AP Macro Practice Exam Questions 2

A decrease in which of the following might cause a decrease in real per capita income?

• Output per unit of input

• Inflation

• Personal and corporate income tax rates

• The retirement age

Nations can benefit from free trade mainly because

• import tariffs can increase government

  revenues.

• income inequality will improve in both

  societies.

• unemployment will decrease in each

  country.

• It allows each nation to consume beyond

  its production possibilities curve.

Which of the following represents the required

reserve ratio for this bank and the maximum

amount of additional lending this bank can

undertake?

• Required Reserve

  10%

  Additional Loans

  $10,000

• Required Reserve

  5%

  Additional Loans

  $5,000

• Required Reserve

  15%

  Additional Loans

  $5,000

• Required Reserve

  10%

  Additional Loans

  $0

Who demands the factors of production in the

circular flow diagram?

• Households

• Firms

• The foreign sector

• Financial institutions

Assume the government decreases its deficit

spending. What is the likely result in the money

market? [graph it]

• Money Demand

  Decrease

  NIR

  Decrease

• Money Demand

  Increase

  NIR

  Increase

• Money Demand

  Decrease

  NIR

  Indeterminate

• Money Demand

  Increase

  NIR

  Decrease

Which of the following assets would be

characterized as having the most liquidity?

• money market mutual funds

• paper currency

• savings bonds

• an antique etruscan vase

Which of the following is MOST likely to

promote economic growth?

• A decrease in business tax credits for

  investment spending

• A decrease in federal student education

  grants

• An increase in investment in tools and

  machinery

• An increase in the real interest rate

Which of the following is NOT a criticism of

gross domestic product (GDP) as a measure of

a nation’s well-being?

• GDP measures only the value of final

  goods and services and not intermediate

  goods and services.

• GDP does not account for non-market

  activities accomplished by individual

  economic actors for themselves.

• GDP does not account for the negative

  impacts of economic growth, such as

  pollution.

• GDP does not account for the negative

  impacts of economic growth, such as

  pollution.

The spending multiplier is the result of

• consumer expenditures rising as incomes

  rise

• tax revenues increase as consumer and

  business incomes increase

• foreign purchasers increasing expenditures

  as the currency appreciates

• government spending crowding out

  consumption and investment spending

In the midst of a $300 billion recessionary gap,

the federal government decides to use fiscal

policy to bring the economy back to long run

equilibrium. If society’s marginal propensity

to consume (MPC) is 0.80, which of the

following could the government do to reach

full employment assuming no crowding out or

leakages?

• Increase government expenditures by

  $300 billion.

• Increase taxes by $60 billion.

• Decrease taxes by $300 billion.

• Increase government expenditures $60

  billion.