Mr. Maurer
AP Economics
Review for Quiz on Chapters 25 & 27
GDP and Economic Growth
1. What is the major difference between real and nominal GDP?
Name: ____________________
2. Choose two of the following to best make this sentence accurate: An increase in (nominal/real) (per capita GDP/GDP) would best reflect an increase in the standard of living in an economy.
3. Choose two of the following to best make this sentence accurate: An increase in (nominal/real) (per capita GDP/GDP) would best reflect an increase in the total output of an economy.
National Economic Figures (billions of dollars)
Consumption
Government purchases of goods and services
Gross private domestic investment
Depreciation
Exports
Imports
Indirect business taxes
$ 3,000
1,000
700
300
300
500
0
4. Based on the economic figures in the table above, what is the value of gross domestic product, in billions of dollars?
5. How would changes in the stock market affect consumer spending? Think about this: If the stock market goes up, will people feel richer or poorer? Will they be likely to spend more or less money?
6. What items are excluded from GDP calculations when using the expenditures approach?
7. Why aren’t government transfer payments included in GDP?
8. How will an increase in labor productivity affect employment and inflation rates?
9. What would happen to real GDP (increase, decrease, or stay the same) in each of the following cases if the price index were to rise by 10% in a given year? a. Nominal GDP increases by 5%. b. Nominal GDP increases by 10%. c. Nominal GDP increases by 15%.
10. If personal consumption, gross private investment, and government purchases totaled 102% of GDP in a given year, what would that tell you about the fourth component of GDP?

Unemployment
11. Why do some critics argue that the official unemployment rate actually understates the true level of unemployment in the economy?
12. Who is counted as officially unemployed? (Describe the characteristics necessary, don’t name someone who doesn’t have a job.)
13. Define structural, cyclical, and frictional unemployment.
Inflation
14. Unanticipated inflation generally helps which groups of people?
15. Unanticipated inflation generally hurts which groups of people?
16. How is the consumer price index calculated?
17. If a worker’s annual wage went from $40,000 to $44,000, and during the same period the general price level rises 5%, what is the change in the worker’s real income?
18. If banks are charging a nominal interest rate of 5% for fixed-rate mortgages, and the expected rate of inflation is 2.8%, what is the real interest rate for fixed-rate mortgages?
19. What causes hyperinflation?
20. Suppose that a typical consumer buys the following quantities of three commodities in 1993 and 1994.
Commodity Quantity
Food 5 units
Clothing
Shelter
2 units
3 units
1993 per Unit Price 1994 per Unit Price
$5.00 $4.00
$9.00
$19.00
$11.00
$21.00
What was the change in the consumer price index (CPI) for this individual from 1993 to 1994?
The Business Cycle
21. Identify the four phases of the business cycle in the proper order.