Macroeconomic Measures of Performance Review Questions for AP Economics
The study guides for these review questions can be found at:
- The Circular Flow Model Review for AP Economics
- Accounting for Output and Income Review for AP Economics
- Inflation and the Consumer Price Index Review for AP Economics
- Unemployment Review for AP Economics
- Which of the following transactions would be counted in GDP?
- The wage you receive from babysitting your neighbor's kids.
- The sale of illegal drugs.
- The sale of cucumbers to a pickle manufacturer.
- The sale of a pound of tomatoes at a supermarket.
- The resale of a sweater you received from your great aunt at Christmas that you never wore on eBay.
- GDP is $10 million, consumer spending is $6 million, government spending is $3 million, exports are $2 million, and imports are $3 million. How much is spent for investments?
- $0 million
- $1 million
- $2 million
- $3 million
- $4 million
- If Real GDP = $200 billion and the price index = 200, Nominal GDP is
- $4 billion.
- $400 billion.
- $200 billion.
- $2 billion.
- impossible to determine since the base year is not given.
- What is the size of the labor force?
- What is the unemployment rate?
- 5 percent
- 2.5 percent
- 5.5 percent
- 7 percent
- Unknown, as we do not know the number of discouraged workers.
- You are working at a supermarket bagging groceries but you are unhappy about your wage so you quit and begin looking for a new job at a competing grocery store. What type of unemployment is this?
For questions 4 to 5 use the information below for a small town.
Total Population: 2000
Total Employed Adults: 950
Total Unemployed Adults: 50
Answers and Explanations
- D—The supermarket tomatoes are the only final good sale and are counted. Babysitting is a nonmarket, cash "under the table," service. The sale of illegal drugs is a part of an underground economy. The sale of the cucumbers is an intermediate good. The resale of the sweater, even though it was never worn, is a second-hand sale. When your great aunt originally purchased it at the mall, it was counted in GDP.
- C—GDP = C + I + G + (X - M). This would mean that 10 = 6 + I + 3 + (2 - 3) therefore I = $2 million.
- B—Nominal GDP/price index (in hundredths) = real GDP. Use this relationship to solve for Nominal GDP. $200 = (Nominal GDP)/2. Nominal GDP = $400 billion.
- D—Labor force is the employed + the unemployed. LF = 950 + 50 = 1000. The remaining citizens are out of the labor force.
- A—The unemployment rate is the ratio of unemployed to the total labor force. UR = U/LF = 50/1000 = 5%.
- D—Frictional unemployment occurs when a person is in between jobs. This person has not been laid off due to a structural change in the demand for skills, or because of a cyclical economic downturn, or because of a new season. A low wage might be discouraging; a discouraged worker is a worker who has been unemployed for so long that he or she has ceased the search for work.
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