AP Economics Review pt 2

The law of supply states that:

• The price of a good increases when the demand for the good decreases

• The price of a good decreases when the demand for the good decreases

• The price of a good increases when the supply of the good decreases

• The price of a good decreases when the supply of the good decreases

• The price of a good remains the same when the supply of the good decreases

A decrease in the supply of money will cause which of the following?

• An increase in nominal interest rates

• An increase in the demand for money

• An increase in investment

• An increase the reserve requirement

• An increase demand deposits

The transaction demand for money is very closely associated with money's use as a

• store of value

• standard unit of account

• measure of value

• medium of exchange

• standard of deferred payment

What is the rate at which a nation's currency can be exchanged for another nation's currency called?

• Exchange rate

• Interest rate

• Inflation rate

• Speculation rate

• Trading rate

What is the most common measure of inflation?

• Consumer Price Index

• Producer Price Index

• Gross Domestic Product

• Balance of Trade

• Money Supply

Velocity of money is best described as:

• The number of times the average dollar is spent in a year

• Equivalent to nominal GDP

• Equivalent to Price level

• Equivalent to real GDP

• Another term for the spending multiplier

When a nation experiences an increase in the price level, this is referred to as

• deflation

• disinflation

• stagflation

• hyperinflation

• inflation

If a country has a recession, we would most expect

• Investment to rise

• Consumption to rise

• Unemployment to rise

• Interest Rates to rise

• Inflation to rise

In a recessionary gap, the level of Real GDP is:

• Greater than potential GDP

• Less than potential GDP

• Equivalent to potential GDP

• Increasing at a faster rate than potential GDP

• Decreasing at a faster rate than potential GDP

The term M1 refers to:

• the total amount of money in an economy

• the total amount of money in an economy minus currency outside banks

• all forms of currency in circulation

• all forms of currency in circulation plus checkable deposits

• all forms of currency in circulation plus savings deposits