description, the formatting on the exam may be different.

1. Measuring GDP through the income approach includes:

A. the sum of exports sent to all of the factors of production

B. the amount of goods produced through international trade only

C. the total amount of GDP produced through government spending and investment

D. the sum of income paid to all the factors of production

Answer: The income approach states that all economic expenditures should equal the total income generated by the production of all economic goods and services.

📄 Study AP Macroeconomics, Unit 2.1: Circular Flow and GDP

2. The circular flow model is a visual representation of:

A. total expenditures equalling total income

B. comparative advantage and absolute advantage

C. government spending on exports

D. national debt and deficit spending

Answer: The circular flow model demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products.

📄 Study AP Macroeconomics, Unit 2.1: Circular Flow and GDP

3. One limitation of GDP is that it does not account for:

A. international trade

B. environmental degradation

C. consumer purchases

D. government spending

Answer: GDP does not account for the effects of increased production on the environment.

📄 Study AP Macroeconomics, Unit 2.2: Limitations of GDP

4. The expenditure approach to calculation GDP would NOT count which of the following:

A. a used video game system bought at a garage sale

B. a sandwich bought at your local deli

C. government spending on a new bridge

D. a business purchasing new ovens for a restaurant

Answer: Used goods are not included in GDP calculations because they have already been counted in the year in which they were produced.

📄 Study AP Macroeconomics, Unit 2.1: Circular Flow and GDP

5. If the labor force is 20,000, structural unemployment is 400 and frictional unemployment is 600, what is the natural rate of unemployment?

A. 10%

B. 20%

C. 15%

D. 5%

Answer: (400 + 600)/20,000 = .05 = 5%

📄 Study AP Macroeconomics, Unit 2.3: Unemployment

6. Which of the following would be considered frictionally unemployed?

A. Carlos, a VCR repairman, had to close his sop because of a lack of customers.

B. Nick has just graduated from college with a degree in accounting and is looking for a new job.

C. During a recession, Arya was laid off from her job and has not found work yet.

D. Jaiden was looking for work after college, but decided to stop searching after having no job offers for two months.

Answer: To be frictionally unemployed, you must be actively looking for a new job. You can be in between jobs or looking for a promotion, etc.

📄 Study AP Macroeconomics, Unit 2.3: Unemployment

7. The labor force of country Y is 82,000 and the population is 100,000, what is the labor force participation rate?

A. 1.20%

B. 82%

C. 18,000

D. 82,000

Answer: LFPR = labor force/population x 100 (82,000/100000) x 100 = .82 = 82%

📄 Study AP Macroeconomics, Unit 2.3: Unemployment

8. CPI measures changes in

A. the cost of all goods and services produced in one nation in one year

B. the cost of a select market basket of goods and services

C. the unemployment rate during a recession

D. the wage rate for workers in a given economy

Answer: The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

📄 Study AP Macroeconomics, Unit 2.4: Price Indices and Inflation

9. If a nation is experiencing a recession, which of the following is necessarily true?

A. There is a decrease in unemployment.

B. Nominal wages increase.

C. Demand-pull inflation increases.

D. There is a decrease in real GDP.

Answer: Recession: a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

📄 Study AP Macroeconomics, Unit 2.7: Business Cycles

10. Real GDP is different than nominal GDP because it

A. is adjusted for price level changes using a price index

B. includes overseas production for international trade

C. relies only on production data from the previous year

D. excludes inflationary increases from the current year

Answer: Real GDP is a measure of a country's gross domestic product that has been adjusted for inflation.

📄 Study AP Macroeconomics, Unit 2.6: Real vs Nominal GDP

11. Calculate the growth rate of real GDP is a country's nominal GDP grew by 5%, and the GDP deflator increased by 12%.

A. -7%

B. 7%

C. 17%

D. 60%

Answer: 5% - 12% = -7%

📄 Study AP Macroeconomics, Unit 2.6: Real vs Nominal GDP

12. On a business cycle following the typical sequence, after an economy experiences a recession and trough, it will experience

A. a peak

B. a recession

C. an expansion

D.a negative output gap

Answer: Business cycle sequence: peak, recession, trough, expansion

📄 Study AP Macroeconomics, Unit 2.7: Business Cycles

13. Of the following, who would benefit from unanticipated inflation?

A. savers

B. lenders

C. borrowers

D. all of the above

Answer: Borrowers benefit from unanticipated inflation because they are paying back money that has less real value.

📄 Study AP Macroeconomics, Unit 2.5: Costs of Inflation

14. During a recession, which type of unemployment would increase?

A. structural

B. frictional

C. natural

D. cyclical

Answer: Cyclical unemployment is caused by period of economic downturn, or recessions.

📄 Study AP Macroeconomics, Unit 2.7: Business Cycles

15. Transfer payments are not included in GDP calculations because

A. they are not needed in a healthy economy

B. they are included in previous years' calculations

C. they would decrease GDP through their addition

D. they are not the direct result of production

Answer: Transfer payments, like Social Security checks and unemployment insurance payments, are not given to people in exchange for their production of goods and services. If there is no production of goods and services, these items cannot be included in GDP.

📄 Study AP Macroeconomics, Unit 2.1: Circular Flow and GDP

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