AP Macro Economics Final Review
Competition means that
there are independently-acting buyers and sellers in each market.
Exchange rates are particularly important because
they link the price levels of various nations to one another.
More than half of the U.S. international trade is with
...
Negative supply shocks will
...
The Reciprocal Trade Agreement Act
...
The largest source of income for the United States government is
...
What generally determines the price of most products, services, and labor?
...
Which of the following deals with the decision making of large segments of our economy?
...
Which of the following is a for profit legal entity charted by a start or the federal government that is distinct and separate from the individuals who own it?
...
If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio must be
15 percent.
The national debt of the United States government is in excess of
16.8 trillion dollars.
In the country of Agronomia, banks charge 10 percent interest on all loans. If the general price level has been increasing at the rate of 4 percent per year, the real rate of interest in Agronomia is
6%.
Which of the following is true according to the circular flow model?
Households are demanded in the product markets and suppliers in the factor markets.
As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements?
I and II only,
Changes in which of the following factors would affect the growth of an economy?
I, II, and III.
On the basis of the diagram below showing an economy's production possibilities curve for two goods, which of the following statements must be true?
I, II, and III.
In a closed economy with no taxes in which the average propensity to consume is 0.75, which of the following is true?
If incomes is $200, then saving is $50.
If the money stock decreases but nominal gross domestic product remains constant, which of the following has occurred?
Income velocity of money has increased.
Which of the following best explains why equilibrium income will rise by more than $100 in response to a $100 increase in government spending?
Incomes will rise, resulting in higher consumption.
Assume that the reserve requirements is 15 percent and that a bank receives a new checking deposit of $200. Which of the following will most likely occur in the bank's balance sheet?
Increase by $200; increase by $30.
An increase in energy costs will most likely cause the price level and real gross domestic product to change in which of the following ways?
Increase, decrease.
If the economy is operating in the intermediate range of the aggregate supply curve and if aggregate demand increases due to an increase in net exports, then the price level, output, and the unemployment rate are most likely to change in which of the following ways?
Increase, increase, decrease.
Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bond?
Increase, increase.
Which of the following has been an outcome of the North American Free Trade Agreement (NAFTA)?
Increased trade among Canada, Mexico, and the United States.
Which of the following groups would most likely gain from unanticipated inflation?
Individuals who have borrowed money at fixed interest rates.
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
Interest rates will increase.
If the Federal Reserve institutes a policy to reduce inflation, which of the following is most likely to increase?
Interest rates.
When the Federal Reserve buys government securities on the open market, which of the following will decrease in the short run?
Interest rates.
Which of the following is true about the national debt of the United States?
It is the accumulation of past and current budget deficits and surpluses.
According to the monetarists, which of the following is true of expansionary fiscal policy?
It will cause interest rates to rise and crowd out private investment spending.
Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement?
Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets.
The term used to describe the economic system of the United States is
capitalism.
A general rise in prices is called
inflation.
If the real interest rate in the United States increases relative to that of the rest of the world, capital should flow
into the United States and the dollar will appreciate.
The traditional Phillips curve shows the
inverse relationship between the rate of inflation and the unemployment rate.
The major difference between real and nominal gross domestic production (GDP) is that real GDP
is adjusted for price-level changes using a price index.
A market:
is an institution that brings together buyers and sellers.
When the United States government engages in deficit spending, that spending is primarily financed by
issuing new bonds.
Other things equal, this economy will achieve the most rapid rate of growth if
it chooses point A.
According to the concept of comparative advantage, a good should be produced in that nation where:
its domestic opportunity is least.
Under a fractional reserve banking system, banks are required to
keep part of their demand deposits as reserves.
An increase in which of the following will lead to lower inflation and lower unemployment?
labor productivity.
The four factors of production are
land, labor, capital, and entrepreneurship.
Nontariff barriers are:
licensing requirements, unreasonable quality standards, and the like designed to impede imports.
In the Keynesian model, an expansionary monetary policy will lead to
lower real interest rates and more investment.
In a mixed economy, what to produce and how much to produce are determined by
markets and the government.
Import quotas are:
maximum limits on the quantity or total value of specific products imported to a nation.
The "most-favored nation" clause of reciprocal agreements
means that any tariff reductions the United States negotiates with a specific nation will automatically apply to many other nations.
A decrease in quantity demanded is depicted by a
move from point y to point x.
An increase in quantity supplied is depicted by a
move from point y to point x.
