AP Macro MACRO: Measurement of Economic Performance 3 — Questions and Answers
Question 1: Which of the following best describes the concept of 'value added' in computing GDP?
- The retail price of every final good sold
- The sum of all wages paid across every stage of production
- The difference between a firm's revenue and its purchases of intermediate goods (Correct answer)
- The total profit earned by firms in each industry
Correct answer: The difference between a firm's revenue and its purchases of intermediate goods
Value added equals each firm's sales revenue minus the cost of intermediate inputs, ensuring no double-counting in GDP.
Question 2: If a country's GDP is $500 billion and its population is 50 million, its GDP per capita is:
- $1,000
- $10,000 (Correct answer)
- $100,000
- $25,000
Correct answer: $10,000
$500 billion ÷ 50 million people = $10,000 per capita.
Question 3: Which unemployment type arises when workers search for jobs that match their skills, even in a healthy economy?
- Cyclical unemployment
- Structural unemployment
- Frictional unemployment (Correct answer)
- Seasonal unemployment
Correct answer: Frictional unemployment
Frictional unemployment results from normal job-search time as workers transition between positions.
Question 4: The labor force participation rate is calculated as:
- (Employed ÷ Total population) × 100
- (Labor force ÷ Working-age population) × 100 (Correct answer)
- (Unemployed ÷ Labor force) × 100
- (Employed ÷ Labor force) × 100
Correct answer: (Labor force ÷ Working-age population) × 100
LFPR measures the share of the working-age population that is either employed or actively seeking work.
Question 5: Which of the following people would be classified as unemployed by the Bureau of Labor Statistics?
- A retiree who no longer looks for work
- A part-time worker who wants full-time hours
- A person who lost a job last month and is actively applying for new ones (Correct answer)
- A discouraged worker who stopped searching six months ago
Correct answer: A person who lost a job last month and is actively applying for new ones
BLS defines unemployed as jobless, currently available, and actively searching — a recent job-loser applying for work fits exactly.
Question 6: When the economy is operating at the natural rate of unemployment, which type of unemployment has been eliminated?
- Frictional unemployment
- Structural unemployment
- Both frictional and structural unemployment
- Cyclical unemployment (Correct answer)
Correct answer: Cyclical unemployment
The natural rate of unemployment includes frictional and structural unemployment; cyclical unemployment is zero at full employment.
Question 7: An increase in the price of oil causes the CPI to rise by 4%. A worker's nominal wage also rises by 4%. What happens to the worker's real wage?
- It rises by 4%
- It falls by 4%
- It remains unchanged (Correct answer)
- It rises by 8%
Correct answer: It remains unchanged
Real wage = nominal wage / price level; if both rise by the same percentage, real purchasing power is unchanged.
AP Macro MACRO: Measurement of Economic Performance 3
Which of the following best describes the concept of 'value added' in computing GDP?