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WorksheetsAP Macro Review
Total questions: 58
Worksheet time: 58mins
Name
Class
Date
1.
Which of the following is always true of an
economy operating on its production possibilities
frontier?
economy operating on its production possibilities
frontier?
a)
Its resources are fully employed.
b)
It is allocatively efficient.
c)
It cannot trade with other nations because it
is the most efficient producer of tradeable
goods.
is the most efficient producer of tradeable
goods.
d)
It will necessarily operate on the same frontier the following year.
2.
Open market operations take place when the
a)
central bank buys or sells stocks
b)
central bank buys or sells government bonds
c)
central bank increases or decreases the
discount rate to monitor the money supply
discount rate to monitor the money supply
d)
central bank increases or decreases reserve
requirements for depository institutions
requirements for depository institutions
3.
A rightward shift in the short-run aggregate
supply curve will occur when
supply curve will occur when
a)
exports exceed imports
b)
the money supply increases
c)
the prices of imported raw materials increase
d)
the stock of physical capital increases
4.
An increase in which of the following is most likely to increase long-run economic growth?
a)
Interest rate
b)
Income tax rate
c)
Marginal propensity to consume
d)
Investment in human capital
5.
Suppose that personal income is $3,500 billion, personal taxes are $1,000 billion, and depreciation is $500 billion. Disposable income is equal to
which of the following?
which of the following?
a)
$1,500 billion
b)
$2,000 billion
c)
$2,500 billion
d)
$3,000 billion
6.
The money demand curve is downward sloping because
a)
the transaction demand for money decreases
as interest rates fall
as interest rates fall
b)
people hold less money as the opportunity
cost of holding money rises
cost of holding money rises
c)
money is less liquid as interest rates rise, so
people are able to hold less of it
people are able to hold less of it
d)
banks are more willing to create money when
interest rates fall
interest rates fall
7.
According to the quantity theory of money,
the quantity of money is related
the quantity of money is related
a)
negatively to the nominal interest rate
b)
negatively to the price level
c)
positively to the unemployment rate
d)
positively to the nominal gross domestic
product
product
8.
Which of the following would generate cost-push inflation?
a)
An increase in the price of labor
b)
A decrease in the price of energy
c)
An increase in household consumption
d)
A decrease in government spending
9.
Assuming no change in the nominal wage and a significant increase in human capital, the output per worker will
a)
increase and the real wage will decrease
b)
increase and the real wage will increase
c)
decrease and the real wage will decrease
d)
decrease and the real wage will increase
10.
Scarcity exists because
a)
human wants exceed the productive capacity
of the economy
of the economy
b)
supplies of land and other natural resources
are unlimited
are unlimited
c)
physical capital does not depreciate
d)
population and labor force growth are
slowing
slowing
11.
To counter a recession, the central bank might pursue which of the following actions?
a)
Increasing reserve requirements and selling
securities on the open market
securities on the open market
b)
Increasing capital gains tax and selling
securities on the open market
securities on the open market
c)
Decreasing reserve requirements and
increasing the discount rate
increasing the discount rate
d)
Decreasing the discount rate and buying
securities on the open market
securities on the open market
12.
An increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways?
a)
AD shift to the right, SRAS shift to the right
b)
AD shift to the left, SRAS shift to the left
c)
AD shift to the left, SRAS no change
d)
AD no change, SRAS shift to the left
13.
Suppose that the central bank buys $100 worth of bonds on the open market. Assume that the required reserve ratio is 10 percent, banks keep no excess reserves, and there are no cash leakages. After banks have made all adjustments, reserves, demand deposits, and loans will increase by which of the following?
a)
Reserves: $1,000
Demand Deposits: $1,000
Loans: $1,000
Demand Deposits: $1,000
Loans: $1,000
b)
Reserves: $1,000
Demand Deposits: $900
Loans: $1,000
Demand Deposits: $900
Loans: $1,000
c)
Reserves: $900
Demand Deposits: $1,000
Loans: $900
Demand Deposits: $1,000
Loans: $900
d)
Reserves: $100
Demand Deposits: $1,000
Loans: $900
Demand Deposits: $1,000
Loans: $900
14.
A simultaneous increase in both the demand for and the supply of a good in a market will lead to which of the following changes price and quantity of the good?
a)
Price increase, Quantity increase
b)
Price indeterminate, Quantity decrease
c)
Price indeterminate, Quantity increase
d)
Price increase, Quantity Indeterminate
15.
Country A both imports and produces tea. If Country A imposes a tariff on imported tea, which of the following will occur?
a)
Tea consumption will increase.
b)
Domestic tea production will decrease.
c)
Employment in the domestic tea industry will
increase.
increase.
d)
The domestic price of tea will decrease.
16.