Which of the following best explains why many United States economists support free international trade?
The long-run gains to consumers and some producers exceed the losses to other producers.
If real gross domestic product is increasing at 3 percent per year and nominal gross domestic product is increasing at 7 percent per year, which of the following is necessarily true?
The price level is increasing.
Which of the following will occur if the federal government runs a budget deficit?
The size of the national debt will increase.
Which of the following statements is correct?
United States exports and imports have been expanding as a percentage of U.S. GDP but the U.S. share of total world trade has been declining.
Which of the following is one of the Four Fundamental Questions?
What goods and services will be produced?
Which of the following statements exemplifies the concept of structural unemployment?
Workers are fired because their skills are no longer in demand.
A contractionary supply shock would most likely result in
a decrease in employment.
The main problem posed by trade blocs for nonmember nations is that
nonmembers face tariffs that member nations do not.
If purchases of education and medical care were counted as investment rather than consumption, gross domestic product would
not change, because there is no change in total expenditures.
The long-run growth rate of an economy will be increased by an increase in all of the following EXCEPT real interest rate.
real interest rate
The intersection of the aggregate supply curve and the aggregate demand curve occurs at the economy's equilibrium level of
real national output and the price level.
A contraction of real GDP for two consecutive quarters is called a(n)
recession.
A trade bloc is
a group of nations that allows free trade among member nations but restrict imports from nonmember nations via tariffs and quotas.
The goal of all businesses is to make
a profit.
The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. Demand-pull inflation in the short run is best shown as
a shift of the aggregate demand curve from AD1 to AD2.
A price of $20 in this market will result in
a shortage of 100 units.
A price of $60 in this market will result in
a surplus of 100 units.
An important outcome of the Uruguay Round of GATT negotiations was
a worldwide reduction of agricultural export subsidies.
The nations of the Euro zone have:
abandoned their national currencies and switched to a common currency.
The European Union (EU) comprises a group of nations that have
abolished tariffs among one another and established a system of common tariffs with respect to nonmember nations.
The appreciation of a currency will lead to
an increase in imports.
According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by
an increase in inflation.
An inflationary gap can be eliminated by all of the following EXCEPT
an increase in the money supply.
An unanticipated decrease in aggregate demand when the economy is in equilibrium will result in
an increase in unplanned inventories.
An increase in Japan's demand for United States goods would cause the value of the dollar to
appreciate because Japan would be buying more United States dollars.
If a worker's nominal wage rate increased from $10 to $12 per hour and at the same time the general price level increases by 10 percent, the worker's real wage has
approximately increased by 10%.
The federal funds rate is the interest rate that
banks charge one another for short-term loans.
The Federal Reserve can increase the money supply by
buying government bonds on the open market.
The General Agreement on Tariffs and Trade (GATT) is based on the principle of
tariff reductions through multilateral negotiations.
The organization that controls the banking system of the United States is
the Federal Reserve System.
The power of the United States government to levy taxes comes from
the U.S. Constitution.
The short-run aggregate supply curve is likely to shift to the left when there is an increase in
the cost of productive resources.
If the equilibrium exchange rate changes so that it takes more dollars to buy a British pound, then
the dollar has depreciated in value.
If incomes rise rapidly in the United States and U.S. preferences for foreign goods strengthen, we would expect
the dollar to depreciate.
Federal budget deficits occur when
the federal government spends more than it collects in taxes in a given year.
The value of the spending multiplier decreases when
the marginal propensity to save increases.
The primary benefits of international trade include:
the more efficient use of world resources and higher living standards.
The official unemployment rate is not an accurate indicator of actual unemployment in the economy because
the official rate does not include persons who have given up looking for work.
If the economy is operating at full employment and there is a substantial increase in the money supply, the quantity theory of money predicts an increase in
the price level.
The primary economic advantage of the European Union (EU) to its members is that:
the reduction of trade barriers permits producers to achieve mass-production economies.
The concept of opportunity cost would no longer be relevant if
the supply of all resources were unlimited.
Given a fixed Phillips curve with stable inflation and unemployment trade-offs, it appears that
...
How does the U.S. government borrow money?
...
If this is a competitive market, price and quantity will move toward
$40 and 150 respectively.
The highest price that buyers will be willing and able to pay for 100 units of this product is
$60.
Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following?
$760, $340.
Assume that the reserve requirements is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is
$8,000.
A person who organizes the factors or production to produce goods and services is known as
...
A rightward shift of the short-run Philips curve suggests that
...
