AP Macroeconomics Review

AP Macroeconomics Review

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Multiple Choice

When the actual inflation rate is greater than the anticipated inflation rate, which of the following is most likely to suffer?

• Those who lend at a fixed interest rate

• Those who borrow at a fixed interest rate

• Retired persons with cost-of-living adjustment in their benefits

• Employers who hire workers with longterm labor contracts

Multiple Choice

The crowding out effect can only occur if the

• government deficit spends.
• government runs a surplus.
• personal savings rate increases.
• economy begins to boom.

Multiple Choice

The shift in the graph could be caused by

• the Federal Reserve increases the discount rate.

• the Federal Reserve makes an open market sale of securities (bonds).

• the government increases spending without a corresponding increase in taxes.

• the Federal Reserve makes an open market purchase of securities (bonds).

Multiple Choice

The shift in the graph could be caused by

• an decrease in the federal funds rate.

• a lowering of the discount rate.

• a government budget surplus.

• a decrease in household savings.

• an increase in positive opinions on the economic future.

Multiple Choice

To raise the interest rate to 12% the Fed could

• buy bonds.

• increase the discount rate.

• decrease the reserve ratio.

• decrease the nominal interest rate.

• decrease the Federal Funds rate.

Multiple Choice

To decrease the equilibrium interest rate to 8% the Fed could

• sell bonds.

• raise the discount rate.

• raise the Federal Funds rate.

• lower the reserve requirement.

• decrease the GDP.

Multiple Choice

This shift could be caused by

• an increase in government spending.

• a decrease in deficit spending.

• an increase in the discount rate.

• the net export effect.

• a decrease in the discount rate.

Multiple Choice

This shift could occur with

• an increase in bank lending.

• the purchase of securities in the open market by the Fed.

• a decrease in the discount rate.

• an increase in the Federal Funds rate.

• a decrease in the reserve ratio.

Multiple Choice

If this bank sold $100 in Securities it's ________ would rise to _____ and its Demand Deposits would ______.

• Securities; $200; remain the same

• Reserves; 140; remain the same

• Loans; $180; increase by $100

• Securities; $200; increase by $100

• Reserves; $140; increase by $100

Multiple Choice

If the reserve requirement is 10%, this bank could create _______ in loans.

• $1900

• $8100

• $900

• $9000

• not enough information.

Multiple Choice

Based on the Required Reserves that Reserve Ratio must be

• 5%

• 10%

• 20%

• 19%

• none of the above

Multiple Choice

During an expansion what would you do to prevent inflation?

• Lower the RRR, Lower the DR, Buy Bonds
• Raise the RRR, Raise the DR, Sell Bonds

Multiple Choice

What is an action of monetary policy?

• reduce taxes
• changing reserve requirements
• increase spending
• borrow money for deficit

Multiple Choice

High reserve requirements 

• lower the money supply
• increase the money supply

Multiple Choice

Which of these is NOT a monetary policy tool?

• Discount rate
• Balance Accounts
• Open Market Operation
• Reserved Requirements

Multiple Choice

____________ is the price paid for the use of money.

• Gold

• Monetary policy

• Fiscal policy

• The interest rate

Multiple Choice

Money loses its value when it

• becomes too plentiful

• becomes too portabale

• is divisible

• is durable

Multiple Choice

Which of the following scenarios would cause the nation’s money supply to increase?

• Decreasing government spending
• Lowering interest rates
• Raising interest rates
• Selling bonds to investors

Multiple Choice

If the Federal Reserve wanted to stimulate the economy (make it grow), they might

• Sell Treasury bonds
• Buy Treasury bonds
• Spend more money
• Spend less money

Multiple Choice

Fiat money is

• money is checking accounts.

• money that has intrinsic value on its own.

• specially created from the Federal Reserve.

• money that is only valuable because the government says it is.

Multiple Choice

Which of the following would the FED us to increase the money supply?

