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ap economics, unit 2 multiple choice

Terms in this set (103)

Which of the following is true according to the circular flow model?
Households are demanders in the product markets and suppliers in the factor markets.
Which of the following will happen if the actual inflation rate is greater than the expected inflation rate?
Borrowers of fixed interest rate loans will be better off.
The table below shows labor market statistics for a nation.

Number of Workers Structurally Unemployed - 3 million
Number of Workers Cyclically Unemployed - 4 million
Number of Workers Frictionally Unemployed - 2 million
Number of Workers Officially Classified as Employed - 91 million
Working-age Population - 150 million

What is the nation's unemployment rate?
9%
The table below shows labor market statistics for a nation.

Number of Workers Structurally Unemployed - 3 million
Number of Workers Cyclically Unemployed - 4 million
Number of Workers Frictionally Unemployed - 2 million
Number of Workers Officially Classified as Employed - 91 million
Working-age Population - 150 million

Based on the above table, which of the following is most likely correct?
The natural rate of unemployment is 5 percent.
Which of the following groups of people would benefit from unanticipated inflation?

I. Savers
II. Borrowers
III. Lenders
II only
Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to which of the following?
$2,500 billion
The table below shows a country's macroeconomic data in 2013.

Consumption spending - $175 billion
Individual income taxes - $32 billion
Private investment spending - $30 billion
Corporate taxes - $25 billion
Exports - $75 billion
Government purchases - $40 billion
Imports - $100 billion

The country's gross domestic product is
$220 billion
If in a specified year nominal gross domestic product grew by 11 percent and real gross domestic product grew by 4 percent, inflation for this year would be
7%
In 2007, the nominal gross domestic product (GDP) was $50 billion and the GDP deflator was 200. Thus real GDP was
$25 billion
The nation of Turboland produces only two goods, X and Y. The prices and final quantities produced of the two goods in 1993 and the base year of 1992 are shown in the table below.

1992 (base year) - 1993
Price of Good X ($) 5 - 6
Quantity of Good X (units) 4 - 6
Price of Good Y ($) 10 - 10
Quantity of Good Y (units) 5 - 6

What are the nominal GDP and real GDP in 1993?
Nominal GDP is $96, Real GDP is $90
If a worker's nominal wage rate increases from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has
approximately increased by 10%
The value of which of the following is counted in the United States gross domestic product?
A car produced in the United States and sold in Europe
Which of the following would cause the official unemployment rate to understate the problem of unemployment?
Discouraged workers
In the circular flow diagram of a market economy, which of the following supplies the factors of production?
The household sector
Which of the following represents a leakage from the circular flow in an economy?
Imports
Which of the following can be considered a leakage from the circular flow of economic activity?
Saving
The circular-flow model indicates that final goods are produced by
firms and sold in the product markets
Which of the following individuals is classified as unemployed?
A recent college graduate who is looking for her first job
In 2017 Sabrina earned an annual salary of $100,000 as an engineer. In 2018, her income rose to $105,000. The inflation rate in 2018 was 2%. How did Sabrina's nominal income and real income change in 2018 compared to 2017?
Nominal income increased and real income increased.
If purchases of education and medical care were counted as investment rather than consumption, gross domestic product would
not change, because there is no change in total expenditures
The table below shows the cost of the same representative basket of goods in the base year 2012 and in 2013, and the average weekly nominal wage rate in 2012 and 2013.
The CPI in year 2013 is 120.
The consumer price index (CPI) is designed to measure changes in the
cost of a select market basket of goods and services
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 ?
It increased by 25%.
The consumer price index measures which of the following?
The change over time of the weighted prices of a particular group of goods and services
The consumer price index (CPI) measures the
prices of a specific group of goods and services purchased by consumers
Gross domestic product has been criticized as a measure of well-being because it fails to take into account which of the following?
The distribution of income
The consumer price index (CPI) is criticized for
overstating the true burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change
Year - Nominal GDP - Price Index
2012/$100,000/200
2013/$110,000/220

