AP Macroeconomics Unit 3 Test Review

Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ?

• GDP will increase by a maximum of $200 million.

• GDP will decrease by a maximum of $200 million.

• GDP will increase by a maximum of $180 million.

• GDP will decrease by a maximum of $180 million.

• GDP will decrease by a maximum of $20 million.

The short-run aggregate supply curve will shift to the right when

• energy prices increase
• government regulation increases
• prices of inputs decrease
• productivity rates decrease

If Mr. Woodward's disposable income increases from $600 to $650 and her level of personal consumption expenditures increase from $480 to $520, you may conclude that her marginal propensity to

• consume is 0.8

• consume is 0.4

• save is 0.8

• save is 0.4

An increase in personal income taxes will most likely result in which of the following changes in real GDP and the price level in the shortrun?

• Decrease Real GDP; Decrease Price Level
• Increase Real GDP; Decrease Price Level
• Decrease Real GDP; Increase Price Level
• Increase Real GDP; Increase Price Level

Contractionary fiscal policy would most likely be used during...

• recessions
• times where economy is operating at full employment
• periods of sustained, demand pull inflation
• Anytime we have a negative GDP gap

If an economy experiences a dramatic rise in prices, which fiscal policy action could be taken?

• Selling securities on the open market

• Raising interest rates

• Reducing government spending

• Raising reserve requirements

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?

• Without a fiscal policy stimulus, the economy will remain in a recession.

• The long-run aggregate supply curve will shift to the right to restore long-run equilibrium.

• As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

• The aggregate demand curve will shift to the left to restore long-run equilibrium.

• The economy is in long-run equilibrium.

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?

• Falling wages will shift the aggregate demand curve to the right, producing full employment.

• Rising wages will shift the aggregate demand curve to the right, producing full employment.

• The economy will remain at point A.

• Rising wages will shift the aggregate supply curve to the right, producing full employment.

• Falling wages will shift the aggregate supply curve to the right, producing full employment.

Suppose that disposable income is $1,000, consumption is $700.  The marginal propensity to consume (MPC) is 0.6.  If disposable income then increases by $100, consumption and savings will equal which of the following?  Consumption     Savings  

• $660 $440

• $420 $280

• $760 $340

• $600 $400

• $660 $320

Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run?

• A decrease in savings of $20 million

• A decrease in imports of $20 million

• An increase in exports of of $20 million

• An increase in government spending of of $20 million

• A decrease in taxes of of $20 million