An economy experiences deflation when
inflation and the consumer price index (CPI)
Review inflation and the consumer price index (CPI) for AP Macroeconomics and try 2 free AP-style practice questions. 16 questions on this topic in AP Macro · Unit 2 · Economic Indicators and the Business Cycle.
7 topics106 multiple-choice4 free-response
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An economy's consumers buy only books and sandwiches, as shown in the table. The basket is 10 books and 20 sandwiches.
| Good | Price in year 1 | Price in year 2 |
|---|---|---|
| Book | $12 | $15 |
| Sandwich | $4 | $5 |
If year 1 is the base year, the consumer price index in year 2 is
Sample free-response question
The table shows the prices and quantities of fish and boats, the only two goods produced in the country of Corvalia, in year 1 and year 2. Year 1 is the base year.
| Good | Year 1 Price | Year 1 Quantity | Year 2 Price | Year 2 Quantity |
|---|---|---|---|---|
| Fish | $2.00 | 100 | $2.20 | 110 |
| Boats | $50 | 4 | $55 | 4 |
(a) Calculate real GDP in Corvalia in year 2. Show your work.
(b) Calculate the percentage change in real GDP from year 1 to year 2. Show your work.
(c) What was the numerical value of the inflation rate from year 1 to year 2, as measured by the GDP deflator?
(d) Assume that the expected inflation rate between year 1 and year 2 was 2 percent.
(i) Workers in Corvalia signed contracts in year 1 that raised their nominal wages by 4 percent in year 2. Were these workers better off, worse off, or unaffected in terms of their real wages?
(ii) In year 1, a bank made a one-year loan at a fixed nominal interest rate of 6 percent. Was the bank better off, worse off, or unaffected as a result of the inflation that actually occurred? Explain.
14 more questions on this topic
Full practice for AP Macro · Unit 2 · Economic Indicators and the Business Cycle: timed tests, step-by-step explanations for every answer, and AI grading for free-response questions.
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Answer, then see why
The price of gasoline rises 10% and the quantity demanded falls 5%. What happens to total revenue?
Not quite. The answer is B.
Why the other options are wrong
AI grading for free-response
Write your FRQ answer and get it scored point by point against the AP rubric, with the line from your answer that earned or missed each point.
Question 13 / 4 pts
Part a1 / 1 pts
Point 1: Earned
Grader confidence 94% sureReason: Correctly identifies demand for gasoline as inelastic.
Evidence: "The price of gasoline rises and the quantity falls only a little."
Part b2 / 3 pts
Point 1: Earned
Grader confidence 91% sureReason: Graph shows relatively inelastic demand.
Evidence: Draws a steep demand curve.
Point 2: Earned
Grader confidence 88% sureReason: Correct new equilibrium price.
Evidence: Shifts supply left, P1 → P2.
Point 3: Not earned
Grader confidence 82% sureReason: With inelastic demand, a price increase raises total revenue.
Evidence: "Revenue goes down."