AP Macroeconomics Unit 3 Quiz

When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is

• (A) equal to the cyclical rate

• (B) greater than the natural rate

• (C) less than the natural rate

• (D) equal to the natural rate

• (E) equal to zero

If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?

• (A) Aggregate demand will be unchanged

• (B) Aggregate demand will increase.

• (C) Interest rates will decrease.

• (D) The money supply will decrease.

• (E) The money supply will increase.

Which of the following will cause an increase in aggregate demand?

• (A) An increase in the price level

• (B) A decrease in income taxes

• (C) An increase in the demand for money

• (D) A decrease in the supply of money

• (E) A decrease in government transfer payments

Assume the government reduces its spending and raises income taxes in an effort to reduce the budget deficit. The most likely short-run result will be an increase in

• (A) interest rates

• (B) unemployment

• (C) the money supply

• (D) the price level

• (E) personal savings

Which of the following is an example of fiscal policy?

• (A) Decreasing income tax rates

• (B) Increasing the money supply

• (C) Decreasing the discount rate

• (D) Selling government bonds

• (E) Decreasing the required reserve ratio

Which of the following is a fiscal policy action aimed at reducing unemployment?

• (A) Decreasing government expenditures

• (B) Decreasing income taxes

• (C) Decreasing tax credits

• (D) Increasing nominal interest rates

• (E) Increasing required reserves

Which of the following is an example of fiscal policy?

• (A) Increasing government expenditures to build highways

• (B) Increasing the money supply to increase income

• (C) Decreasing the discount rate to lower unemployment and inflation

• (D) Decreasing the policy rate to stimulate investment

• (E) Decreasing the reserve ratio to increase bank reserves

An economy experiences a sharp increase in energy prices, and policy makers adopt a stabilization policy to increase aggregate demand. Compared with the initial short-run equilibrium, which of the following will definitely occur?

• (A) Lower level of output

• (B) Higher level of output

• (C) Lower price level

• (D) Higher price level

• (E) Higher aggregate supply

An appropriate fiscal policy to combat a recession would be to increase which of the following?

• (A) Interest rates

• (B) The money supply

• (C) Taxes

• (D) Government spending

• (E) The sales of government bonds

If equilibrium is less than potential , which of the following is a fiscal policy action that could move the economy to long-run equilibrium?

• (A) An increase in taxes

• (B) An increase in the money supply

• (C) An increase in government spending

• (D) A decrease in transfer payments

• (E) A decrease in business income tax credits