AP Macroeconomics : How to find real output in fiscal policy

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : Fiscal Policy

Which of the following is not a part of the business cycle?

Possible Answers:

Expansion

Contraction

Plateau

Trough

Correct answer:

Plateau

Explanation:

The four phases of the business cycle are expansion, peak, contraction, and trough. A plateau is not one of these four phases.

Example Question #1 : How To Find Real Output In Fiscal Policy

How does an increase in imports affect a nation's GDP?

Possible Answers:

An increase in imports does not affect a nation's GDP.

An increase in imports raises a nation's GDP.

An increase in imports decreases a nation's GDP. 

Correct answer:

An increase in imports does not affect a nation's GDP.

Explanation:

Using the GDP equation , we see that any imports will be added to either Consumption or Investment, but will be subtracted from Net Exports by the same amount. This leads to a net change of zero. 

Example Question #3 : Fiscal Policy

A recessionary gap occurs when __________.

Possible Answers:

nominal output exceeds potential output

potential output exceeds real output

real output exceeds potential output

real output is equal to potential output

Correct answer:

potential output exceeds real output

Explanation:

A recessionary gap is defined as a situation in which real output is below potential output. In other words, the economy could be producing more than it is.

The answer choice "real output exceeds potential output" is incorrect; it describes an inflationary gap.

The answer choice "nominal output exceeds potential output" is incorrect; inflationary and recessariony gaps refer to real output levels, not nominal levels.

 

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