The table above shows the nominal gross domestic product (GDP) and the price index for an economy during the period 2012 and 2013. Which of the following would have occurred from 2012 to 2013?
Real GDP did not change.
A short-run increase in national income could be caused by a decrease in which of the following?
Imports
Which of the following necessarily occurs during an economic recession?
Real gross domestic product decreases.
If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?
Number of Workers Employed - No change.
Unemployment Rate - Decrease.
Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT
borrowers
Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation?
People who borrowed funds at the nominal interest rate during this time period would lose.
Which of the following situations will benefit lenders of fixed interest rate loans?
The actual inflation rate is less than the expected inflation rate.
If a nation's actual real GDP is less than potential real GDP, which of the following must be true?
The actual rate of unemployment exceeds the natural rate of unemployment.
The value of which of the following would be included in the United States gross domestic product?
A movie ticket purchased at a local theater
Which of the following unemployed individuals represents frictional unemployment?
Janet, an accounting graduate who is interviewing with a number of accounting firms.
Which of the following statements exemplifies the concept of structural unemployment?
Workers are fired because their skills are no longer in demand.
Which of the following is true if the economy is producing at the full-employment level of output?
There is frictional unemployment.
Frictional unemployment occurs when which of the following happens?
A worker voluntarily quits a job to search for a better one.
Which of the following best describes an economy at full employment?
There is frictional, but not cyclical, unemployment.
GDP does NOT account for which of the following?
The depletion of natural resources
As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in
household production
Which of the following transactions would represent an addition to a nation's current gross domestic product?
The government increases its domestic purchases of food for use by the military.
Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product?
A newly constructed home
Which of the following statements about the simple circular flow model of a market economy is correct?
Households are on the demand side of the product market and the supply side of the resource market.
If the nominal gross domestic product (GDP) of the nation of Hypothetica increased in 2007 relative to the previous year, it must be true that in Hypothetica in 2007
the price level and/or the real GDP has increased
In one year, spending on consumption, investment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if
net exports were negative
Gross private domestic investment includes which of the following?
changes in business inventories
If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true?
The inflation rate was negative.
Gross domestic product is equal to which of the following?
The sum of income paid to all the factors of production
Which of the following individuals is considered officially unemployed?
Pat, who recently left a job to look for a different job in another town
A lender will realize unexpected benefit when the
actual inflation rate is lower than the anticipated inflation rate
Inflation occurs when there is a sustained increase in which of the following?
The average price level
Period - Real Gross Domestic Product - Nominal Gross Domestic Product
Year 1/$100 billion/$70 billion
Year 2/$120 billion/$120 billion
Year 3/$130 billion/$150 billion

Which of the following can be concluded from the data above?
The economy was experiencing inflation during years 2 and 3.
The business cycle diagram below shows the cyclical movement of actual real GDP relative to potential real GDP over time for the nation of Galactica.

The economy of Galactica is expanding and the actual unemployment rate exceeds the natural rate of unemployment for which year in the above diagram?
2002
Unexpected increases in inventories usually precede
decreases in production
The major difference between real and nominal gross domestic product (GDP) is that real GDP
is adjusted for price-level changes using a price index
Suppose that the consumer price index rises from 100 to 200. From this information we may conclude that
the prices in an average consumer's market basket are doubled
In the measurement of gross domestic product, investment includes spending by
businesses on capital goods and changes in inventories
Melanie quits her job to look for a better one that has opportunity for advancement. Melanie will be classified in which category of unemployment?
Frictional
An increase in the labor force participation rate will
make it more difficult to reduce unemployment
Which of the following means of reducing military spending would have the greatest positive impact on gross domestic product for the United States?
Closing overseas military bases and relocating those operations to the United States
The circular flow of economic activity between consumers and producers includes which of the following?
I. Households buy factor services from firms.
II. Households sell factor services to firms.
III. Households buy outputs from firms.
IV. Households sell outputs to firms.
II and III only
The natural rate of unemployment can be defined as the
economy's long-run equilibrium rate of unemployment
The natural rate of unemployment is the unemployment rate when
there is no cyclical unemployment
If real gross domestic product is increasing at 3 percent per year and nominal gross domestic product is increasing at 7 percent per year, which of the following is necessarily true?
The price level is increasing.
Suppose that in a particular country, nominal gross domestic product (GDP) grew by 8 percent, and the GDP deflator increased by 10 percent. The country's growth rate of real GDP would be approximately equal to
-2%
Which of the following transactions will be included in the calculation of Country X's Gross Domestic Product (GDP) in 2020?
The purchase of new construction equipment
The recent popularity of job search Web sites that enable job seekers and potential employers to more efficiently contact each other is most likely to cause
a reduction in the frictional unemployment rate
Potential gross domestic product will decrease under which of the following conditions?
The country's annual depreciation is greater than its annual gross investment.
In 2016 the nominal GDP for Country X was $330 billion and the GDP deflator was 110. The real GDP for 2016 was
$300 billion
Which of the following is true about the real GDP?
It measures aggregate output using constant prices.
A country's real gross domestic product is the annual value of all final goods and services that are
produced in that country, adjusted for changes in the price level
Which of the following is an example of structural unemployment?
An autoworker who is replaced by a robot
For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?
Households are suppliers of resources and consumers of goods and services.
Which of the following describes a typical business cycle in the correct sequence?
Peak, recession, trough, and expansion
Structural unemployment is best described as unemployment arising from
the elimination of jobs as a result of technological change
Labor Market Data for Country X (in millions of persons)
Population - 180
Employed - 94
Unemployed - 6
Not in labor force - 80

