$$\text{Output Gap} = \text{Actual GDP} - \text{Potential GDP}$$

$$\text{Value Added} = \text{Sales Revenue} - \text{Cost of Intermediate Goods}$$

$$\text{Real GDP} = \frac{\text{Nominal GDP}}{\text{GDP Deflator}} \times 100$$

Question 1

Which phase of the business cycle is characterized by rising GDP, increasing employment, and growing consumer confidence?

Accepted Answer

Expansion

Question 2

If actual output is less than potential output, which type of output gap exists?

Accepted Answer

Recessionary gap

Question 3

Which formula correctly calculates the output gap?

Accepted Answer

$$	ext{Output Gap} = 	ext{Actual GDP} - 	ext{Potential GDP}$$

Question 4

Which of the following is NOT considered a leakage in the circular flow model?

Accepted Answer

Government spending

Question 5

Nominal GDP is measured at:

Accepted Answer

Current prices

Question 6

Which equation best represents the calculation of value added?

Accepted Answer

$$	ext{Value Added} = 	ext{Sales Revenue} - 	ext{Cost of Intermediate Goods}$$

Question 7

Which of the following is a key purpose of the circular flow model in macroeconomics?

Accepted Answer

To illustrate movements of money, goods, and services between sectors

Question 8

If a country is experiencing an inflationary gap, which of the following is true?

Accepted Answer

Actual output is greater than potential output

Question 9

Which of the following is NOT a component of GDP when using the expenditure approach?

Accepted Answer

Intermediate goods

Question 10

Real GDP is best described as:

Accepted Answer

GDP adjusted for inflation (using constant prices)

Question 11

Which of the following would be considered an injection in the circular flow model?

Accepted Answer

Investment

Question 12

During a recession, which of the following is most likely to occur?

Accepted Answer

GDP falls, unemployment rises

Question 13

Which of the following best describes the business cycle?

Accepted Answer

A regular pattern of economic growth and decline

Question 14

If the government increases taxes, what is the most likely effect on the circular flow of income?

Accepted Answer

It increases leakages

Question 15

Which of the following is a household in the context of macroeconomic circular flow?

Accepted Answer

A group of individuals consuming goods and services

Question 16

If a country’s GDP increases but its population grows faster, what happens to GDP per capita?

Accepted Answer

It decreases

Question 17

Which of the following is most likely to cause a trough in the business cycle?

Accepted Answer

Low investment and high unemployment

Question 18

Which formula would you use to calculate real GDP from nominal GDP and the GDP deflator?

Accepted Answer

$$	ext{Real GDP} = \frac{	ext{Nominal GDP}}{	ext{GDP Deflator}} 	imes 100$$

Question 19

Which of the following best explains why intermediate goods are excluded from GDP calculations?

Accepted Answer

Their value is already included in the value of final goods

Question 20

Suppose a country’s actual GDP is $$\500$ billion and its potential GDP is $$\$$550$$ billion. What is the output gap?

Accepted Answer

$$\50$ billion (recessionary gap)

Macroeconomics Fundamentals: GDP, Business Cycles, Output Gaps, and the Circular Flow

Study Guide - Practice Questions