In the United States, which event would have caused the shift of the money supply curve from S1 to S2 in the money market shown above?
a)
The purchase of government bonds on the
open market by the Federal Reserve
open market by the Federal Reserve
b)
An increase in the required reserve ratio
c)
A short-run increase in output, employment,
and income
and income
d)
An increase in general price level in the
United States
United States
17.
The short-run Phillips curve shows that
a)
there is a trade-off between inflation and
unemployment
unemployment
b)
high rates of unemployment are linked to
high rates of interest
high rates of interest
c)
high rates of inflation are linked to high
rates of interest
rates of interest
d)
high rates of interest are consistent with
increases in the money supply
increases in the money supply
18.
According to the income and consumption schedules shown above, the marginal propensity to consume is
a)
1.33
b)
0.90
c)
0.80
d)
0.75
19.
Which of the following is an example of frictional unemployment?
a)
A person quits a job to search for another job.
b)
A person lacks the skills to fill any of the
available jobs.
available jobs.
c)
A person loses a job because of a recession.
d)
A person retires from the workforce.
20.
In the long run, a decrease in the money supply will affect the price level and the level of output in which of the following ways?
a)
Price level increase
Output increase
Output increase
b)
Price level increase
Output no change
Output no change
c)
Price level decrease
Output increase
Output increase
d)
Price level decrease
Output no change
Output no change
21.
If fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run?
a)
Real output: Increase
Unemployment: Decrease
Unemployment: Decrease
b)
Real Output: Increase
Unemployment: Increase
Unemployment: Increase
c)
Real Output: Decrease
Unemployment: Decrease
Unemployment: Decrease
d)
Real Output: Decrease
Unemployment: Increase
Unemployment: Increase
22.
Given the aggregate demand and aggregate supply curves shown above, if policy makers want to increase real output without causing inflation, they can pursue a policy that will
a)
increase aggregate demand and decrease
aggregate supply by equal amounts
aggregate supply by equal amounts
b)
decrease aggregate demand only
c)
increase aggregate demand only
d)
increase aggregate supply only
23.
Which of the following is most likely to increase the real interest rate in Country Z ?
a)
Country Z’s central bank purchases government securities from banks and citizens.
b)
Country Z reduces government expenditures.
c)
Country Z is viewed as having increased
political and economic risk.
political and economic risk.
d)
Country Z’s citizens increase their savings in
anticipation of needed retirement income.
(E) Country Z introduces a tax on consumption
anticipation of needed retirement income.
(E) Country Z introduces a tax on consumption
24.
Assume that Canada imports more goods and services than it exports. Which of the following is true of the Canadian balance of payments accounts?
a)
The current account balance must be
negative.
negative.
b)
The current account balance must be positive.
c)
The trade balance must be negative.
d)
The financial account (formerly called capital
account) balance must be negative.
account) balance must be negative.
25.
An economy’s full-employment real output will decrease when
a)
price level increases
b)
price level decreases
c)
technological change increases labor
productivity
productivity
d)
workers choose shorter weeks to enjoy
more leisure time
more leisure time
26.
Which of the following is true if exchange rates are freely floating?
a)
The free market forces of demand and supply
determine the equilibrium exchange rates.
determine the equilibrium exchange rates.
b)
The demand curve for the currency is upward
sloping.
sloping.
c)
Only nominal values of currency can be
determined.
determined.
d)
The market determines the equilibrium value
of the currency, but governments buy and
sell currency at a fixed rate.
of the currency, but governments buy and
sell currency at a fixed rate.
27.
Which of the following combinations of policies is designed to decrease inflation?
a)
An increase in taxes and a decrease in the
reserve requirement
reserve requirement
b)
An increase in taxes and an open-market
purchase of government securities
purchase of government securities
c)
A decrease in taxes and an open-market
purchase of government securities
purchase of government securities
d)
A decrease in government spending and an
open-market sale of government securities
open-market sale of government securities
28.
When Country X’s central bank engages in monetary policy actions that lead to a decrease in interest rates, the international value of Country X’s currency and Country X’s exports and imports will most likely change in which of the following ways?
a)
Value of Currency: Increase
Exports: Increase
Imports: Increase
Exports: Increase
Imports: Increase
b)
Value of Currency: Increase
Exports: Increase
Imports: Decrease
Exports: Increase
Imports: Decrease
c)
Value of Currency: Increase
Exports: Decrease
Imports: Decrease
Exports: Decrease
Imports: Decrease
d)
Value of Currency: Decrease
Exports: Increase
Imports: Decrease
Exports: Increase
Imports: Decrease
29.
A country’s real gross domestic product is the annual value of all final goods and services that are
a)
purchased in that country, adjusted for
changes in the price level
changes in the price level
b)
produced in that country, expressed
in current prices
in current prices
c)
produced in that country, less exports
d)
produced in that country, adjusted for
changes in the price level
changes in the price level
30.
