AP Macro Review

Which of the following is always true of an
economy operating on its production possibilities
frontier?

• Its resources are fully employed.
• It is allocatively efficient.
• It cannot trade with other nations because it
  is the most efficient producer of tradeable
  goods.
• It will necessarily operate on the same frontier the following year.

Open market operations take place when the

• central bank buys or sells stocks
• central bank buys or sells government bonds
• central bank increases or decreases the
  discount rate to monitor the money supply
• central bank increases or decreases reserve
  requirements for depository institutions

A rightward shift in the short-run aggregate
supply curve will occur when

• exports exceed imports
• the money supply increases
• the prices of imported raw materials increase
• the stock of physical capital increases

An increase in which of the following is most likely to increase long-run economic growth?

• Interest rate
• Income tax rate
• Marginal propensity to consume
• Investment in human capital

Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to
which of the following?

• $1,500 billion
• $2,000 billion
• $2,500 billion
• $3,000 billion

The money demand curve is downward sloping because

• the transaction demand for money decreases
  as interest rates fall
• people hold less money as the opportunity
  cost of holding money rises
• money is less liquid as interest rates rise, so
  people are able to hold less of it
• banks are more willing to create money when
  interest rates fall

According to the quantity theory of money,
the quantity of money is related

• negatively to the nominal interest rate
• negatively to the price level
• positively to the unemployment rate
• positively to the nominal gross domestic
  product

Which of the following would generate cost-push inflation?

• An increase in the price of labor
• A decrease in the price of energy
• An increase in household consumption
• A decrease in government spending

Assuming no change in the nominal wage and a significant increase in human capital, the output per worker will

• increase and the real wage will decrease
• increase and the real wage will increase
• decrease and the real wage will decrease
• decrease and the real wage will increase

Scarcity exists because

• human wants exceed the productive capacity
  of the economy
• supplies of land and other natural resources
  are unlimited
• physical capital does not depreciate
• population and labor force growth are
  slowing