AP Macroeconomics : AP Macroeconomics

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : Real Interest Rate

The real interest rate can be approximated by the Fisher equation:

What is the exact formula for the real interest rate?

Possible Answers:

The Fisher equation always gives the exact real interest rate. 

Correct answer:

Explanation:

The real interest rate is defined as the nominal appreciated value of assets divided by the new price level of the assets. The nominal appreciated value is simply , while the new price level is equal to . This gives the real appreciated value of assets. We then subtract 1 to get the real interest rate. 

Example:  (according to the Fisher equation)

The Fisher equation comes close, but is not actually correct.

Example Question #21 : Ap Macroeconomics

A consumer who discounts future payments at a rate of 10% per year will be willing to pay what amount for an asset that will pay $5000 in 3 years?

Possible Answers:

$5000

$6655

$4132.23

$3756.57

$4545.45

Correct answer:

$3756.57

Explanation:

The consumer's discount rate tells us what return on the investment the consumer must make every year in order to consider the asset worth buying. To determine the cost necessary to make the return worthwhile use the present discount formula:

 

Example Question #1 : Net Exports

A depreciation in the value of a nation's currency will lead to what?

Possible Answers:

Higher exports

An increase in wages

An increase in tax revenue

Higher imports

Correct answer:

Higher exports

Explanation:

A devaluation of a currency makes a nation's goods cost less to holders of foreign currency. Since the goods are now cheaper, there will be an increase in the quantity of goods demanded by holders of foreign currency. More foreigners buying goods means those goods must be shipped to them leading to an increase in exports. 

Example Question #1 : Net Exports

A trade surplus results from a country having __________.

Possible Answers:

more net imports than net exports

more net exports than net imports

net exports that equal more than one half of total GDP

net imports that equal less than one third of total GDP

net imports that exceed the total GDP

Correct answer:

more net exports than net imports

Explanation:

Net imports describe all goods brought into a country through trade, and net exports describe all goods sold to foreign countries. A trade surplus describes any situation in which net exports are greater than net imports. A trade surplus is a target for most nations.

Example Question #1 : Productivity

Country A can produce 10 cars or 5 computers. Country B can produce 6 cars or 4 computers. 

Which country has the absolute advantage in producing computers?

Possible Answers:

Impossible to determine with the information given. 

Country A

Neither country has the absolute advantage in producing computers. 

Country B

Correct answer:

Country A

Explanation:

Absolute advantage is determined by which country can produce more, regardless of efficiency. Country A can produce more computers than Country B, so it has the absolute advantage in producing computers. 

Example Question #2 : Productivity

Country A can produce 10 cars or 5 computers. Country B can produce 6 cars or 4 computers. 

Which country has the comparative advantage in producing computers?

Possible Answers:

Country B

Neither country has the comparative advantage in producing computers. 

Impossible to determine

Country A

Correct answer:

Country B

Explanation:

Country B can produce 4 computers or 6 cars. , so Country B must give up 1.5 cars to make a computer. Country A can make 5 computers or 10 cars. , so Country A must give up producing 2 cars to make 1 computer. 

Example Question #1 : How To Find Effects On Employment

Which of the following is an example of an automatic stabilizer?

Possible Answers:

Deficit spending by governments

Unemployment insurance

Expansionary monetary policy by a Central Bank

Corporate layoffs

Correct answer:

Unemployment insurance

Explanation:

Unemployment insurance is an example of an automatic stabilizer. An automatic stabilizer is something that stabilizes real economic output in the event of recession. Because unemployment insurance gives workers that have been laid off some money, it is considered an automatic stabilizer, because it lessens the damage that laying these workers off will have on the consumption component of GDP. 

Example Question #1 : Unemployment

Of structural, frictional, and cyclical unemployments, what type of unemployment is seen as the most harmful to a society?

Possible Answers:

Frictional

None of these answers

Cyclical

Structural

Correct answer:

Cyclical

Explanation:

Some positive amount of frictional unemployment is seen as positive in society as it allows workers to be matched to the most appropriate job for their skills. Some structural unemployment is unavoidable due to technological change, but the development in the economy that causes it is likely to be a net positive. 

Cyclical unemployment provides no benefit to society and the increase in unemployment and decrease in output will continue after a recession is over. 

Example Question #1 : Unemployment

Which of the following is NOT included when calculating the unemployment rate?

Possible Answers:

those who were fired from their previous jobs

those who are underemployed

those who are looking for a new job 

those who are unemployed but are no longer actively looking for a job

those who are unemployed because their previous employer went out of business

Correct answer:

those who are unemployed but are no longer actively looking for a job

Explanation:

The unemployment rate does not measure the percentage of people who do not have a full time job; it instead measures the percentage of people in the workforce who are not employed. The workforce includes all current workers, people on unemployment assistance, and those actively looking for a job. Not counted in the measure of the workforce are people not looking for a job, including people who have chosen not to or are unable to seek full time work.

Example Question #1 : Unemployment

Which of the following is the best example of frictional unemployment?

Possible Answers:

A retail employee who was hired by a shopkeeper during the holiday season is let go once the holiday season is over.

A major corporation announces that it is laying off 250 employees due to an economic recession which has caused weakening demand for their products.

A recent college graduate quits her job at a local coffee shop upon graduation. She is planning on applying for a salaried position with local banks in the area.

An assembly line worker at a factory loses his job because the plant that he works at purchases a new machine to replace him.

Correct answer:

A recent college graduate quits her job at a local coffee shop upon graduation. She is planning on applying for a salaried position with local banks in the area.

Explanation:

Frictional unemployment is the unemployment that results from employees quitting their jobs, voluntarily moving from one job to another, or being fired for reasons that do not have to do with the overall macroeconomy.

As a result, the best answer here is the recent college graduate leaving her job to pursue a salaried position, because she is moving from one job to another.

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