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

Questions

1. Which of the following transactions would be counted in GDP?
   1. The wage you receive from babysitting your neighbor's kids.
   2. The sale of illegal drugs.
   3. The sale of cucumbers to a pickle manufacturer.
   4. The sale of a pound of tomatoes at a supermarket.
   5. The resale of a sweater you received from your great aunt at Christmas that you never wore on eBay.
2. 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?
   1. $0 million
   2. $1 million
   3. $2 million
   4. $3 million
   5. $4 million
3. If Real GDP = $200 billion and the price index = 200, Nominal GDP is
   1. $4 billion.
   2. $400 billion.
   3. $200 billion.
   4. $2 billion.
   5. impossible to determine since the base year is not given.

For questions 4 to 5 use the information below for a small town.

          Total Population: 2000

          Total Employed Adults: 950

          Total Unemployed Adults: 50

4. What is the size of the labor force?
   1. 2000
   2. 950
   3. 900
   4. 1000
   5. 1950
5. What is the unemployment rate?
   1. 5 percent
   2. 2.5 percent
   3. 5.5 percent
   4. 7 percent
   5. Unknown, as we do not know the number of discouraged workers.
6. 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?
   1. Cyclical
   2. Structural
   3. Seasonal
   4. Frictional
   5. Discouraged

Answers and Explanations

1. 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.
2. C—GDP = C + I + G + (X - M). This would mean that 10 = 6 + I + 3 + (2 - 3) therefore I = $2 million.
3. 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.
4. D—Labor force is the employed + the unemployed. LF = 950 + 50 = 1000. The remaining citizens are out of the labor force.
5. A—The unemployment rate is the ratio of unemployed to the total labor force. UR = U/LF = 50/1000 = 5%.
6. 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.