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AP Macroeconomics · Unit 2 · Economic indicators and the business cycle · last updated

Economic indicators and the business cycle practice questions (AP Macroeconomics)

Unit 2 covers the circular flow and GDP, its limitations, unemployment and its types, price indices and inflation, real versus nominal values, and the phases of the business cycle. Below are 6 of the 31 free AP Macroeconomics questions on it from our free exams, each with a worked answer behind a toggle, then 7 key terms with the formulas typeset, and a door to make an AP Macroeconomics-style paper on this unit from your own notes. The free exams are typeset PDFs with an answer key; the exam downloads without a signup.

Make a practice exam from your notes →Upload your notesAP Macroeconomics style preselected; tick "Unit 2 · Economic indicators and the business cycle" on the next screen. Free to try, no card.

Sample questions

6 of the 31 free AP Macroeconomics questions on this unit, from the free AP Macroeconomics Practice Test, the free AP Macroeconomics Multiple Choice Questions with Answers, the free AP Macroeconomics Free-Response (FRQ) Practice Exam and the free AP Macro Unit 2 Practice Test: Economic Indicators and the Business Cycle. Each answer is behind its own toggle; the whole paper, its PDF and the full answer key are on the exam page.

  1. Question 12 marks · Circular flow
    In the simple circular flow model of an economy, which of the following correctly describes the role of households?
    • A.
      Households buy resources in the factor market and sell goods in the product market
    • B.
      Households sell resources in the factor market and buy goods in the product market
    • C.
      Households sell both resources and final goods to firms
    • D.
      Households are buyers in both the factor market and the product market
    • E.
      Households are sellers in both the factor market and the product market
    From the free AP Macroeconomics Practice Test →
  2. Question 22 marks · GDP measurement
    Which of the following transactions would be included in this year's United States GDP?
    • A.
      The purchase of a used car from a dealership
    • B.
      A Social Security check received by a retiree
    • C.
      The commission a real-estate agent earns for selling an existing house
    • D.
      The purchase of 100 shares of corporate stock
    • E.
      Flour purchased by a bakery to make bread that it sells
    From the free AP Macroeconomics Practice Test →
  3. Question 32 marks · Types of unemployment
    A coal miner loses her job because power companies permanently switch to renewable energy, and her skills do not match available job openings. While she actively searches for work, she is best classified as:
    • A.
      frictionally unemployed
    • B.
      structurally unemployed
    • C.
      cyclically unemployed
    • D.
      seasonally unemployed
    • E.
      not in the labor force
    From the free AP Macroeconomics Practice Test →
  4. Question 42 marks · CPI & inflation
    A country's consumer price index rises from 125 to 130 over one year. The inflation rate for that year is:
    • A.
      0.04 percent
    • B.
      3.8 percent
    • C.
      4 percent
    • D.
      5 percent
    • E.
      30 percent
    From the free AP Macroeconomics Practice Test →
  5. Question 51 mark · GDP & real vs nominal
    In Lorane last year, household consumption was 700 billion dollars, gross private investment 200 billion, government purchases of goods and services 150 billion, government transfer payments 80 billion, exports 90 billion and imports 120 billion. Lorane's gross domestic product was:
    • A.
      1,020 billion dollars
    • B.
      1,080 billion dollars
    • C.
      1,100 billion dollars
    • D.
      1,140 billion dollars
    • E.
      1,260 billion dollars
    From the free AP Macroeconomics Multiple Choice Questions with Answers →
  6. Question 61 mark · GDP & real vs nominal
    Nominal GDP in Kesh rose from 500 billion dollars in year 1 to 572 billion dollars in year 2, while the GDP deflator rose from 100 to 110. The growth rate of real GDP between the two years was:
    • A.
      24.4 percent
    • B.
      14.4 percent
    • C.
      10 percent
    • D.
      4.4 percent
    • E.
      4 percent
    From the free AP Macroeconomics Multiple Choice Questions with Answers →

The other 25 are in the free exams: the free AP Macroeconomics Practice Test, the free AP Macroeconomics Multiple Choice Questions with Answers, the free AP Macroeconomics Free-Response (FRQ) Practice Exam and the free AP Macro Unit 2 Practice Test: Economic Indicators and the Business Cycle.

