AP Econ Test Review Questions Set 3 of 6

In one year, spending on consumption, invest­ment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if

• the money supply increased
• net exports were positive
• net exports were negative
• the government ran a budget surplus
• the government had a balanced budget

When firms restructure their operations to decrease production costs, the aggregate supply curve, the price level, and real output will change in which of the following ways? Aggregate Supply Curve / Price Level / Real Output

• Shift to the left Increase Increase
• Shift to the left Increase No change
• Shift to the right Increase Increase
• Shift to the right Decrease Increase
• Shift to the right Decrease Decrease

An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and the price level would occur in the long run? Output / Price Level

• Increase / Decrease
• Increase / Increase
• Decrease / Decrease
• Decrease / Increase
• No change / No change

Assume that the world operates under a flexible exchange rate system. If the central bank of Mexico increases its money supply but other countries do not change theirs, Mexico's inflation rate and the international value of the Mexican peso will most likely change in which of the following ways? Inflation Rate / International Value of the Peso

• Increase / Appreciate
• Increase / Depreciate
• Increase / No change
• Decrease / Appreciate
• Decrease / Depreciate

The Federal Reserve decreases the federal funds rate by

• decreasing the reserve requirement
• decreasing the discount rate
• increasing the discount rate
• selling government bonds on the open market
• buying government bonds on the open market

Labor Market Data for Country X (in millions of persons)

Population - 180

Employed - 94

Unemployed - 6

Not in labor force - 80

Based on the information in the table above, what is the unemployment rate for Country X?

• 0.033

• 0.04

• 0.06

• 0.0638

• 0.075

Suppose that the government decreases taxes and at the same time the central bank decreases the discount rate. The combined actions will result in

• an increase in unemployment and a decrease in the interest rate
• an increase in unemployment and an increase in the interest rate
• an increase in the real gross domestic product and a decrease in the interest rate
• an increase in the real gross domestic product and an increase in the interest rate
• an increase in the real gross domestic product and an indeterminate change in the interest rate

In a closed economy with only lump-sum taxation, if the marginal propensity to con­sume is equal to 0.75, a $70 billion increase in government spending could cause a max­imum increase in output of (hint - tax multiplier is different: mpc/mps)

• $52.5 billion

• $70 billion

• $122.5 billion

• $210 billion

• $280 billion

Which of the following is NOT a function of fiat money?

• A standard of deferred payment

• A unit of account

• A source of intrinsic value

• A store of value

• A medium of exchange

When an economy is at full employment, which of the following will most likely create demand-pull inflation in the short run?

• An increase in the discount rate
• An increase in personal income taxes
• A decrease in the real rate of interest
• A decrease in government spending
• A decrease in the money supply