AP Macroeconomics : How to find real output in fiscal policy
Study concepts, example questions & explanations for AP Macroeconomics
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Example Questions
Example Question #1 : Fiscal Policy
Which of the following is not a part of the business cycle?
Contraction
Trough
Expansion
Plateau
Plateau
The four phases of the business cycle are expansion, peak, contraction, and trough. A plateau is not one of these four phases.
Example Question #1 : Real Output
How does an increase in imports affect a nation's GDP?
An increase in imports decreases 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 does not affect a nation's GDP.
Using the GDP equation 
Example Question #2 : Real Output
A recessionary gap occurs when __________.
potential output exceeds real output
real output exceeds potential output
nominal output exceeds potential output
real output is equal to potential output
potential output exceeds real output
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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