AP Macro MACRO: Measurement of Economic Performance 2

Question 1

Which of the following transactions would be EXCLUDED from GDP calculations?

Accepted Answer

A homeowner sells a house built in 1985

Answer

GDP only counts newly produced goods and services; resale of existing assets like a previously built house is excluded.

Question 2

If nominal GDP grows by 8% and the GDP deflator rises by 5%, what is the approximate growth rate of real GDP?

Accepted Answer

3%

Answer

Real GDP growth ≈ nominal GDP growth minus inflation, so 8% − 5% = 3%.

Question 3

Which component of GDP is most volatile over the business cycle?

Accepted Answer

Investment

Answer

Investment (especially business fixed investment and inventories) fluctuates most sharply with economic conditions.

Question 4

A country's CPI basket was determined in 2015. A weakness of using this fixed basket through 2025 is that it:

Accepted Answer

Ignores new goods and substitution behavior

Answer

A fixed-basket CPI suffers substitution bias and new-goods bias because it does not update to reflect consumer responses to relative price changes.

Question 5

In the circular flow model, which of the following represents a leakage from the spending stream?

Accepted Answer

Household saving

Answer

Saving represents income that exits the circular flow without being immediately spent on domestic output.

AP Practice Test