• raise the discount rate
• raise the required reserves
• buy bonds/securities
• print more money

Multiple Choice

Cash that banks must keep in the vault.

• excess reserves
• fiscal policy
• required reserves
• crowding out effect

Multiple Choice

The primary role of the Federal Reserve Bank is to steer the economy by

• controlling the budget
• setting spending levels.
• controlling the money supply.
• loaning out money.

Multiple Choice

These are IOUs from the U.S. government to people that finance a little piece of the government's debt in exchange for a very small amount of interest

• Government Bonds, or Securities

• Government Credit

• Government Cash

• Government Holdings

Multiple Choice

"The Fed" refers to the....

• Federal Bureau of Investigation
• Federal Government
• Federal Reserve System
• Federal Income Tax

Multiple Choice

When the government spends more money than they take in each year is called a _________?

• Debt
• Deficit
• Surplus
• Expansionary

Multiple Choice

In the circular flow diagram, which of the following is true in the product market?

• Households sell goods and services to business firms.
• Households sell resources to business firms.
•  Business firms sell goods and services to households.
• Business firms sell resources to households.

Multiple Choice

In the circular flow diagram, which of the following is true in resource or factor markets?

• Households sell resources to business firms
• Households sell products to business firms.
• Business firms sell goods and services to households.
• Business firms sell resources to households.

Multiple Choice

Which of the following is the best measure of the production or output of an economy?

• Consumer price index
• Unemployment rate
• Gross domestic product
• GDP deflator

Multiple Choice

Which of the following people would be considered unemployed?

• A person who quits work to care for aging parents
• A person who stayed home to raise his children and now starts looking for a job
• A person who is qualified to teach but is driving a bus until a teaching job is available
• A person who works two part-time jobs but is looking for a full-time job

Multiple Choice

Which of the following purchases is included in the calculation of gross domestic product?

• A used economics textbook from the bookstore
• 1,000 shares of stock in a computer firm
• A car produced in a foreign country
• New harvesting equipment for the farm

Multiple Choice

Which of the following would be counted as investment when calculating gross domestic product?

• The purchase of a used computer by an auto manufacturer
• The purchase of a share of IBM stock by an employee
• The construction of a new house
• The construction of roads by the government

Multiple Choice

Of the following, which is the best example of structural unemployment?

• A computer programmer who quits her job to move to a warmer climate
• A construction worker who loses his job in the winter
• An auto worker who loses her job during a recession
• A steel worker who is replaced by a robot

Multiple Choice

Which of the following best describes aggregate supply?

• A schedule indicating the level of real output that will be produced at each possible price level
• A schedule indicating the level of real output that will be purchased at each possible price level
• A schedule showing the trade-off between inflation and unemployment
• A schedule showing the relationship between inputs and outputs

Multiple Choice

A change in which of the following will cause the aggregate demand curve to shift?

• Energy prices
• Productivity rates
•  Consumer wealth
• Prices of inputs

Multiple Choice

The short-run aggregate supply curve will shift to the right when

• energy prices increase
• government regulation increases
• prices of inputs decrease
• productivity rates decrease

Multiple Choice

A rightward shift in the aggregate demand curve with a horizontal aggregate supply curve will cause employment and the price level to change in which of the following ways?

• Increase Employment; Increase Price Level
• Increase Employment; No Change to Price Level
• No Change to Employment, Increase Price Level
• Increase Employment; Decrease Price Level

Multiple Choice

An increase in labor productivity would most likely cause real gross domestic product and the price level to change in which of the following ways

• Increase Real GDP; Increase Price Level
• Increase Real GDP; Decrease Price Level
• Decrease Real GDP; Increase Price Level
• Decrease Real GDP; Decrease Price Level

Multiple Choice

If Maria Escalera’s disposable income increases from $600 to $650 and her level of personalconsumption expenditures increase from $480 to $520, you may conclude that her marginal propensity to

