AP Macro Unit 3 Review Quiz

Which of the following best describes the aggregate demand curve?

• It is a curve that shows the relationship between consumer spending and income.
• It is a curve that shows the amount of goods and services domestic consumers will buy from domestic and foreign firms.
• It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels.
• It is a curve that shows only the level of government spending at different price levels.
• It is a curve that shows the level of spending by all factors of production at different price levels.

Which of the following explains the relationship between the price level and real output along the aggregate demand curve?

• At a lower price level, people need more money to spend and therefore deposit less money in banks, which lowers interest rates and increases real output.
• At a lower price level, the real value of savings decreases which causes an increase in spending.
• At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods.
• At a lower price level, real incomes decrease which causes an increase in spending.
• At a lower price level, the purchasing power of consumers’ income decreases which causes an increase in spending.

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand (AD) in Euroland?

• There will be a movement along the AD curve to a lower real output.
• There will be a movement along the AD curve to a higher price level.
• There will be no change in the AD curve
• There will be a leftward shift in the AD curve
• There will be a rightward shift in the AD curve

Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion?

• Real output will increase by a maximum of $75 billion.
• Real output will increase by a maximum of $100 billion.
• Real output will increase by a maximum of $175 billion.
• Real output will increase by a maximum of $300 billion.
• Real output will increase by a maximum of $400 billion.

According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following?

• A one-dollar increase in government spending
• A greater-than-one-dollar increase in government spending
• A one-dollar increase in the production of goods and services
• A one-dollar increase in aggregate demand for goods and services
• A greater-than-one-dollar increase in aggregate demand for goods and services

An increase in taxes on businesses in the United States will likely have what impact on the short-run aggregate supply(SRAS) curve in the United States?

• It will cause a movement along the SRAS curve to a higher real output.
• It will cause a movement along the SRAS curve to a lower real output.
• It will have no impact on the SRAS curve
• It will cause the SRAS curve to shift leftward
• It will cause the SRAS curve to shift rightward

Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run.

• Equilibrium real output is always above full employment.
• Equilibrium real output is always below full employment.
• Equilibrium real output is always equal to full employment.
• Equilibrium real output can be above, equal to, or below full employment.
• Equilibrium real output is always indeterminate.

Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession?

• Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession?
• Aggregate demand will increase and the price level will increase.
• Short-run aggregate supply will decrease and the price level will decrease.
• Short-run aggregate supply will increase and the price level will increase.
• Short-run aggregate supply will decrease and the price level will increase.

Suppose an economy is operating above full employment. Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment?

• Increasing government spending, which will shift the AD curve rightward
• Decreasing government spending, which will shift the AD curve rightward
• Increasing taxes, which will shift the AD curve leftward
• Decreasing taxes, which will shift the AD curve leftward
• Increasing transfer payments, which will shift the AD curve leftward

Which of the following represents an appropriate fiscal policy for the given economic conditions?

• An expansionary fiscal policy is appropriate to reduce unemployment when there is an inflationary gap.
• An expansionary fiscal policy is appropriate to reduce inflation when there is a recessionary gap.
• An expansionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.
• A contractionary fiscal policy is appropriate to reduce unemployment when there is a recessionary gap.
• A contractionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.