AP Economics

A country’s government runs a budget deficit when which of the following occurs in a given year?

• (A) The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations.

• (B) Government spending exceeds tax revenues.

• (C) The debt owed to foreigners exceeds the debt owed to the country’s citizens.

• (D) The amount borrowed exceeds the interest payment on the national debt.

• (E) Interest payments on the national debt exceeds spending on goods and services.

A high marginal propensity to consume implies which of the following?

• A small change in consumption when income changes

• A high savings rate

• A high marginal tax rate

• An equilibrium level of income near full employment

• A low marginal propensity to save

The transaction demand for money is very closely associated with money's use as a

• store of value

• standard unit of account

• measure of value

• medium of exchange

• standard of deferred payment

Unlike a market economy, a command economy uses

• more centralized planning in economic decision making

• consumer sovereignty to make production decisions

• its resources more efficiently

• price signals in economic decision making

• the popular vote in making resource allocation decisions

The value of a country's currency will tend to appreciate if

• demand for the country's exports increases

• the country's money supply increases

• the country's citizens increase their travel abroad

• domestic interest rates decrease

• tariffs on the country's imports decrease

Which of the following best illustrates an improvement in a country's standard of living?

• An increase in real per capita gross domestic product

• An increase in nominal per capita gross domestic product

• Price stability

• A balanced budget

• An increase in the consumer price index

Hyperinflation is typically caused by

• High tax rates that discourage work effect

• Continuous expansion of the money supply to finance government budget deficits

• Trade surpluses that are caused by strong protectionist policies

• Bad harvests that lead to widespread shortages

• A large decline in corporate profits that leads to a decrease in production

All of the following changes will shift the investment demand curve to the right EXCEPT

• A decrease in the corporate income tax rate

• An increase in the productivity of new capital goods

• An increase in the real interest rate

• An increase in corporate profits

• An increase in real gross domestic product

The official unemployment rate understates the unemployment level in the economy because the official unemployment rate

• ignores the duration of unemployment

• ignores underemployed and discouraged workers

• includes jobs created by the underground economy

• excludes all unemployed teenagers

• excludes frictionally unemployed teenagers

If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?

• Output will increase

• Output will decrease

• Output will not change

• The price level will increase

• The price level will decrease