AP Macro Unit 2

What are the two main sectors of the 2-sector circular flow of money?

• Households and Firms
• Banks and Investors
• Consumers and Retailers
• Government and Nonprofits

If nominal GDP > real GDP.....

• There is no change in the price level.
• Real GDP is higher than nominal GDP.
• The economy is experiencing inflation.
• The economy is in a recession.

If nominal GDP < real GDP....

• The economy is experiencing deflation.
• The economy is in a recession.
• The economy is growing rapidly.
• The economy is experiencing hyperinflation.

How do you calculate real GDP?

• Real GDP = (Pg x Qg)

• Real GDP = (Pb x Qb)

• Real GDP = (Pb x Qg)

• Real GDP = (Pg x Qb)

How do you calculate the inflation rate using nominal and real GDP?

• Inflation rate = (Nominal GDP * Real GDP) / 100
• Inflation rate = (Real GDP - Nominal GDP) / Real GDP
• Inflation rate = (Nominal GDP + Real GDP) * 100
• Inflation rate = ((Nominal GDP / Real GDP) - Real GDP) * 100

How do calculate the inflation rate using the GDP deflator?

• Inflation Rate = (Current Year GDP - Previous Year GDP) / Previous Year GDP * 100
• Inflation Rate = ((Current Year GDP Deflator - Previous Year GDP Deflator) / Previous Year GDP Deflator) * 100
• Inflation Rate = (Current Year GDP Deflator + Previous Year GDP Deflator) / 2
• Inflation Rate = (Current Year GDP Deflator - Previous Year GDP Deflator) * 100

How do calculate the GDP deflator?

• GDP Deflator = (Real GDP / Nominal GDP) * 100
• Nominal GDP/GDP Deflator(g) = Real GDP/GDP Deflator(b)

• Nominal GDP * GDP Deflator(g) = Real GDP * GDP Deflator(b)

• GDP Deflator = (Nominal GDP + Real GDP) / 2

The GDP deflator of the base year is always....

• 75
• 200
• 50
• 100

The GDP deflator differs from CPI because....

• The GDP deflator includes all goods and services produced domestically, while CPI only includes a fixed basket of consumer goods.
• The GDP deflator is based on a fixed basket of goods, while CPI includes all goods produced domestically.
• CPI measures only the prices of services, whereas the GDP deflator measures only goods.
• The GDP deflator is calculated monthly, while CPI is calculated annually.

What is the GDP deflator?

• The GDP deflator is a measure of price inflation in the economy and is a price index.

• The GDP deflator is a measure of government spending.
• The GDP deflator measures the total output of goods and services.
• The GDP deflator is a tool for calculating unemployment rates.