If a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run?
a)
Price Level: No change
Real Output: Increase
Real Output: Increase
b)
Price Level: Increase
Real Output: No change
Real Output: No change
c)
Price Level: Decrease
Real Output: No change
Real Output: No change
d)
Price Level: Decrease
Real Output: Decrease
Real Output: Decrease
31.
In the aggregate demand-aggregate supply model, economic growth can best be represented by a
a)
leftward shift of the long-run aggregate
supply curve
supply curve
b)
rightward shift of the long-run aggregate
supply curve
supply curve
c)
rightward shift of the short-run aggregate
supply curve
supply curve
d)
rightward shift of the aggregate demand
curve
curve
32.
An increase in which of the following leads to an increase in output per worker?
a)
Income tax rates
b)
Real interest rate
c)
The labor-force participation rate
d)
The stock of physical capital per worker
33.
The United States national debt is
a)
the amount of money owed by the federal
government to United States citizens
government to United States citizens
b)
the amount of money owed by the federal
government to other United States
government agencies
government to other United States
government agencies
c)
the amount of currency in the hands of
foreigners
foreigners
d)
the amount of money owed to holders of
United States government securities
United States government securities
34.
Classical economists believe that the economy moves toward full employment because
a)
government spending supplements private investment to keep aggregate demand in balance with aggregate supply
b)
households spend all of their disposable income to purchase the full-employment output
c)
wages and prices are flexible
d)
private investment is constant and
independent of national income
independent of national income
35.
Which of the following would shift a country’s production possibilities curve inward?
a)
A reduction in the country’s inflation rate
b)
A reduction in the country’s real interest rate
c)
A reduction in the size of the country’s labor
force
force
d)
An increase in the typical retirement age in
the country
the country
36.
If the central bank conducts an open-market purchase of bonds, which of the following will occur?
a)
The price of bonds will increase.
b)
The money supply will decrease.
c)
Total bank reserves will decrease.
d)
Consumption will decrease.
37.
According to the short-run Phillips curve, a contractionary fiscal policy will result in
a)
a decrease in both unemployment and prices
b)
a decrease in inflation and an increase in unemployment
c)
a decrease in both wage rates and
unemployment
unemployment
d)
an increase in both wage rates and
unemployment
unemployment
38.
A short-run increase in national income could be
caused by a decrease in which of the following?
caused by a decrease in which of the following?
a)
Consumption
b)
Investment
c)
Imports
d)
Government spending
39.
The loanable funds market is best described as bringing together
a)
savers and borrowers
b)
investors and borrowers
c)
financial institutions and investors
d)
savers and lenders
40.
An unanticipated decrease in aggregate demand will most likely cause the unemployment rate and the inflation rate to change in which of the following ways?
a)
Unemployment Rate: Increase
Inflation Rate: Increase
Inflation Rate: Increase
b)
Unemployment Rate: Increase
Inflation Rate: Decrease
Inflation Rate: Decrease
c)
Unemployment Rate: Increase
Inflation Rate: No change
Inflation Rate: No change
d)
Unemployment Rate: Decrease
Inflation Rate: Increase
Inflation Rate: Increase
41.
Assume that Atlantic National Bank has demand deposits of $100,000 and no excess reserves, and that the reserve requirement is 10 percent. A customer withdraws $5,000 from the bank. To meet the reserve requirement, the bank must increase its reserves by
a)
$500
b)
$1,000
c)
$2,000
d)
$4,500
42.
Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion. If the economy’s marginal propensity to consume is 0.75 and there is no crowding out, the government should do which of the following?
a)
Increase spending by $2,400 billion.
b)
Increase spending by $600 billion.
c)
Increase spending by $150 billion.
d)
Decrease taxes by $150 billion.
43.
Assume that Linda deposits in her checking account the $1,000 cash she was keeping at home for an emergency. If the required reserve ratio is 0.20, what is the maximum change in the money supply from her deposit?
a)
$1,000
b)
$1,250
c)
$2,000
d)
$4,000
44.
The table above shows the quantity demanded and quantity supplied for bushels of wheat at various prices. Which of the following combinations is the equilibrium price and quantity for wheat?
a)
Price: $2.00
Quantity: 10,000 Bushels of wheat
Quantity: 10,000 Bushels of wheat
b)
Price: $1.75
Quantity: 15,000 Bushels of wheat
Quantity: 15,000 Bushels of wheat
c)
Price: $1.50
Quantity: 20,000 Bushels of wheat
Quantity: 20,000 Bushels of wheat
d)
Price: $1.75
Quantity: 30,000 Bushels of wheat
Quantity: 30,000 Bushels of wheat
45.
