AP Macroeconomics — Unit 3 Progress Check (MCQ)

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

• MPC = 0.04 , MPS = 0.96

• MPC = 0.10 , MPS = 0.90

• MPC = 0.20 , MPS = 0.80

• MPC = 0.50 , MPS = 0.50

• MPC = 0.60 , MPS = 0.40

In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level?

• There will be a downward movement along the short-run aggregate supply curve to a lower real output level.

• There will be an upward movement along the short-run aggregate supply curve to a higher real output level.

• The short-run aggregate supply curve will shift to the right and real output will increase.

• The short-run aggregate supply curve will shift to the left and real output will decrease.

• The aggregate demand curve will shift to the right and real output will increase.

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.

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping?

• A decrease in the price level will increase profits and production.

• A decrease in the price level will decrease profits and increase production.

• An increase in the price level will increase real wages and production.

• An increase in the price level will increase profits and production.

• An increase in the price level will decrease real wages and decrease production.

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)?

• The multiplier effect

• The maximum sustainable capacity

• The trade-off between inflation and unemployment

• Sticky wages and prices

• Business cycles