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AP Macroeconomics Unit 3

Total questions: 60

Worksheet time: 2hrs 30mins

Name
Class
Date
1.
Which of the following is true if the production possibilities curve is a curved line concave to the origin?
a)
Resources are perfectly substitutable between the production of the two goods.
b)
 It is possible to produce more of both products.
c)
Both products are equally capable of satisfying consumer wants.
d)
As more of one good is produced,more and more of the other good must be given up.
2.
Which of the following best describes aggregate supply?
a)
A schedule indicating the level of real output that will be produced at each possible price level
b)
A schedule indicating the level of real output that will be purchased at each possible price level
c)
A schedule showing the trade-off between inflation and unemployment
d)
A schedule showing the relationship between inputs and outputs
3.
The short-run aggregate supply curve will shift to the right when
a)
energy prices increase
b)
government regulation increases
c)
prices of inputs decrease
d)
productivity rates decrease
4.

The long-run aggregate supply curve will shift to the right when

a)

foreign exports increase

b)

government spending increases

c)

investment increases

d)

consumption increases

5.
A rightward shift in the aggregate demand curve with a horizontal aggregate supply curve will cause employment and the price level to change in which of the following ways?
a)
Increase Employment; Increase Price Level
b)
Increase Employment; No Change to Price Level
c)
No Change to Employment, Increase Price Level
d)
Increase Employment; Decrease Price Level
6.
An increase in labor productivity would most likely cause real gross domestic product and the price level to change in which of the following ways
a)
Increase Real GDP; Increase Price Level
b)
Increase Real GDP; Decrease Price Level
c)
Decrease Real GDP; Increase Price Level
d)
Decrease Real GDP; Decrease Price Level
7.

If Mr. Woodward's disposable income increases from $600 to $650 and her level of personal consumption expenditures increase from $480 to $520, you may conclude that her marginal propensity to

a)

consume is 0.8

b)

consume is 0.4

c)

save is 0.8

d)

save is 0.4

8.
In the Keynesian aggregate-expenditure model, if the MPC is 0.75 and gross investment increases by $6 billion, equilibrium GDP will increase by
a)
$6 billion
b)
$8 billion
c)
$1.25 billion
d)
$24 billion
9.

The aggregate demand curve will shift to the right as the result of

a)

an increase in corporate business taxes

b)

a decrease in the real interest rate

c)

recessions in foreign nations that trade with the United States, causing a lower demand for U.S. products

d)

an increase in the nominal interest rate

10.
An increase in personal income taxes will most likely result in which of the following changes in real GDP and the price level in the shortrun?
a)
Decrease Real GDP; Decrease Price Level
b)
Increase Real GDP; Decrease Price Level
c)
Decrease Real GDP; Increase Price Level
d)
Increase Real GDP; Increase Price Level
11.
In the gross domestic product, the largest dollar amount is
a)
consumer spending
b)
rental payments
c)
net exports of goods and services
d)
government purchases of goods and services
12.
Which would be least appropriate for expansionary fiscal policy
a)
Increase taxes
b)
Decrease taxes
c)
Increase government spending
d)
Combination of decreasing taxes and increasing spending
13.

This group is responsible for implementing fiscal policy

a)

Supreme Court

b)

Federal Reserve Board

c)

Council of Economic Advisors

d)

U.S. Congress

14.
The goal of fiscal policy is to achieve full employment by shifting this curve:
a)
Long Run Aggregate Supply
b)
Aggregate Demand
c)
Short Run Aggregate Supply
d)
Phillips
15.
Contractionary fiscal policy would most likely be used during...
a)
recessions
b)
times where economy is operating at full employment
c)
periods of sustained, demand pull inflation
d)
Anytime we have a negative GDP gap
16.

If the MPC is .80, the government spending multiplier is:

a)

4

b)

5

c)

3

d)

2

17.
Why will government have to change taxes by a larger magnitude than they would change spending.
a)
Some spending leaks out of the economy through international trade
b)
Some portions of tax cuts are saved and not spent
c)
Government spending is too inefficient a process
d)
Tax cuts are always superior to government spending
18.

John Keynes argued that if the economy was "stuck" in a recession, that ______________ should actively "prime the pump" or steer the economy in the short-run

a)

government

b)

business investment

c)

international trade

d)

federal reserve

19.
What is NOT a consequence of expansionary fiscal policy?
a)
AD shifts Right
b)
Increased Price levels
c)
increased output
d)
increased unemployment
20.
What is NOT a consequence of contractionary fiscal policy
a)
aggregate demand shifts left
b)
price level increases
c)
unemployment increases
d)
output decreases
21.

