How to find real output in fiscal policy

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AP Macroeconomics › How to find real output in fiscal policy

Questions 1 - 3
1

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

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.

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.

2

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

Plateau

Expansion

Contraction

Trough

Explanation

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

3

A recessionary gap occurs when __________.

potential output exceeds real output

real output exceeds potential output

real output is equal to potential output

nominal output exceeds potential 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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