AP Macro GDP and Growth 3

Question 1

Which of the following would cause the production possibilities frontier (PPF) to shift outward, reflecting long-run economic growth?

Accepted Answer

An improvement in technology

Answer

Technological progress increases productive capacity, shifting the PPF outward and enabling the economy to produce more of all goods.

Question 2

Country A has a real GDP of $1 trillion and a population of 50 million. Country B has a real GDP of $800 billion and a population of 20 million. Which country has a higher standard of living as measured by real GDP per capita?

Accepted Answer

Country B, because its GDP per capita is higher

Answer

Country A: $1T/50M = $20,000 per capita; Country B: $800B/20M = $40,000 per capita, so B has a higher standard of living.

Question 3

In the income approach to measuring GDP, which of the following is NOT included?

Accepted Answer

Welfare transfer payments

Answer

Transfer payments like welfare redistribute existing income but do not represent payments for current production, so they are excluded from GDP.

Question 4

When a car manufacturer buys steel to produce automobiles, the steel purchase is:

Accepted Answer

Not counted in GDP to avoid double-counting, since the car's value includes the steel

Answer

To avoid double-counting, GDP counts only final goods; the value of the steel is already embedded in the final price of the automobile.

Question 5

Which of the following correctly describes the relationship between saving, investment, and economic growth in a closed economy?

Accepted Answer

Higher saving funds more investment, which can expand productive capacity

Answer

In a closed economy, national saving equals investment (S = I), so increased saving provides loanable funds for investment that builds capital and supports growth.

AP Practice Test

AP Practice Test

AP Macro GDP and Growth 3