WHILE INBOUND TO GAI IN THE DC ADIZ; PLT AND FAA EXAMINER ABOARD PA28 BOTH FAIL TO NOTE THAT; ALTHOUGH THE PROPER DISCRETE CODE WAS SELECTED; THE XPONDER WAS IN THE STANDBY MODE RATHER THAN ALT AS REQUIRED.

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CALLED FSS ON LANDLINE WITH ELKINS FSS TO REQUEST A VFR ADIZ CLRNC FROM FDK TO GAI. WE CALLED ON THE GND FOR CLRNC DELIVERY; PICKED UP OUR CODE; DEPARTED FDK; CLBED TO 2500 FT MSL; CONTACTED APCH CTL AND WERE TOLD TO PROCEED ON COURSE TO GAI; 'RPT ARPT IN SIGHT.' PROCEEDING TOWARDS GAI; RPTED GAI IN SIGHT; AND FREQ CHANGE TO CTAF APPROVED; WE WERE TOLD TO REMAIN ON THE SQUAWK CODE UNTIL ON THE GND. AT THIS POINT WE REALIZED THE XPONDER WAS ON 'STANDBY' AND IMMEDIATELY TURNED IT TO 'ALT.' WE LANDED AND WERE TOLD BY CTAF TO CONTACT THE TRACON. THEY INFORMED US THAT WE WERE 2 MI INSIDE THE ADIZ BEFORE WE ACTIVATED THE BEACON. CONTRIBUTING FACTORS INCLUDED MY NERVOUSNESS IN SUCCESSFULLY COMPLETING MY INST CHK RIDE (AN FAA EXAMINER WAS MY R SEAT COPLT) AND OVERREACTING TO FOLLOWING THE DEP INSTRUCTIONS GIVEN BY THE EXAMINER. CORRECTIVE ACTIONS INCLUDE BETTER CRM. I SHOULD HAVE ENGAGED MY EXAMINER IN THE CHKLIST PROCESS AND ASKED HIM TO VERIFY THAT THE BEACON WAS ON 'ALT.' I HAVE MODIFIED MY CHKLIST TO INCLUDE 'CHK XPONDER SQUAWKING ALT' TWICE SO THAT I HAVE 2 OPPORTUNITIES TO CONFIRM THAT IT IS XMITTING THE CODE.