A vertical long-run Phillips curve would most likely be associated with
...
Assume that originally 1 U.S. dollar = 1 euro. Which of the following may explain a change to 1 U.S. dollar = 1.3 euros?
...
The annual inflation rate is expected to be 5 percent over the next 3 years. Robert Bearkat plans to take out a 3-year loan to purchase an automobile. If Robert decides not to take out the loan if the real interest rate exceeds 3 percent, the highest nominal interest rate he is willing to pay is
8 percent.
What situation occur when the federal government spends more money than it receives in revenue?
A budget deficit.
The value of which of the following is counted in the United States gross domestic product?
A car produced in the United States and sold in Europe.
Which of the following most undermines the ability of a nation's currency to store value?
A decrease in the purchasing power of the currency.
When an economy is at full employment, which of the following will most likely create demand-pull inflation in the short run?
A decrease in the real rate of interest.
Which of the following arguments is typically associated with classical economists?
A market is self-correcting and thus will not remain in a recession indefinitely.
Which of the following household purchases will be counted as part of gross private investment in a country's gross domestic product?
A newly constructed home.
Which of the diagrams illustrates the effect of a decline in the price of personal computers on the market for software?
A only.
Which of the diagrams illustrates the effect of a decrease in incomes on the market for secondhand clothing?
A only.
Which of the diagrams illustrates the effect of an increase in the price of Budweiser beer on the market for Coors beer?
A only.
Which of the following is NOT a function of fiat money?
A source of intrinsic value.
Which type of unemployment would increase if workers lost their jobs because of a recession?
Cyclical.
The man known as the "Father of Economics" is
Adam Smith.
Which of the following would most likely cause a rightward shift in an economy's aggregate supply curve?
An across-the-board reduction of wages in the manufacturing sector.
Which of the following would cause the United States dollar to increase in value compared to the Japanese yen?
An increase in the interest rates in the United States.
Which of the following would most likely cause the United States economy to fall into a recession?
An open market sale by the Federal Reserve
Which of the following policies would a Keynesian recommend during a period of high unemployment and low inflation?
Decreasing taxes to stimulate aggregate demand.
Refer to the below domestic production possibilities curve for Karalex. The gain to Karalex from specialization and international trade is represented by a move from
B to E.
Policymakers concerned about fostering long-run growth in an economy that is currently in a recession would most likely recommend which of the following combinations of monetary and fiscal policy actions?
Buy bonds, no change.
Which of the diagrams illustrates the effect of a decline in the price of irrigation equipment on the market for corn?
C only.
Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research?
C only.
Which of the following constitutes the largest component of the United States money supply (M1)?
Checkable deposits (demand deposits)
Under which of the following conditions would consumer spending most likely increase?
Consumer's wealth is increased by changes in the stock market.
Country A can produce either 2 tons of cocoa or 4 cars with 10 units of labor. Country B can produce either 5 tons of cocoa or 25 cars with 10 units of labor. Based on the following information, which of the following is true?
Country A has a comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars.
Using equal of labor hours, Country and Country Y can each produce the number of watches and radios shown in the production possibilities curves above. Based on the information, which of the following is true?
Country X and Y can engage in a mutually advantageous trade by exchanging 1 watch for 1 radio.
Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?
D only.
Under which of the following conditions would a restrictive monetary policy be most appropriate?
High inflation.
This economy will experience unemployment if it produces at point
D.
In the short run, a restrictive fiscal policy will cause aggregate demand, output, and the price level to change in which of the following ways?
Decrease, decrease, decrease.
In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways?
Decrease, increase, increase.
A favorable supply shock, such as a decrease in energy prices, is most likely to have which of the following short-run effects on the price level and output?
Decrease, increase.
An increase in the money supply is most likely to have which of the following short-run effects on real interest rates and real output?
Decrease, increase.
An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?
Decrease, not change
With a constant money supply, if the demand for money decreases, the equilibrium interest rate and the quantity of money will change in which of the following ways?
Decrease, not change.
(AP Question) 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 AS curve to the right, producing full employment.
The corporation that guarantees the savings of depositors in banks is called the
Federal Deposit Insurance Corporation.
Which of the following will lead to an increase in the United States gross domestic product?
Foreign companies build new assembly plants in the United States.
The total value of all goods and services produced within a nation in a year is called
Gross Domestic Product.
Which of the following would best explain a decline in potential gross domestic product?
Negative net investment.
