AP Macro - Unit 3 (AP Syllabus) Review - Part 1

If the price level in the US rises, that will cause:

• demand for US exports to decrease

• demand for US exports to increase

• A rise in real wealth among US citizens

• An increase in investment

Which of the following will shift the AD curve to the left?

• Increase in taxes or decrease in government spending
• Increase in consumer spending or decrease in interest rates
• Increase in investment or decrease in imports
• Decrease in taxes or increase in government spending

Which of the following describes a situation when the government might implement contractionary fiscal policy

• During periods of recession or economic downturn.
• During periods of high inflation or overheating economy.
• During periods of low unemployment and strong economic growth.
• During periods of stable prices and moderate economic growth.

(a)   describes a situation when both inflation and unemployment are high.

Which of the following is NOT a reason for the downward slope of the aggregate demand curve?

• The real wealth effect

• The interest rate effect

• The substitution effect

• The exchange rate effect

Assume an MPC of 0.75. The government implements a $40 billion dollar spending program. Calculate the impact this increase in government spending will have on GDP. Write the number only (your answer is in billions)

(a)  

Assume an MPC of 0.8. The government implements a tax relief program that reduces taxes by $10 billion dollars. Calculate the impact that this fiscal policy action will have on GDP. Write the number only (your answer is in billions)

(a)  

The economy is experiencing a recessionary gap of $50 billion dollars. In order to close the gap, the government plans to increase government spending. Assuming the economy has an MPC of 0.6, how much government spending is needed to close the gap?

(a)  

When the government implements expansionary fiscal policy, which of the following will NOT occur?

• real output (GDP) will increase

• the price level will increase

• unemployment will increase

• government spending will increase

How might increased government spending impact interest rates (the cost of borrowing money) in an economy? We will learn about this today.