Full employment GDP is...

a)

output where the Natural Rate of Unemployment is achieved

b)

Output without cyclical unemployment

c)

output where there is non-accelerating inflation

d)

All of the above

22.
Which of the following are responsible for making fiscal policy decision? 
a)
The President and Congress
b)
The Federal Reserve System
c)
The National Council of Economic Advisors
d)
The commerce Department
23.
Taxing & spending to help the economy grow is referred to as
a)
expansionary policy
b)
monetary policy
c)
contractionary policy
d)
budget deficit
24.

If an economy experiences a dramatic rise in prices, which fiscal policy action could be taken?

a)

Selling securities on the open market

b)

Raising interest rates

c)

Reducing government spending

d)

Raising reserve requirements

25.

Expansionary fiscal policy would most likely be used during...

a)

recessions

b)

times where economy is operating at full employment

c)

periods of sustained, demand pull inflation

d)

periods of large positive output gaps in GDP

26.
What is NOT a consequence of contractionary fiscal policy
a)
aggregate demand shifts left
b)
price level increases
c)
unemployment increases
d)
output decreases
27.
Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 3 percent, the real interest rate is 
a)
0.5% 
b)
3% 
c)
7%
d)
10%
28.
Which of the following is MOST likely to promote economic growth?
a)
 A decrease in business tax credits for investment spending
b)
A decrease in federal student education grants
c)
An increase in investment in tools and machinery
d)
A decrease in the labor force participation rate
29.
Which​ ​of​ ​the​ ​following​ ​is​ ​an​ ​example​ ​of​ ​discretionary​ ​fiscal​ ​policy? 
a)
Income tax payments grow
b)
Congress spends an extra $2 billion to provide jobs 
c)
Fewer workers receive unemployment compensation
d)
More people apply for and receive welfare benefits
30.

The long run aggregate supply curve is vertical because...

a)

Price level increases but GDP doesn't

b)

GDP increases but price level doesn't

c)

GDP decreases but price level doesn't

d)

Price level decreases but GDP doesn't

31.

The long run aggregate supply curve is also known as

a)

structural unemployment

b)

Full-employment

c)

The natural rate of employment

d)

Cyclical unemployment

32.

If the price of imported Canadian lumber increases

a)

AS shifts left (decrease)

b)

AS shifts right (increase)

c)

AD shifts left (decrease)

d)

AD shifts right (increase)

33.

Changes in price level

a)

Shift the AD curve left (decrease)

b)

Shift the AD curve right (increase)

c)

Move along the AD curve

d)

Shift the AS curve right (increase)

e)

Shift the AS curve left (decrease)

34.

Assume the economy is in long run equilibrium and the government increases spending on healthcare

a)

AD will shift right and an inflationary gap will result

b)

AD will shift left and a recessionary gap will result

c)

AS will shift right and an inflationary gap will result

d)

AS will shift left and a recessionary gap will result

e)

No change will result

35.

The LRPC is vertical because

a)

In the long run there is no tradeoff between inflation and unemployment

b)

In the long run there is no tradeoff between price level and GDP

c)

In the long run there is no tradeoff between price and quantity demanded

d)

In the long run there is no tradeoff between two production options

36.

The Phillips Curve represents the tradeoff between

a)

Inflation and unemployment

b)

Price and quantity demanded

c)

Price level and GDP

d)

Two production options

37.

The multiplier effect shows

a)

How spending is magnified in the economy

b)

How much consumers can spend from their paychecks

c)

How much the government can spend from their budget

d)

How often the economy can survive recessions

38.
What would you conclude about an economy characterized by increasing gross domestic product (GDP), low unemployment, and increasing inflation?
a)
This economy is in a slow down.
b)
The government needs to address the unemployment problem.
c)
This economy is in the expansion phase of a business cycle.
d)
The Federal Reserve should expand the money supply.
39.
If Congress increases government spending by the same amount it increases taxes aggregate demand will
a)
remain the same
b)
decrease, these are both contractionary
c)
increase
d)
shift down
40.
What is NOT a consequence of expansionary fiscal policy?
a)
AD shifts Right
b)
Increased Price levels
c)
increased output
d)
increased unemployment
41.

take the number of unemployed people in the country divided by the number of people in the labor force and multiplying the quotient by 100.

a)

unemployment rate

b)

unemployment growth

c)

employment rate

42.

value of current gross domestic product adjusted for inflation

a)

GDP

b)

real GDP

c)

inflation

43.

