AP Macroeconomics Unit 3 Review

What causes the aggregate demand curve to slope downwards?

• Inverse relationship between price level and real GDP

• Direct relationship between price level and real GDP

• Direct relationship between price level and unemployment

• Constant price level regardless of real GDP

What is the primary reason for the negative relationship between price level and real GDP in the context of aggregate demand?

• Interest rate effect

• Exchange rate effect

• Real wealth effect

• All of the above

What is the formula for the simple spending multiplier?

• 1 / Marginal Propensity to Consume

• 1 / Marginal Propensity to Save

• Marginal Propensity to Save / Marginal Propensity to Consume

• Marginal Propensity to Consume / Marginal Propensity to Save

How does the tax multiplier compare to the spending multiplier?

• It is twice the value of the spending multiplier

• It is equal to the spending multiplier

• It is one more than the spending multiplier

• It is one less than the spending multiplier

What happens to the short-run aggregate supply curve when there is an increase in the price of key resources?

• Shifts to the right

• Becomes steeper

• Shifts to the left

• Remains unchanged

What triggers a shift in the short-run aggregate supply curve?

• A change in the price level of final goods and services

• A change in the long-run aggregate supply

• A change in the availability of key resources

• A change in consumer spending habits

What is the effect of expansionary fiscal policy on aggregate demand?

• No effect on aggregate demand

• Shifts aggregate supply instead

• Decreases aggregate demand

• Increases aggregate demand

What role does government spending play in expansionary fiscal policy?

• It remains unchanged

• It is decreased to reduce inflation

• It is redirected towards foreign aid

• It is increased to stimulate the economy

Which of the following is an example of an automatic stabilizer?

• Government increasing taxes to fight inflation

• A new law to increase public spending

• Central bank adjusting interest rates

• Unemployment benefits

How do progressive tax systems function as automatic stabilizers?

• By keeping tax rates constant regardless of economic conditions

• By increasing taxes as income increases

• By reducing taxes as income increases

• By increasing taxes during recessions