AP Macro AP Macro Business Cycles and Output Gaps

Question 1

In a standard business cycle, which phase immediately follows a trough?

Accepted Answer

Expansion

Answer

Recession

Answer

Peak

Answer

Contraction

Question 2

A recessionary gap exists when:

Accepted Answer

Actual GDP is below potential GDP

Answer

Actual GDP exceeds potential GDP

Answer

The price level is above the target inflation rate

Answer

The unemployment rate is below the natural rate

Question 3

Which of the following is the most commonly used definition of a recession?

Accepted Answer

Two consecutive quarters of negative real GDP growth

Answer

A single quarter of negative GDP growth

Answer

An unemployment rate above 7%

Answer

A decline in the stock market of more than 20%

Question 4

Potential GDP represents:

Accepted Answer

The output level the economy would produce at the natural rate of unemployment with full resource utilization

Answer

The maximum GDP ever recorded historically

Answer

GDP minus depreciation and taxes

Answer

The nominal GDP adjusted for population growth

Question 5

During which phase of the business cycle would consumer confidence and business investment typically be at their highest?

Accepted Answer

Peak

Answer

Trough

Answer

Contraction

Answer

Recession

Question 6

An inflationary gap is closed in the long run through:

Accepted Answer

Rising wages and input costs that shift short-run aggregate supply leftward

Answer

An increase in government spending

Answer

A decrease in the money supply by the Fed

Answer

An increase in taxes to reduce consumer spending