• consume is 0.8
• consume is 0.4
• save is 0.8
• save is 0.4

Multiple Choice

In the Keynesian aggregate-expenditure model, if the MPC is 0.75 and gross investment increases by $6 billion, equilibrium GDP will increase by

• $6 billion
• $8 billion
• $1.25 billion
• $24 billion

Multiple Choice

The investment demand curve will shift to the right as the result of

• an increase in corporate business taxes
• a decrease in the real interest rate
• recessions in foreign nations that trade with the United States, causing a lower demand for U.S. products
• an increase in the nominal interest rate

Multiple Choice

An increase in personal income taxes will most likely result in which of the following changes in real GDP and the price level in the shortrun?

• Decrease Real GDP; Decrease Price Level
• Increase Real GDP; Decrease Price Level
• Decrease Real GDP; Increase Price Level
• Increase Real GDP; Increase Price Level

Multiple Choice

An increase in the price of gasoline will most likely cause the demand curve for tires to change in which direction?

• To the left, because gasoline and tires are substitutes
• To the left, because gasoline and tires are complements
• To the right, because gasoline and tires are substitutes
• To the right, because gasoline and tires are complements

Multiple Choice

An increase in the price of peanut butter will cause the demand curve for jelly to shift in which of the following directions?

• To the right, if jelly is purchased by people with lower incomes and peanut butter is a luxury good for them
• To the right, if peanut butter and jelly are complementary goods
• To the left, if peanut butter and jelly are complementary goods
• To the left, if peanut butter and jelly are substitute goods

Multiple Choice

An improvement in the technology used in the production of automobiles and an increase in the need for automobile transportation will most likely cause the price and quantity of automobiles to change in which of the following ways?

• Increase Price; Increase Quantity
• Indeterminate Price; Increase Quantity
• Increase Price; Indeterminate Quantity
• Decrease Price; Decrease Quantity

Multiple Choice

A decrease in the price of silicon chips and increased production of user-friendly software will affect the price and quantity of computers in which of the following ways?

• Increase Price; Increase Quantity
• Indeterminate Price; Increase Quantity
• Increase Price; Indeterminate Quantity
• Decrease Price; Decrease Quantity

Multiple Choice

If the demand for a good or service decreases, the equilibrium price and quantity are most likely to change in which of the following ways?

• Increase Price; Increase Quantity
• Decrease Price; Increase Quantity
• Increase Price; Decrease Quantity
• Decrease Price; Decrease Quantity

Multiple Choice

If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged?

• Increase Price; Increase Quantity
• Decrease Price; Increase Quantity
• Increase Price; Decrease Quantity
• Decrease Price; Decrease Quantity

Multiple Choice

Two nations, Mars and Venus, each produce food and clothing. The table gives points on each nation’s PPF. The asterisks indicate their current point of production.
Which of the following statementsis correct based on the concept of comparative advantage?

• Mars and Venus should continue producing the quantities indicated by the asterisks.
• Mars should specialize in the production of food.
• Mars should specialize in the production of clothing.

Multiple Choice

Two nations, Mars and Venus, each produce food and clothing. The table gives points on each nation’s PPF. The asterisks indicate their current point of production.
In Venus, the opportunity cost of the first unit of

• food is two units of clothing
• food is eight units of clothing
• clothing is two units of food
• clothing is eight units of food

Multiple Choice

Two nations, Mars and Venus, each produce food and clothing. The table gives points on each nation’s PPF. The asterisks indicate their current point of production.
In Mars, the opportunity cost of obtaining the first two units of food is how many units of clothing?

• 2
• 3
• 6
• 12

Multiple Choice

The opportunity cost of producing an additional unit of product A is

• all of the human and capital resources used to produce product A
• the retail price paid for product A
• the amount of product B that cannot now be produced because of product A
• the profit that was earned from producing product A

Multiple Choice

The law of increasing opportunity cost is reflected in the shape of the

• production possibilities curve concave to the origin
• production possibilities curve convex to the origin
• straight-line production possibilities curve
• upward-sloping production possibilities curve

Multiple Choice

In which way does a straight line production possibilities curve differ from a concave production possibilities curve?

