AP Macro

Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X’s currency on the foreign exchange market?

• The demand curve for the currency will shift to the right, and the currency will appreciate.

• The demand curve for the currency will shift to the left, and the currency will depreciate.

• The supply curve for the currency will shift to the left, and the currency will appreciate.

• The supply curve for the currency will shift to the left, and the currency will depreciate.

• There will be no shift in the demand curve for the currency, but the currency will depreciate.

If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run?

• Increase aggregate supply, Increase employment

• Increase aggregate supply, Decrease employment

• Decrease aggregate supply, Increase employment

• Decrease aggregate supply, Decrease employment

• No change aggregate supply, Increase employment

If an effective price floor is removed from a market for good, then the price and quantity of the good sold will change in which of the following ways?

• Increase price, Increase quantity

• Increase price, Decrease quantity

• Decrease price, Increase quantity

• Decrease price, Decrease quantity

• No change price, Increase quantity

Which of the following is true of the quantity of money demanded?

• It rises when interest rates rise, because the return from holding money increases.

• It falls when interest rates rise, because the opportunity cost of holding money increases.

• It remains constant when interest rates rise, as long as inflation remains constant.

• It rises when interest rates rise, as long as inflation is declining.

• It falls when the money supply increases, as long as inflation remains constant.

Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?

• Unemployment will be eliminated and prices will be stable.

• The national debt will increase.

• Business cycles will become more stable.

• The automatic stabilizing effect of fiscal policy will be eliminated.

• The government will be forced to spend less when there are surpluses.

If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?

• Demand for United States dollars and supply of euros

• Demand for both United States dollars and euros

• Supply of United States dollars and demand for euros

• Supply of both United States dollars and euros

• International value of the euro relative to the United States dollar

The required reserve ratio is 0.2 and the Federal Reserve sells $1 million in securities. If there are no leakages and banks do not hold excess reserves, then which of the following is the change in the money supply?

• An increase of $1 million

• An increase of $1.2 million

• An increase of $5 million

• A decrease of $1.2 million

• A decrease of $5 million

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.

Which of the following is an example of foreign direct investment?

• A United States automobile manufacturer building a steel plant in Russia

• A United States citizen purchasing corporate bonds issued by a French manufacturing firm

• A Mexican citizen purchasing United States treasury bills

• The Federal Reserve purchasing Japanese yen

• Immigrant workers in the United States sending money to their native country