AP Macro Review short

If the government implements an expansionary fiscal policy, how will real gross domestic product (GDP) and the price level be affected in the

short run?

• (A) Real GDP increases; price level decreases

• (B) Real GDP decreases; no change in price level

• (C) No change in real GDP; price level increases

• (D) Real GDP increases; price level increases

• (E) Real GDP decreases; price level decreases

Which of the following is true when interest rates rise?

• (A) The opportunity cost of holding cash decreases.

• (B) The opportunity cost of holding cash increases.

• (C) The opportunity cost of holding cash stays the same.

• (D) The money demand curve shifts to the right.

• (E) The money supply curve shifts to the right.

The table gives population and labor-market data for an economy. The unemployment rate in this economy is

• (A) 3.3%

• (B) 5%

• (C) 10%

• (D) 33.3%

• (E) 50%

In the short run, how would a government’s budget deficit, national debt, and real output change if government spending increases with no change in taxes?

• (A) Deficit increases; Debt increases; Real output decreases

• (B) Deficit increases; Debt decreases; Real output increases

• (C) Deficit increases; Debt increases; Real output increases

• (D) Deficit decreases; Debt decreases; Real output increases

• (E) Deficit increases; Debt increaes; Real output decreases

If the central bank of Country Z wishes to increase the value of its currency on foreign exchange markets, it can do which of the following?

• (A) Buy the currencies of other countries

• (B) Increase the domestic money supply in Country Z

• (C) Increase the income tax in Country Z

• (D) Raise interest rates in Country Z

• (E) Increase tariffs in Country Z

Which of the following is likely to result in an inflow of financial capital to Country Z?

• (A) A decrease in Country Z’s government budget deficit

• (B) An increase in personal income tax rates in Country Z

• (C) Increased sales of government bonds by the central bank of Country Z

• (D) An increase in country Z’s trade surplus

• (E) Increased political instability in Country Z

A bank has $200 million in demand deposits and $150 million in reserves. The reserve ratio is 20 percent. What is the maximum amount of loans the bank can make from its reserves?

• (A) $750 million

• (B) $150 million

• (C) $110 million

• (D) $50 million

• (E) $40 million

Which of the following is true about the Phillips curve?

• (A) A change in aggregate demand does not shift the long-run Phillips curve (LRPC).

• (B) A change in aggregate demand does not cause a movement along the short-run Phillips curve (SRPC).

• (C) The LRPC shows the trade-off between unemployment and inflation but the SRPC does not.

• (D) Changes in expected inflation affect the LRPC only.

• (E) Negative supply shocks affect the LRPC only.

How does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when current real GDP is above potential GDP?

• (A) Nominal wages fall, shifting the short-run aggregate supply curve to the right.

• (B) Nominal wages fall, shifting the short-run aggregate supply curve to the left.

• (C) Nominal wages do not change, shifting the short-run aggregate supply curve to the right.

• (D) Nominal wages rise, shifting the short-run aggregate supply curve to the right.

• (E) Nominal wages rise, shifting the short-run aggregate supply curve to the left.

Increased spending on which of the following contributes most to long-term economic growth?

• (A) Social security and other transfer payments

• (B) New automobiles and homes

• (C) Education and infrastructure

• (D) Imported consumer goods

• (E) Interest payments on national debt