AP Macroeconomics Quiz

Comparative advantage implies that

• no country should specialize completely in the production of any one good

• every country should try to export more than it imports

• developing countries should import raw materials and export manufactured goods

• two countries should benefit from trade unless both have equal opportunity costs in every good

• countries should impose tariffs to protect their domestic industries

The diagram below shows a linear production possibilities curve for a country. If the economy is currently producing 10 units of good A and 90 units of good B, the opportunity cost of increasing the production of good A from 10 units to 20 units is how many units of good B?

• 0.5

• 1

• 5

• 10

• 20

Assuming a banking system with limited reserves, which of the following is most likely to occur when the central bank buys government bonds on the open market?

• The demand for money will decrease.

• The government’s debt will decrease.

• Interest rates will decrease.

• The discount rate will increase.

• Investment demand will decrease.

An industry historically used employees with specific skills. If this industry experiences technological advances that require new skills, there will most likely be

• cyclical unemployment

• frictional unemployment

• seasonal unemployment

• structural unemployment

• no change in unemployment

Which of the following would cause the official unemployment rate to understate the problem of unemployment?

• Workers receiving unemployment compensation

• Cyclically unemployed workers

• Discouraged workers

• Recent college graduates looking for work

• Retirees

Assuming a banking system with limited reserves, which of the following actions by the central bank reduces the ability of the banking system to create money?

• Decreasing the policy rate

• Decreasing the discount rate

• Increasing the money supply

• Increasing the reserve requirement

• Buying government bonds on the open market

Which of the following statements about the simple circular flow model of a market economy is correct?

• Households are on the demand side of the product market and the supply side of the resource market.

• Business firms are on the supply side of both the product market and the resource market.

• Households receive income in the form of wages, and business firms receive income in the form of investment.

• Exports and investment expenditures are examples of leakage from the circular flow, whereas imports and savings are injections.

• Circular flow models are used primarily to explain why money is necessary in any economic system.

Which of the following government policies can reduce the rate of inflation in the short run?

• Providing investment tax credits for businesses

• Reducing personal income tax rates

• Increasing administered interest rates

• Decreasing the reserve requirement

• Decreasing the discount rate

Which of the following is true of a horizontal aggregate supply curve?

• It is the usual assumption made by classical economists analyzing the long run.

• It suggests that increases in output can occur without increases in price levels.

• It suggests that a shift in the aggregate demand curve will lead to a change in the price level.

• It is likely to occur only in highly industrialized economies.

• It cannot shift, therefore output remains constant.

Which of the following individuals is classified as unemployed?

• A fifteen-year-old high school student who is looking for a babysitting job

• A laid-off computer programmer who has given up looking for a new job

• A parent who works in an after-school day care center for 15 hours a week

• A recent college graduate who is looking for her first job

• A mayor who lost an election and retired