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AP ECONOMICS CHAPTER 8 STUDY GUIDE 5. If a nation's real GDP is growing by 3 percent per year, its real domestic output will double in approximately: A) 21 years. B) 23 years. C) 29 years. D) 42 years. 1. The best measure of economic growth adjusted for the population of a nation is the increase in: A) aggregate demand over time. B) real GDP per worker over time. C) real GDP per capita over time. D) real GDP per dollar of capital stock over time. Use the following to answer question 6: 2. Real GDP was $9,950 billion in Year 1 and $10,270 billion in Year 2. What was the approximate rate of economic growth from Year 1 to Year 2? A) 1.6 percent B) 2.4 percent C) 3.2 percent D) 4.3 percent 6. The above diagram is best described as an idealized: A) business cycle. B) cyclical variation. C) recession cycle. D) prosperity cycle. 3. Real GDP was $9,950 billion in Year 1 and $10,270 billion in Year 2. The population rose from 270 million in Year 1 to 275 million in Year 2. What was the approximate increase in real GDP per capita rate from Year 1 to Year 2? A) 1.3 percent B) 2.1 percent C) 3.3 percent D) 4.2 percent 7. Which phase of the business cycle would be most closely associated with an economic contraction? A) peak B) recession C) trough D) recovery 8. Some economists prefer to use the term business fluctuations rather than business cycles to describe the historical growth record in the United States because: A) cycles include a trough phase while fluctuations do not. B) cycles imply regularity while fluctuations do not. C) fluctuations include an expansion phase while cycles do not. D) fluctuations are relatively predictable events. 4. Real GDP in 1995 was $7,544 billion. By 2000 real GDP had risen to $9,320 billion. The annual growth rate in real GDP over this five-year period was approximately: A) 1.5 percent. B) 2.7 percent. C) 4.7 percent. D) 12.1 percent. Page 1 9. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is: A) 4 percent. B) 6 percent. C) 8 percent. D) 10 percent. 14. Okun's law indicates that for: A) every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, there is generated a 2 percent GDP gap. B) every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, there is generated a 5 percent GDP gap. C) a 5 percent GDP gap, there is generated a 1 percent increase in the natural unemployment rate. D) a 2 percent GDP gap, there is generated a 2 percent increase in the actual unemployment rate. 10. The unemployment rate in an economy is 12 percent. The civilian labor force is 50 million. The number of employed workers in the economy is: A) 38 million. B) 40 million. C) 42 million. D) 44 million. 15. If the natural rate of unemployment is 4.5 percent and the actual unemployment rate is 6.5 percent, then Okun's law indicates that the GDP gap is: A) 2 percent. B) 3 percent. C) 4 percent. D) 6 percent. 11. The total population of an economy is 175 million, the labor force is 125 million, and the number of unemployed is 8 million. The unemployment rate for this economy is: A) 4.6 percent. B) 5.8 percent. C) 6.4 percent. D) 7.8 percent. 16. If the consumer price index was 170 in one year and 180 in the next year, then the rate of inflation from one year to the next was approximately: A) 5.5 percent. B) 5.9 percent. C) 6.3 percent. D) 7.2 percent. 12. Kevin has lost his job in an automobile plant because of the use of robots for welding on the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is: A) cyclical. B) frictional. C) structural. D) natural. 17. If the annual inflation rate is 5 percent a year, about how many years will it take for the price level to double? A) 10 years B) 12 years C) 14 years D) 16 years 13. The GDP gap measures the amount by which: A) nominal GDP exceeds real GDP. B) actual GDP exceeds potential GDP. C) potential GDP exceeds actual GDP. D) actual GDP exceeds national income. Page 2 18. Inflation that occurs when total spending is greater than the economy's ability to produce output at the existing price level is: A) anticipated inflation. B) demand-pull inflation. C) cost-push inflation. D) unanticipated inflation. 21. Refer to the above diagram. An increase in the price level and output would be caused by an increase in total spending in: A) Range 1. B) Range 2. C) Range 3. D) Ranges 2 and 3. 22. Only two resources, capital and labor, are used in an economy to produce an output of 400 million units. If the total cost of capital resources is $200 million and the total cost of labor resources is $100 million, then the per unit production costs in this economy are: A) $0.75 million. B) $1.33 million. C) $2.00 million. D) $3.50 million. Price level Range 3 Use the following to answer questions 19-21: ge an R Range 1 0 2 23. If the price level increases by 15 percent while nominal income increases by 8 percent, then in percentage terms real income would: A) rise by about 8 percent. B) fall by about 8 percent. C) fall by about 7 percent. D) fall by about 15 percent. Full-employment output Real output (and employment) 19. Refer to the above diagram. A decrease in total spending in Range 1 will: A) decrease the price level, but not employment and output. B) decrease employment and output, but not the price level. C) decrease employment, output, and the price level. D) cause unemployment and inflation. 24. If average nominal income was about $15,000 and the price level index was 118, then average real income would be about: A) $11,146. B) $12,712. C) $13,385. D) $14,249. 20. Refer to the above diagram. An increase in total spending in Range 3 will increase: A) employment and the price level. B) output and the price level. C) the price level, but not output or employment. D) the price level and decrease the natural rate of unemployment. 25. Unanticipated inflation tends to penalize: A) people who save money in financial institutions. B) individuals who borrow money from financial institutions. C) businesses which borrow money from financial institutions. D) governments which have a progressive personal income tax. Page 3