AP Macroeconomics Unit 2 MCQ (1–40)
PDF-Optimized Format
Questions
1. Which component is NOT part of the expenditure approach to calculating GDP?
A) Consumption
B) Investment
C) Government transfer payments
D) Net exports
E) Depreciation
2. If net exports are negative, which statement is true?
A) Imports > exports
B) Exports > imports
C) Domestic production increases
D) GDP decreases
E) Trade surplus occurs
3. Calculate nominal GDP using the following data:
- Consumption = $50 billion
- Investment = $20 billion
- Government spending = $30 billion
- Exports = $10 billion
- Imports = $15 billion
A) $115 billion
B) $95 billion
C) $90 billion
D) $75 billion
E) $105 billion
4. In the circular flow model, payments for factors of production (e.g., wages, rent) are part of:
A) Product markets
B) Resource markets
C) Government transfers
D) Financial markets
E) International trade flows
5. If households save more and reduce consumption, this is considered a:
A) Injection into the economy
B) Leakage from the economy
C) Increase in net exports
D) Expansionary fiscal policy
E) Increase in tax revenue
6. GDP does NOT account for:
A) The value of owner-occupied housing
B) Volunteer work
C) Government infrastructure projects
D) Exported goods
E) Illegal gambling
7. A key limitation of using GDP per capita to measure living standards is that it:
A) Adjusts for inflation
B) Ignores income inequality
C) Includes non-market transactions
D) Exports more than imports
E) Measures environmental quality
8. The "Genuine Progress Indicator (GPI)" adjusts GDP by:
A) Subtracting environmental degradation costs
B) Adding military spending
C) Ignoring income inequality
D) Including stock market gains
E) Counting unpaid household work
9. Which activity is part of the underground economy and excluded from GDP?
A) A teacher tutoring students for cash
B) A car manufacturer exporting vehicles
C) A grocery store selling produce
D) A construction company building a school
E) A government employee receiving a salary
10. Structural unemployment occurs when:
A) Workers quit to find better jobs
B) Industries decline due to technological change
C) The economy enters a recession
D) Seasonal demand for labor ends
E) Workers lack job-search skills
11. If the labor force is 200 million and 10 million are unemployed, the unemployment rate is:
A) 5%
B) 10%
C) 15%
D) 20%
E) 25%
12. Which individual is NOT counted in the labor force?
A) A part-time worker
B) A discouraged worker who stopped job-seeking
C) A college student actively applying for jobs
D) A retiree
E) A freelancer with temporary contracts
13. Frictional unemployment occurs when:
A) Workers are between jobs voluntarily
B) Factories automate production
C) A recession reduces demand for labor
D) Seasonal tourism jobs end
E) Workers lack education
14. A country has 150 million employed, 10 million unemployed, and 40 million not in the labor
force. The unemployment rate is:
A) 5.0%
B) 6.25%
C) 10.0%
D) 25.0%
E) 30.0%
15. The natural rate of unemployment includes:
A) Cyclical and structural unemployment
B) Frictional and cyclical unemployment
C) Frictional and structural unemployment
D) Seasonal and cyclical unemployment
E) All types of unemployment
16. The Consumer Price Index (CPI) measures:
A) The cost of all goods produced in a year
B) Changes in the price of a market basket of consumer goods
C) Nominal GDP growth
D) Government spending adjustments
E) Stock market performance
17. If the CPI increases from 120 to 132, the inflation rate is:
A) 5%
B) 10%
C) 12%
D) 15%
E) 20%
18. A country’s nominal GDP is $500 billion, and real GDP is $400 billion. The GDP deflator is:
A) 80
B) 100
C) 125
D) 150
E) 200
19. The GDP deflator differs from the CPI because it:
A) Includes imported goods
B) Measures only consumer goods
C) Uses a fixed basket of goods
D) Reflects prices of all domestically produced goods
E) Adjusts for population growth
20. A market basket costs $200 in the base year and $220 in the current year. The CPI is:
A) 90
B) 100
C) 110
D) 120
E) 130
21. The "substitution bias" in CPI calculations occurs because:
A) Consumers switch to cheaper alternatives when prices rise
B) The basket is updated annually
C) It excludes housing costs
D) Inflation is overstated by the GDP deflator
E) It ignores technological advancements
22. Unexpected inflation most harms:
A) Borrowers with fixed-rate loans
B) Savers holding cash
C) Employers paying minimum wage
D) Governments issuing bonds
E) Homeowners with mortgages
23. "Menu costs" of inflation refer to:
A) The cost of relabeling prices
B) Increased interest rates
C) Higher unemployment
D) Reduced purchasing power
E) Time spent managing cash
24. Hyperinflation is most likely to cause:
A) Increased foreign investment
B) A collapse in currency value
C) Higher real wages
D) Reduced nominal interest rates
E) Stable economic growth
25. Who benefits from unanticipated inflation?
A) Savers holding cash
B) Borrowers with fixed-rate loans
C) Retirees on fixed pensions
D) Lenders charging fixed interest
E) Governments with balanced budgets
26. "Shoe-leather costs" refer to:
A) Time spent managing cash during inflation
B) Physical wear on currency
C) Increased prices of footwear
D) Menu costs for businesses
E) Lost productivity due to inflation
27. If the nominal interest rate is 8% and inflation is 5%, the real interest rate is:
A) 3%
B) 5%
C) 8%
D) 13%
E) -3%
28. Real GDP adjusts nominal GDP for:
A) Population changes
B) Inflation
C) Unemployment
D) Government spending
E) Exchange rate fluctuations
29. If nominal GDP grows by 7% and inflation is 3%, real GDP growth is:
A) 4%
B) 7%
C) 10%
D) 21%
E) 0%
30. In 2020, nominal GDP was $1,000 billion, and the GDP deflator was 125. Real GDP is:
A) $800 billion
B) $1,000 billion
C) $1,250 billion
D) $1,500 billion
E) $2,000 billion
31. Nominal GDP uses:
A) Base-year prices
B) Current-year prices
C) Adjusted tax rates
D) Inflation-adjusted quantities
E) Foreign exchange rates
32. In 2023, nominal GDP = $800 billion and the GDP deflator = 160. Real GDP is:
A) $500 billion
B) $640 billion
C) $800 billion
D) $1,280 billion
E) $1,600 billion
33. From 2020 to 2025, nominal GDP doubles and the GDP deflator increases by 25%. Real GDP
growth is:
A) 25%
B) 50%
C) 60%
D) 75%
E) 100%
34. A recession is defined as:
A) Two consecutive quarters of declining real GDP
B) Rising unemployment for six months
C) A stock market crash
D) High inflation rates
E) A decline in consumer confidence
35. During an expansionary phase of the business cycle:
A) Unemployment rises
B) Consumer spending increases
C) Inflation decreases
D) Investment falls
E) Government spending decreases
36. Which policy would a government most likely use during a recession?
A) Increase taxes
B) Reduce public spending
C) Lower interest rates
D) Cut unemployment benefits
E) Raise tariffs
37. During the peak of a business cycle:
A) Unemployment is lowest
B) GDP growth is negative
C) Inflation decreases
D) Consumer confidence plummets
E) Interest rates rise sharply
38. Leading economic indicators include:
A) Stock market performance
B) Unemployment claims
C) GDP growth rate
D) Retail sales data
E) Corporate tax rates
39. If potential GDP is $1,000 billion and actual GDP is $900 billion, the output gap is:
A) 10% recessionary gap
B) 10% inflationary gap
C) 11.1% recessionary gap
D) 11.1% inflationary gap
E) No gap exists
40. Cyclical unemployment is caused by:
A) Technological advancements
B) A mismatch of skills and jobs
C) Fluctuations in the business cycle
D) Seasonal changes in demand
E) Workers relocating
