AP Macro - Unit 5 - Review

Which of the following policy combinations will be the most effective in closing a recessionary gap?

• decreasing administered interest rates; increasing income taxes

• decreasing administered interest rates; increasing government spending

• increasing cash reserve ratio; decrease income taxes

• sell government bonds; increase government spending

The central bank of Powelland increase the discount rate from 4.25% to 5.25%, while the federal government reduces funding for public health and education programs. This combination of action will likely have the following impact:

• an increase in the price level and an increase in GDP

• an increase in unemployment and an increase in GDP

• a decrease in unemployment and an increase in the price level

• a decrease in GDP and a decrease in the price level

Contractionary fiscal policy will cause which of the following changes to the short-run Phillips curve?

• an upward movement along SRPC

• a righward shift of the SRPC

• a downward movement along the SRPC

• a leftward shift of the SRPC

A movement along the Phillips curve from point A to point B is most likely the result of:

• Increase in government spending
• Negative supply shock

• Change in unemployment benefits
• Increase in short-run aggregate supply

The dashed line best represents the economy's:

• Natural level of output

• Natural rate of unemployment

• Level of cyclical unemployment

• Natural rate of inflation

Country X is currently in an inflationary gap. Draw a point, Point A, that represents the inflationary gap. Imagine that no fiscal or monetary policy is used. Show how the economy will return to long-run equilibrium.

If an economy is currently in long-run equilibrium and the central bank increases the cash reserve ratio, which of the following will likely happen?

• money supply increases; GDP increases; inflation increases

• money supply decreases; GDP increases; inflation increases

• money supply decreases; aggregate demand decreases; price level decreases

• money supply decreases; interest rates decrease; inflation decreases

In a given year, if government spending is greater than government revenue, the ________ ____ will increase. (two words)

Expansionary fiscal policy results in a ______ _______. (two words)

Which of the following will occur if the federal government continually runs a budget deficit?

• interest rates will decrease and levels of private investment will increase

• interest rates will decrease and levels of private investment will decrease

• interest rates will increase and levels of private investment will decrease

• the government will be overthrown