Scribd
Upload
74 views3 pages

Inflation and Real Interest Rate Impacts

The document contains multiple-choice questions related to AP Macroeconomics, focusing on concepts such as inflation, GDP, economic welfare, and the circular flow of economic activity. Each question presents a scenario or concept and provides several answer options for students to choose from. The questions are designed to assess understanding of macroeconomic principles and their application.

Uploaded by

darshnandwanaa
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
74 views3 pages

Inflation and Real Interest Rate Impacts

The document contains multiple-choice questions related to AP Macroeconomics, focusing on concepts such as inflation, GDP, economic welfare, and the circular flow of economic activity. Each question presents a scenario or concept and provides several answer options for students to choose from. The questions are designed to assess understanding of macroeconomic principles and their application.

Uploaded by

darshnandwanaa
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

2023 AP Daily: Practice Sessions

AP Macroeconomics
Session 2 – MCQ

1. Which of the following groups of people would benefit from unanticipated inflation?
I. Savers
II. Borrowers
III. Lenders
A. I only
B. II only
C. III only
D. I and II only
E. I and III only

2. Which of the following would be true if the actual rate of inflation were less than the
expected rate of inflation?
A. Inflation had been underpredicted.
B. The real interest rate had exceeded the nominal interest rate.
C. The real interest rate had been negative.
D. People who borrowed funds at the nominal interest rate during this time period
would lose.
E. The economy would expand because of the increased investment and
spending.

3. In an economy, the price index in 2006 was 100 and the real gross domestic product
(GDP) was $1,000. In 2010, the price index was 110 and the
nominal GDP was $2,200. Based on that information, which of the following can be
inferred about the economy’s nominal GDP in 2006 and real GDP in 2010 ?
A. Nominal GDP in 2006=$2,000; Real GDP in 2010=$1,000
B. Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,000
C. Nominal GDP in 2006=$1,100; Real GDP in 2010=$2,420
D. Nominal GDP in 2006=$1,000; Real GDP in 2010=$2,420
E. Nominal GDP in 2006=$1,100; Real GDP in 2010=$2,200

Source: Released AP Exam; Taken from: AP Classroom


4. If a worker’s nominal wage rate increases from $10 to $12 per hour and at the same
time the general price level increases by 10 percent, the worker’s real wage has
A. approximately decreased by 10%
B. approximately decreased by 20%
C. approximately increased by 10%
D. approximately increased by 20%
E. not changed

5. As a measure of economic welfare, gross domestic product underestimates a


country's production of goods and services when there is an increase in

A. the production of military goods


B. the production of antipollution devices
C. crime prevention services
D. household production
E. legal services

6. The circular flow of economic activity between consumers and producers includes
which of the following?
IV. Households buy factor services from firms
V. Households sell factor services to firms
VI. Households buy outputs from firms.
VII. Households sell outputs to firms.
A. III only
B. IV only
C. I and II only
D. II and III only
E. III and IV only

7. Which of the following best explains why transfer payments are not included in the
calculation of gross domestic product?

A. Transfer payments are used to pay for intermediate goods, and intermediate
goods are excluded from gross domestic product.
B. Transfer payments are a government expenditure, and government
expenditures are excluded from gross domestic product.
C. Recipients of transfer payments have not produced or supplied goods and
services in exchange for these payments.
D. Recipients of transfer payments are usually children, and income earned by
children is excluded in gross domestic product.
E. Recipients of transfer payments are sometimes not citizens of the United
States.

Source: Released AP Exam; Taken from: AP Classroom


8. During recessions caused by changes in aggregate demand, the economy typically
experiences
A. rising income and a rising price level
B. rising income and rising employment
C. rising income and a falling price level
D. falling income and falling employment
E. falling income and a rising price level

9. The business cycle diagram above shows the cyclical movement of actual
real GDP relative to potential real GDP over time for the nation of Galactica. The
economy of Galactica is expanding and the actual unemployment rate exceeds the
natural rate of unemployment for which year in the above diagram?
A. 1992
B. 1996
C. 2002
D. 2007
E. 2011

10. Suppose that a typical consumer buys the following quantities of three commodities in
1993 and 1994. Which of the following can be concluded about the consumer price
index (CPI) for this individual from 1993 to 1994?
A. It remained unchanged.
B. It decreased by 25%.
C. It decreased by 20%.
D. It increased by 20%.
E. It increased by 25%.

QUESTION 8: Source: Released AP Exam; Taken from: AP Classroom; QUESTION 9: Source: Topic Question; Taken from: AP Classroom;
QUESTION 10: Source: Released AP Exam; Taken from: AP Classroom

Common questions

Powered by AI

Households play dual roles in the circular flow of economic activity; they sell factor services to firms and purchase output from them, thus facilitating the continuous exchange of goods, services, and income .

GDP underestimates economic welfare as it excludes non-market activities like household production and fails to capture the distribution of income among residents and the broader quality of life .

Borrowers benefit from unanticipated inflation because the real value of the loan they repay is lower than expected, meaning they effectively return less in value than they borrowed .

Transfer payments are excluded from GDP because they constitute a redistribution of income rather than payment for goods or services produced. Recipients do not provide economic output in exchange for these transfers .

If consumer purchases lead to increased spending on the same basket of goods, resulting in a rise in prices by 25%, this indicates an increased CPI, reflecting overall cost-of-living adjustments .

If the price index increased from 100 to 110 and nominal GDP grew from $1,000 to $2,200, real GDP increased significantly, indicating actual economic growth alongside inflation adjustments .

An expanding economy with actual unemployment exceeding the natural rate indicates that the expansion phase is not yet strong enough to create jobs at the rate required to absorb all the available labor, possibly due to structural changes .

Recessions caused by changes in aggregate demand generally lead to decreased income and employment as overall economic activity contracts without compensating new demand for goods or services .

When the actual inflation rate is lower than expected, borrowers lose because they repay their loans with money of higher real value, while lenders benefit because they receive repayments that have not depreciated as much as anticipated .

If a worker's nominal wage increases by 20% from $10 to $12 per hour while the inflation rate is 10%, the real wage effectively increases by approximately 10% because the growth outpaces inflation .

You might also like