AP Macro AP Macro Business Cycles and Output Gaps 1

Question 1

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

Accepted Answer

Expansion

Answer

After reaching the trough (lowest point), the economy enters an expansion phase where output and employment begin to rise.

Question 2

A recessionary gap exists when:

Accepted Answer

Actual GDP is below potential GDP

Answer

A recessionary gap occurs when the economy produces less than its full-employment potential, leaving resources underutilized.

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

The conventional rule of thumb defines a recession as two consecutive quarters of negative real GDP growth.

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

Potential GDP is the sustainable output level the economy can achieve when unemployment equals its natural rate and resources are fully but not excessively employed.

Question 5

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

Accepted Answer

Peak

Answer

At the peak of the business cycle, output, employment, and optimism are at their highest before the economy begins to contract.

AP Practice Test

AP Practice Test

AP Macro AP Macro Business Cycles and Output Gaps 1