AP Macro GDP and Growth 2 — Questions and Answers
Question 1: Which of the following transactions would be counted in U.S. GDP?
- A U.S. firm sells machinery to a German company (Correct answer)
- A U.S. consumer buys a car manufactured in Japan
- An investor sells shares of Apple stock to another investor
- A retiree receives a Social Security payment from the government
Correct answer: A U.S. firm sells machinery to a German company
U.S. GDP includes exports (goods produced domestically and sold abroad), while stock sales, transfer payments, and imports of foreign goods are excluded.
Question 2: If nominal GDP rises from $18 trillion to $20 trillion and the GDP deflator rises from 100 to 110, real GDP has:
- Increased by about 1.8% (Correct answer)
- Increased by about 11.1%
- Remained unchanged
- Decreased by about 1.8%
Correct answer: Increased by about 1.8%
Real GDP = (Nominal GDP / GDP deflator) × 100; $20T/110 × 100 ≈ $18.18T, a rise of roughly 1.8% from $18T.
Question 3: Which component of GDP is most volatile over the business cycle?
- Government spending
- Net exports
- Gross private domestic investment (Correct answer)
- Personal consumption expenditures
Correct answer: Gross private domestic investment
Business investment in structures, equipment, and inventories swings sharply with economic expectations, making it the most volatile GDP component.
Question 4: The underground economy (unreported cash transactions) causes official GDP to:
- Overstate true output
- Understate true output (Correct answer)
- Accurately reflect true output
- Shift from real to nominal measures
Correct answer: Understate true output
Because illegal and unreported transactions are not captured in official statistics, measured GDP understates the economy's actual production.
Question 5: In the expenditure approach, which formula correctly represents GDP?
- GDP = C + I + G + NX (Correct answer)
- GDP = Wages + Rent + Interest + Profit
- GDP = National Income + CCA + Statistical Discrepancy
- GDP = C + S + T
Correct answer: GDP = C + I + G + NX
The expenditure approach sums Consumption (C), Investment (I), Government purchases (G), and Net Exports (NX = Exports − Imports).
Question 6: Which of the following best explains why GDP is an imperfect measure of a nation's well-being?
- GDP is measured in nominal rather than real terms
- GDP ignores the distribution of income and non-market activities like leisure (Correct answer)
- GDP includes transfer payments that do not represent output
- GDP uses purchasing power parity adjustments that distort comparisons
Correct answer: GDP ignores the distribution of income and non-market activities like leisure
GDP counts total output but says nothing about how income is distributed, volunteer work, household production, or environmental quality.
Question 7: A country's real GDP per capita grew from $30,000 to $33,000 over 10 years. Using the Rule of 70, approximately how many more years would be needed for income to double from its current $33,000 level, given the same growth rate?
- 23 years
- 35 years (Correct answer)
- 70 years
- 10 years
Correct answer: 35 years
Growth rate ≈ 1% per year (($33k–$30k)/$30k ÷ 10); Rule of 70: 70/2 ≈ 35 years to double.
AP Macro GDP and Growth 2
Which of the following transactions would be counted in U.S.
GDP?