• A straight line production possibilities curve has a decreasing opportunity cost.
• A straight line production possibilities curve has a constant opportunity cost.
• A straight line production possibilities curve has an increasing opportunity cost.
• A straight line production possibilities curve does not show opportunity cost.

Multiple Choice

With an expansionary fiscal policy, what will most likely happen to the real gross domestic product (GDPr) and the nominal interest rate (i)in the short run?

• GDPr Increase

  i decrease

• GDPr increase

  i increase

• No change in GDPr or i

• GDPr Decrease

  i Increase

Multiple Choice

A decrease in taxes will necessarily result in an increase in which of the following?

• Unemployment

• exports

• money supply

• nominal gross deomestic product

Multiple Choice

A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's

• Labor force

• potential gross domestic product

• number of employed

• working age population

Multiple Choice

Which of the following policy actions will directly increase the money supply?

• the central bank sells government bonds on the open market

• the government increases taxes without changing its spending

• the central bank purchases government bonds on the open market

• the government decrease taxes without changing its spending

Multiple Choice

Which of the following describes a typical business cycle in the correct sequence?

• Peak, trough, recession, and expansion

• Peak, trough, expansion and recession

• Peak, recession, trough, and expansion

• Peak, recession, expansion and trough

Multiple Choice

Imports would be considered a

• injection

• leakage

• investment spending

• domestic product

Multiple Choice

There is no trade off in

• the short run Aggregate demand or aggregate supply

• in the long run Phillips curve or aggregate supply

• in the demand for money

• in the supply of loanable funds

Multiple Choice

An increase in inventories will increase which component of gross domestic product?

• Government purchases

• Personal consumption expenditures

• Investment expenditures

• exports

Multiple Choice

Which of the following is true if the production possibilities curve is a curved line concave to the origin?

• Resources are perfectly substitutable between the production of the two goods.
•  It is possible to produce more of both products.
• Both products are equally capable of satisfying consumer wants.
• As more of one good is produced,more and more of the other good must be given up.

Multiple Choice

When one decision is made, the next best alternative not selected is called

• economic resource
• opportunity cost
• scarcity
• comparative advantage

Multiple Choice

The Phillips curve shows the relationship between inflation and what?

• Unemployment

• GDP

• Price level

• interest rate

Multiple Choice

Assume the economy is in an inflationary gap, what options should be used to help the economy back to FE

• Congress should increase spending and the central bank should decrease the discount rate

• the central bank should buy bonds and decrease the reserve required

• congress should increase taxes and increase spending

• the central bank should increase the reserve required and congress decrease spending

Multiple Choice

An increase in costs will

• Shift aggregate demand

• Shift aggregate supply

Multiple Choice

Inflation:

• Always reduces the cost of living

• Reduces the purchasing power of a pound

Multiple Choice

If people are made unemployed because of a fall in aggregate demand this is known as:

• Cyclical unemployment

• Frictional unemployment

Multiple Choice

GDPr =

• C+I+O+X

• C+I+G+M

• C+I+G+Xn

• C+I+C+X

Multiple Choice

Tax Multiplier =

• MPC/MPS

• -1/MPS

• MPC/1

• -MPC/MPS

Multiple Choice

DD (Demand Deposits) on a bank balance sheet should equal

• DD - ER

• ER + RR

• ER - RR

• ER + DD

Multiple Choice

Money or Loan Multiplier =

• 1/rr

• 1/ER

• 1/DD

• RR

Multiple Select

Spending Multiplier =

• 1/RR

• 1/MPS

• 1/1-MPS

• 1/1-MPC

Multiple Choice

GDP Deflator =

• GDP/NDP x 100

• GDP/NRU x 100

• GDP (Nominal)/GDPr x 100

• GDPr/π x 100