Each year, any deficit in the federal government’s budget adds to the country’s

a)

national income

b)

national debt

c)

national surplus

44.
Someone without a job a job who has quit looking 
a)
Intermediate Goods
b)
Discouraged Worker
c)
Structural Unemployment
d)
Seasonal Unemployment
45.
The​ ​Consumer​ ​Price​ ​Index​ ​(CPI)​ ​can​ ​be​ ​defined​ ​as
a)
The​ ​market​ ​value​ ​of​ ​all​ ​final​ ​goods​ ​and​ ​services
b)
A​ ​measure​ ​of​ ​inflation​ ​based​ ​on​ ​the​ ​cost​ ​of​ ​a​ ​fixed​ ​“market​ ​basket”
c)
​The​ ​rise​ ​and​ ​fall​ ​of​ ​economic​ ​activity​ ​relative​ ​to​ ​the​ ​long-term​ ​growth​ ​trend
d)
​A​ ​decline​ ​in​ ​total​ ​production​ ​lasting​ ​at​ ​least​ ​two​ ​consecutive​ ​quarters
46.
​Which​ ​type​ ​of​ ​economists​ ​believe​ ​that​ ​the​ ​economy​ ​is​ ​self​ ​correcting​ ​and​ ​does​ ​not  ​ ​​ ​​ ​​ ​​ ​need​ ​government​ ​intervention?
a)
Keynesian economists (Keynes)
b)
Monetarist economists
c)
Supply-side economists 
d)
Classical economists (Hayek)
47.
Which​ ​of​ ​the​ ​following​ ​is​ ​an​ ​example​ ​of​ ​discretionary​ ​fiscal​ ​policy? 
a)
Income tax payments grow
b)
Congress spends an extra $2 billion to provide jobs 
c)
Fewer workers receive unemployment compensation
d)
More people apply for and receive welfare benefits
48.
Which of the following is the best definition of opportunity costs?
a)
the amount of one good that must be given up in order to produce one more unit of another good
b)
the amount of an input that must be used in order to produce one more unit of a good
c)
the price of a good that must be charged in order for a merchant to sell one more unit
d)
none of the above
49.
If a country has  a comparative advantage over another country it is said that
a)
Country A can produce more than Country B
b)
Country A should not trade with Country B
c)
Country A can produce at a lower opportunity cost than Country B
d)
Country A and Country B have no direct relationship to each other
50.
What is the opportunity cost of moving from point B to C on the curve?
a)
30 tons of wheat
b)
30 tons of steel
c)
5 tons of wheat
d)
5 tons of steel
51.
Plants and fertilizer are complements. If the price of fertilizer increases, what will happen in the market for plants?
a)
supply increase
b)
supply decrease
c)
demand increase
d)
demand decrease
52.
Housing is a normal good. If average salary increases, what can we expect to happen in the housing market?
a)
rightward shift in supply
b)
leftward shift in supply
c)
rightward shift in demand
d)
leftward shift in demand
53.
Corn Flakes are an inferior good. If minimum wage increases, what will happen in the market for Corn Flakes?
a)
rightward shift in supply
b)
leftward shift in supply
c)
rightward shift in demand
d)
leftward shift in demand
54.
If the demand for Wendy's increases when the price of Starbucks decreases, then what type of goods are Wendy's and Starbucks?
a)
normal
b)
inferior
c)
substitutes
d)
complements
55.

When one decision is made, the next best alternative not selected is called

a)

economic resources

b)

opportunity cost

c)

scarcity

d)

comparative disadvantage

e)

production

56.

In the circular flow diagram, which of the following is true?

a)

Businesses pay wages, rent, interest, and profits to households in return for use of factors of production.

b)

Businesses purchase goods and services from households in return for money payments.

c)

Households pay wages, rent, interest, and profits to businesses in return for use of factors of production.

d)

The relationship between households and businesses exist only in a traditional society.

e)

The relationship between households and businesses exists only in command economy.

57.

Which of the following goods would be considered scarce?

I. Education

II. Gold

III. Time

a)

I only

b)

II only

c)

III only

d)

I and II only

e)

I, II and III

58.

In which way does a straight-line production possibilities curve differ from a concave production possibilities curve?

a)

A straight-line production possibilities curve has a decreasing opportunity cost.

b)

A straight-line production possibilities curve has a constant opportunity cost.

c)

A straight-line production possibilities curve has an increasing opportunity cost.

d)

A straight-line production possibilities curve does not show opportunity cost

e)

Upward-sloping production possibilities curve.

59.

Which of the following would cause a leftward shift of the production possibilities curve?

a)

An increase in unemployment

b)

An increase in inflation

c)

An increase in capital equipment

d)

A decrease in consumer demand

e)

A decrease in the population

60.

What can cause a production possibilities curve to move to the right?

a)

thousands of people move out of the country

b)

a drought destroys many crops

c)

new technology

d)

the population is growing increasingly old

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