AP Macro Practice Questions 3

A contractionary monetary policy will have what effect on aggregate demand, price level and real output?

• AD Increase

  PL Increase

  Output Increase

• AD Increase

  PL Increase

  Output Decrease

• AD Decrease

  PL Decrease

  Output Decrease

• AD Decrease

  PL Increase

  Output Decrease

What is likely to happen to the value of the Mexican Peso and capital flow in Mexico if there is an increase in real interest rates in Mexico relative to real interest rates in the rest of the world?

• Capital Flow

  Outflow

  Value of Peso

  Appreciate

• Capital Flow

  Inflow

  Value of Peso

  Appreciate

• Capital Flow

  Inflow

  Value of Peso

  Depreciate

• Capital Flow

  Outflow

  Value of Peso

  Depreciate

In an economy is at full employment with a vertical aggregate supply curve and aggregate demand is continuing to increase, which of the following monetary policy actions would be an appropriate response?

• Selling government securities in the open

  market

• Decreasing the fed funds rate

• Purchasing government securities in the

  open market

• Decreasing the required reserve ratio

Assume a recession causes jobless workers to grow more discouraged and give up their search for work. What will be the resulting change in the labor force participation rate and unemployment rate?

• LFPR

  Increase

  UR

  Decrease

• LFPR

  No change

  UR

  Increase

• LFPR

  Decrease

  UR

  Decrease

• LFPR

  Decrease

  UR

  Increase

A country’s currency might appreciate in value because of which of the following?

• A higher real interest rate relative to the

  rest of the world

• A higher price level relative to the rest of

  the world

• Decreased demand for the country’s

  currency

• A purchase of government bonds in the

  open market by the nation’s central bank

Which of the following is most likely to cause an increase in potential gross domestic product?

• An increase in government expenditures

  on infrastructure projects

• An increase in the fed funds rate

• A decrease in cyclical unemployment

• Negative net capital investment

If the U.S. Federal Reserve engages in expansionary monetary policy by purchasing government securities through the open market, what will be the likely result on the nominal interest rate, aggregate demand and the unemployment rate?

• A

• B

• C

• D

A decrease in government deficit spending

will have which of the following effects in the

short term?

• Decrease nominal interest rates

• Increase nominal interest rates

• Decrease unemployment

• Increase the price level

Given a required reserve ratio of 10% and banks loan out all of their excess reserves, if the Federal Reserve chooses to engage in contractionary monetary policy by selling $1,000 of Treasury Bills to commercial banks, what will be the resulting change in the money supply?

• Decrease by $10,000

• Decrease by $1,000

• Decrease by $9,000

• Increase by $1,000

Assume that the velocity of money is constant in

the equation of exchange. Which of the following must be true if the GDP deflator is equal to 200 while the economy is operating with a vertical aggregate supply curve?

• the money supply has doubled

• nominal interest rates have decreased by

  half

• the price level has decreased by half

• the unemployment rate has doubled