AP Macroeconomics Quiz

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Answer explanation

The money multiplier is the inverse of the required reserve ratio, which is the ratio of required reserves to demand deposits.

The required reserve ratio =$20,000/$100,000=0.2

The money multiplier =1/0.2=5

The graph above shows the effect of a monetary policy action on aggregate demand. Which of the following will shift the aggregate demand curve in the direction shown?

• A decrease in the money supply

• A decrease in the monetary base

• A decrease in the overnight interbank lending rate

• An increase in the required reserve ratio

• The sale of bonds to the private sector by the central bank

Answer explanation

A decrease in the overnight interbank lending rate requires an increase in the supply of reserves, which increases the money supply and shifts the aggregate demand curve to the right.

Which event would have caused the shift of the money supply curve from S1 to S2 in the above money market graph?

• The purchase of government bonds on the open market by the Federal Reserve

• An increase in the required reserve ratio

• A short-run increase in output, employment, and income

• An increase in general price level in the United States

• An increase in the supply of dollars in foreign exchange markets

What is the primary measure of a country's economic performance?

• Gross Domestic Product (GDP)

• Consumer Price Index (CPI)

• Unemployment Rate

• Balance of Trade

Which of the following is a tool of monetary policy?

• Government Spending

• Taxation

• Open Market Operations

• Regulation

What does the Phillips Curve illustrate?

• The relationship between inflation and unemployment

• The trade-off between efficiency and equity

• The impact of fiscal policy on GDP

• The effect of interest rates on investment

Which of the following is considered a leakage in the circular flow of income?

• Investment

• Savings

• Government Spending

• Exports

What is the natural rate of unemployment?

• 0%

• The rate of unemployment when the economy is at full employment

• The rate of unemployment during a recession

• The rate of unemployment when inflation is zero

Which economic theory is associated with John Maynard Keynes?

• Classical Economics

• Monetarism

• Keynesian Economics

• Supply-Side Economics

What is the primary goal of supply-side economics?

• Increase consumer demand

• Reduce inflation

• Increase production and supply

• Decrease government intervention