The table above shows the consumer price index for selected years. On the basis of these data, how much did it cost in 1995 to buy the same goods and services that cost $50 in 1929 ?
a)
$25
b)
$125
c)
$250
d)
$300
46.
The aggregate demand curve assumes that
a)
as the price of a good or service increases,
nominal wages decrease
nominal wages decrease
b)
as the domestic price level increases,
consumers substitute domestic goods for
foreign goods
consumers substitute domestic goods for
foreign goods
c)
all prices and total consumer incomes are
constant
constant
d)
changes in the price level affect real wealth
47.
Which of the following best describes the present value of one dollar received one year from today?
a)
It is worth more than a dollar received today.
b)
It is worth less than a dollar received today.
c)
It has the same value as a dollar received
today.
today.
d)
It decreases as interest rates decrease.
48.
If an increase in government spending, financed by borrowing, crowded out an equal amount of private spending, which of the following would result?
a)
Interest rates would decrease.
b)
Aggregate demand would remain
unchanged.
unchanged.
c)
The price level would increase.
d)
Unemployment would increase.
49.
An increase in which of the following will cause an increase in the demand for money?
a)
The interest rate
b)
The supply of money
c)
The price level
d)
The velocity of money
50.
Suppose that in a particular country, nominal gross domestic product (GDP) grew by 8 percent, and the GDP deflator increased by 10 percent. The country’s growth rate of real GDP would be approximately equal to
a)
-2%
b)
-0.8%
c)
0.8%
d)
2%
51.
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) ?
a)
GDP will increase by a maximum of
$200 million.
$200 million.
b)
GDP will increase by a maximum of
$180 million.
$180 million.
c)
GDP will decrease by a maximum of
$200 million.
$200 million.
d)
GDP will decrease by a maximum of
$180 million.
$180 million.
52.
Which of the following best describes an economy at full employment?
a)
The rate of unemployment is zero.
b)
There is only structural and cyclical
unemployment.
unemployment.
c)
There is cyclical, but not structural,
unemployment.
unemployment.
d)
There is frictional, but not cyclical,
unemployment.
unemployment.
53.
Wally can make 40 units of good X or 30 units of good Y in a day, and Sam can make 20 units of good X or 10 units of good Y in a day. Assuming constant trade-offs between good X and good Y, which of the following is true?
a)
Sam has a comparative advantage in making
good X.
good X.
b)
Sam has a comparative advantage in making
good Y.
good Y.
c)
Wally has a comparative advantage in
making both goods.
making both goods.
d)
Sam has an absolute advantage in making
good X.
good X.
54.
Automatic stabilizers can do which of the
following?
following?
a)
Offset the destabilizing influence of changes
in tax revenues
in tax revenues
b)
Aid the economy to move away from the full-employment output level
c)
Allow policymakers to formulate a set of rules
flexible and comprehensive enough to
eliminate discretionary actions
flexible and comprehensive enough to
eliminate discretionary actions
d)
Cause tax revenues to decrease when gross
domestic product (GDP) decreases and to
increase when GDP increases
domestic product (GDP) decreases and to
increase when GDP increases
55.
According to the graph above, which of the following statements about the economy is true?
a)
The economy is in long-run equilibrium.
b)
The LRAS curve will automatically shift to
the right, restoring long-run equilibrium.
the right, restoring long-run equilibrium.
c)
In the short run, if wages are sticky the SRAS
will shift to the right, lowering prices.
will shift to the right, lowering prices.
d)
Wages will eventually decrease, restoring full
employment in the long run.
employment in the long run.
56.
An increase in Canada’s real interest rates relative to real interest rates in the rest of the world will
lead to which of the following in Canada?
lead to which of the following in Canada?
a)
An increase in exports
b)
(B) A decrease in imports
c)
A reduced government budget deficit
d)
Financial capital inflow
57.
The real interest rate earned is the
a)
same as the nominal interest rate when
inflation is moderate
inflation is moderate
b)
cost of borrowing in current consumer prices
c)
cost of borrowing in current producer prices
d)
cost of borrowing adjusted for the rate of
change in the price level
change in the price level
58.
When purchasing her house, Ms. Jones took out a 15-year mortgage loan from a local bank at a fixed interest rate of 7 percent. The rate of expected inflation at the time was 3 percent. If the actual rate of inflation was 4.5 percent, which of the following is true?
a)
The bank gained because the real rate of
interest increased by 1.5%.
interest increased by 1.5%.
b)
The bank gained because the real rate of
interest became 3.5%.
interest became 3.5%.
c)
The bank lost because the real rate of interest
decreased by 1.5%.
decreased by 1.5%.
d)
Ms. Jones gained because the nominal rate of
interest increased by 1.5%.
interest increased by 1.5%.
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