AP Macro Economic Indicators 3

Question 1

Which of the following would be included in U.S. GDP?

Accepted Answer

A Japanese firm's production in a factory located in Ohio

Answer

GDP measures output produced within a country's borders regardless of ownership, so a Japanese-owned factory in Ohio counts.

Question 2

Core inflation differs from headline inflation in that core inflation excludes:

Accepted Answer

Volatile food and energy prices

Answer

Core inflation strips out food and energy because their prices are highly volatile and can obscure underlying inflation trends.

Question 3

If the velocity of money increases while the money supply stays constant, the quantity theory of money (MV = PQ) predicts:

Accepted Answer

An increase in nominal GDP

Answer

Since MV = PQ (nominal GDP), holding M constant and increasing V must raise PQ, i.e., nominal GDP rises.

Question 4

A nation has 150 million working-age adults; 100 million are employed and 10 million are unemployed. The unemployment rate is:

Accepted Answer

9.1%

Answer

Unemployment rate = unemployed / labor force = 10 / (100 + 10) = 10/110 ≈ 9.1%.

Question 5

Which business cycle phase is characterized by falling real GDP, rising unemployment, and declining consumer spending?

Accepted Answer

Recession

Answer

A recession is defined as a period of declining economic activity, typically two or more consecutive quarters of falling real GDP.

AP Practice Test