AP Econ Questions Review Set 5 of 6

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 percent, the maximum increase in the money supply is

• $1,600 billion
• $1,800 billion
• $2,000 billion
• $2,200 billion
• $2,400 billion

Before specialization and trade, the domestic opportunity cost of producing 1 ton of grain in Alpha and in Beta is which of the following? Alpha / Beta

• 1 ton of steel 1 ton of steel

• 1 ton of steel 2 tons of steel

• 2 tons of steel 1 ton of steel

• 1 ton of steel 0.5 ton of steel

• 0.33 ton of steel 1.5 tons of steel

The theory of comparative advantage implies that Alpha would find it advantageous to

• export grain and import steel

• export steel and import grain

• export both grain and steel and import nothing

• import both grain and steel and export nothing

• trade 1 ton of grain for 0.5 ton of steel

At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?

• 1G = 3.0S

• 1G = 1.5S

• 1G = 1.0S

• 1G = 0.5S

• There is no real exchange ratio that would enable both countries to benefit, since Alpha has an absolute advantage in both goods.

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?

• The economy is in long-run equilibrium.

• The aggregate demand curve will shift to the left to restore long-run equilibrium.

• The long-run aggregate supply curve will shift to the right to restore long-run equilibrium.

• Without a fiscal policy stimulus, the economy will remain in a recession.

• As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run? Aggregate Demand / Aggregate Supply

• Not change decrease
• Not change Increase
• Decrease Not change
• Decrease Increase
• Increase Not change

Which type of unemployment would increase if workers lost their jobs because of a recession?

• Cyclical
• Frictional
• Seasonal
• Search
• Structural

Which of the following is true about the marginal propensity to consume?

• It is the percentage of total income that is spent on consumption.
• It determines the size of the simple spending multiplier.
• It increases as incomes increase because increases in income cause people to spend more.
• It is the same as the money multiplier.
• It is equal to the average propensity to consume for people with low incomes.

When an economy is operating below the full-employment level of output, an appropriate monetary policy would be to increase which of the following?

• The discount rate
• The required reserve ratio
• The international value of the dollar
• Open market purchases of government bonds
• Government expenditure on goods and services

Assume that the economy is at full employment. Policymakers wish to maintain the price level but want to encourage greater investment. Which of the following combinations of monetary and fiscal policies would best achieve this goal? Monetary / Fiscal

• No change Contractionary
• Expansionary No change
• Expansionary Contractionary
• Expansionary Expansionary
• Contractionary Expansionary