Based on the information in the table above, what is the unemployment rate for Country X?
6.0%
National Economic Figures (billions of dollars)

Consumption - $3,000
Government purchases of goods and services - 1,000
Gross private domestic investment - 700
Depreciation - 300
Exports - 300
Imports - 500
Indirect business taxes - 0

Based on the economic figures in the table above, what is the value of the gross domestic product, in billions of dollars?
$4,500
An industry historically used employees with specific skills. If this industry experiences technological advances that require new skills, there will most likely be
structural unemployment
The circular flow model illustrates the equality of which of the following?
total expenditure and total income
If an economy is at the peak of the business cycle, then which of the following is true about the state of the economy?
There is an inflationary gap.
As a measure of economic performance, GDP accounts for which of the following?
Souvenir gifts purchased by tourists domestically
Which of the following statements is true of unanticipated inflation?
It increases the economic well-being of net debtors.
The unemployment rate is calculated as
the number of people not working but actively seeking employment divided by the number of people in the labor force
The unemployment rate measures the percentage of
people in the labor force who do not have jobs
The official unemployment rate is not an accurate indicator of actual unemployment in the economy because
the official rate does not include persons who have given up looking for work
When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is
equal to the natural rate
Which type of unemployment would increase if workers lost their jobs because of a recession?
Cyclical
Annual Consumer Price Index (CPI)
Year - CPI
1929/20
1984/100
1995/120

The table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929?
$300
The table below shows the sales and intermediate purchases of automobile manufacturers, glass manufacturers, and steel manufacturers in a country.

Automobiles - Glass - Steel
Sales/$100 million to final users/$20 million to automobile manufactures/$40 million to automobile manufacturers
Intermediate purchases from other manufacturers/$60 million/$0/$0

Assuming these are the only three manufacturers in the country, which of the following is true?
The total value added of the glass, steel, and automobile manufacturers is $100$100 million.
Which of the following is included in the computation of gross domestic product?
Additions to business inventories
When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?
Nominal national income
Which of the following will be counted as unemployed by the United States Bureau of Labor Statistics?
Persons who were fired from their previous jobs and are actively applying for work
Which of the following will lead to an increase in the United States gross domestic product?
Foreign companies build new assembly plants in the United States.
Last year both a borrower and a lender expected an inflation rate of 3 percent when they signed a long-term loan agreement with fixed nominal interest rates of 5 percent. If the actual inflation rate were lower than expected, then which of the following would be true?
The lender would benefit.
Which of the following groups would most likely gain from unanticipated inflation?
Individuals who have borrowed money at fixed interest rates
Which of the following allows an individual to gain from unexpected inflation?
Borrowing money at a fixed interest rate
Which of the following explains why the rate of change of the consumer price index (CPI) tends to overstate the actual inflation rate?
Consumers tend to substitute lower-priced goods that may not be represented in the basket of goods.
Which of the following best explains why transfer payments are not included in the calculation of gross domestic product?
Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments.
The official unemployment rate understates the unemployment level in the economy because the official unemployment rate
ignores underemployed and discouraged workers
Which of the following is an example of frictional unemployment?
A person quits a job to search for another job.
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