Which one of the following best explains how an economy could simultaneously experience high inflation and high unemployment?
Negative supply shocks cause factors prices to increase.
Which of the following will be counted as unemployed by the United States Bureau of Labor Statistics?
Persons who were fired from their previous jobs and are actively applying for work.
At the onset of the Second World War the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point:
Point A to Point B.
Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price?
Price will increase to eliminate the shortage and restore equilibrium.
Which of the following is a fundamental characteristic of the market system?
Property rights.
If, at full employment, the government wants to increase its spending by $100 billion without increasing inflation in the short run, it must do which of the following?
Raise taxes by more than $100 billion.
Which of the following best explains why transfer payments are not included in the calculation of gross domestic product?
Recipients of transfer payments have not produced or supplied goods and services in exchange for these payments.
If a certain combination of goods and services lies outside the production possibilities curve of an economy, which of the following is true?
Resources are not available to achieve that combination of goods or services
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes?
Speculation.
Which of the following would be most likely to occur if the United States placed high tariffs on imported goods?
The United States economy would become less efficient.
Which of the following changes in the aggregate demand and aggregate supply curves is likely to result in stagflation?
The aggregate supply curve shifts to the left.
Open market operations refer to which of the following activities?
The buying and selling of government securities by the Federal Reserve.
Assume that the inflation rate in the United States is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to the currency of the United States in the foreign exchange market?
The demand curve for the currency will shift to the left, and the currency will depreciate.
Aggregate demand may be measured by adding
consumption, investment, government spending, and net exports.
The Uruguay Round of GATT negotiations completed in late 1993:
created international protections for intellectual property such as patents, copyrights, and trademarks.
Unexpected increases in inventories usually precede
decrease in production.
If a U.S. citizen decides to increase their purchases of Japanese cars, this will lead to:
decrease in the value of the dollar
Depreciation of the dollar will:
decreases the prices of U.S. imports, but increase the prices to foreigners of U.S. exports.
If the exchange rate between the United States dollar and the British pound changed from $2 per pound to $3 per pound, and domestic prices in both countries stayed the same, then the United States dollar would
depreciate, making United States imports from Britain more expensive.
One way in which the Federal Reserve works to change the United States money supply is by changing the
discount rate.
The North American Free Trade Agreement (NAFTA)
established a free trade zone encompassing Canada, Mexico, and the United States.
The Smoot-Hawley Act
established very high tariffs on goods imported to the United States.
Protective tariffs are:
excise taxes or duties placed on imported products.
A major advantage of automatic stabilizers in fiscal policy is that they
go into effect without passage of new legislation.
Exports subsidies are:
government payments to domestic producers to reduce the world prices of exported goods.
An increase in which of the following will increase aggregate demand?
government spending
The World Trade Organization (WTO):
hears and rules on trade disputes between nations.
An increase in government spending with no change in taxes leads to a
higher interest rate
Crowding out due to government borrowing occurs when
higher interest rates decrease private sector investment.
Compared to expansionary monetary policies adopted to counteract a recession, expansionary fiscal policies tend to result in
higher interest rates.
As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in
household production.
In recent years the United States has
imported more goods and services than it has exported.
Proponents of the WTO argue that free international trade and investment will
increase living standards of all trading nations.
The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when
people hold a portion of their money in the form of currency.
The unemployment rate measures the percentage of
people in the labor force who do not have jobs.
A government-set price ceiling is best illustrated by
price A
Rent controls are best illustrated by
price A.
A government-set price floor is best illustrated by
price C
The law of demand states that
price and quantity demanded are inversely related.
The demand curve shows the relationship between
price and quantity demanded.
The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, the aggregate supply curve is vertical in the diagram because:
price level increases produce perfectly offsetting changes in nominal wages and other input prices.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is
price.
An important assumption in Keynesian theory is that
prices are rigid downward and decreases in aggregate demand will lead to an increase in unemployment.
Economics may be defined as the study of how societies deal with the problem of
scarcity.
A decrease in demand is depicted by a
shift from D2 to D1
A decrease in supply is depicted by a
shift from S2 to S1
When demand exceeds supply a(n)___ will occur.
shortage
Comparative advantage implies that
two countries should benefit from trade unless both have equal opportunities cost in every good.
American critics of the WTO argue that free international trade and investment will
undermine environmental and labor protections in the United States.
Point b on short-run Phillips Curve PC1 represents a rate of
unemployment below the natural rate.
The division of labors means that
workers specialize in various production tasks.