Key terms

The definitions and formulas AP Macroeconomics expects for economic indicators and the business cycle, typeset as they appear on the paper.

Gross domestic product (GDP)
The market value of all final goods and services produced within a country in a period. The expenditure approach adds consumption, investment, government purchases and net exports; intermediate goods, used goods and financial transfers are excluded.
GDP=C+I+G+(X−M)GDP = C + I + G + (X - M)
Real versus nominal GDP and the GDP deflator
Nominal GDP uses current prices; real GDP uses base-year prices so that growth reflects output, not inflation. The deflator is the ratio of the two.
GDP deflator=nominal GDPreal GDP×100\text{GDP deflator} = \frac{\text{nominal GDP}}{\text{real GDP}} \times 100
Unemployment rate and the natural rate
The unemployed as a share of the labor force (employed plus unemployed; discouraged workers are not counted). Frictional plus structural unemployment make up the natural rate; cyclical unemployment appears in a recession.
unemployment rate=unemployedlabor force×100\text{unemployment rate} = \frac{\text{unemployed}}{\text{labor force}} \times 100
Labor force participation rate
The labor force as a share of the adult (working-age, non-institutional) population. It falls when discouraged workers stop looking, which can lower the unemployment rate without any new jobs.
LFPR=labor forceadult population×100LFPR = \frac{\text{labor force}}{\text{adult population}} \times 100
Consumer price index and the inflation rate
The CPI prices a fixed market basket relative to a base year. The inflation rate is the percentage change in the index; a value above 100 means prices are higher than in the base year.
CPI=cost of basket todaycost of basket in base year×100,π=CPIt−CPIt−1CPIt−1×100CPI = \frac{\text{cost of basket today}}{\text{cost of basket in base year}} \times 100, \qquad \pi = \frac{CPI_t - CPI_{t-1}}{CPI_{t-1}} \times 100
Real interest rate
The nominal rate adjusted for inflation; the rate that matters for saving and investment decisions. Unexpected inflation transfers wealth from lenders to borrowers.
r≈i−πr \approx i - \pi
Business cycle and output gaps
Expansion, peak, recession (contraction), trough. A recessionary gap is real GDP below potential (unemployment above the natural rate); an inflationary gap is real GDP above potential.

Frequently asked questions

Are there free economic indicators and the business cycle practice questions for AP Macroeconomics?

Yes. 31 questions on economic indicators and the business cycle appear in the free AP Macroeconomics Practice Test and the free AP Macroeconomics Multiple Choice Questions with Answers and the free AP Macroeconomics Free-Response (FRQ) Practice Exam and the free AP Macro Unit 2 Practice Test: Economic Indicators and the Business Cycle, and the sample questions on this page come from them with worked answers. Each exam can be read online or downloaded as a typeset PDF without signing up, and its full answer key is emailed on request.

How do I make an AP Macroeconomics practice paper on economic indicators and the business cycle from my notes?

Open the create page with the AP Macroeconomics style preselected, tick "Unit 2 · Economic indicators and the business cycle" under the units to cover (or upload your notes and slides on it), choose the question mix and time limit, and generate. You get a typeset PDF in the AP format with a separate answer key, in about a minute. It is free to try, no card needed.

What does AP Macroeconomics expect you to know about economic indicators and the business cycle?

Unit 2 covers the circular flow and GDP, its limitations, unemployment and its types, price indices and inflation, real versus nominal values, and the phases of the business cycle. The terms to have cold: Gross domestic product (GDP), Real versus nominal GDP and the GDP deflator, Unemployment rate and the natural rate, Labor force participation rate, Consumer price index and the inflation rate. Each is defined below with its formula typeset where one applies.

Other AP Macroeconomics topics

All AP Macroeconomics topics · All free practice exams

Make an AP Macroeconomics paper on economic indicators and the business cycle from your notes

Open "Pick your exam" with the AP Macroeconomics style preselected and tick "Unit 2 · Economic indicators and the business cycle", or upload your notes on it. You get a typeset paper in the AP format with a separate answer key.

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