AP Macroeconomics Final Exam

A negative supply shock, such as an increase in the price of fuel oil, is most likely to have which of the following short-run effects on the price level and output? Price Level / Output

Increase / Decrease

Cost push inflation due to higher energy prices will result in a(n)

Increase in price level and a decrease in output.

If the government institutes an effective price ceiling on apartment rent, then there will be an

Increase in quantity demanded for apartments.

If a change in investment spending causes inflation, which fiscal policy would be most appropriate?

Increase personal taxes

Which of the following would decrease the U.S. financial account?

A new home purchased in Iceland by an American businessman.

When describing the four phases of the business cycle, the economy goes from

A peak to recession to a trough, into expansion and back to a peak.

The supply of loanable funds will increase if

A personal income tax cut increases household saving.

If during an economic expansion, U.S. financial investors begin to buy stocks increasing the demand for money, what action could the Federal Reserve take to prevent inflation in the economy?

Increase the discount rate

If the dollar price of the Icelandic króna decreases, how will U.S. imports from and exports to Iceland be impacted? Imports / Exports

Increase/Decrease

Economists disagree on how to fix a problem in an economy for all of the following reasons except different:

doubts

If the working age population was 279 million of the 320 million people living in the United States and 122 million were employed while 14 million were unemployed, the unemployment rate would be approximately

10.29%

If MPC = .6 and government purchases increases by $5 billion, GDP will increase by

12.5 billion

A basic belief of Classical Economists is that

Prices and wages are self-correcting.

If you need $1,500 to make a down payment on a car next year and interest rates are 6%, the amount of money you need to deposit into the bank this year is

$1,415.09.

With a reserve requirement of 20% and required reserves of $25,000, a bank has a total of

$125,000 in checkable deposits.

If you need $200 to buy a new iPhone™ next year and interest rates are 2%, the amount of money you need to deposit into the bank this year is

$196.08.

Assume the CPI increases from 105 to 120 between 2008 and 2009. If a flash drive was $20.00 in 2008 and the real value did not change, how much would it cost in 2009?

$22.85

If the working age population was 252 million of the 330 million people living in the United States and 176 million were employed while 12 million were unemployed, the size of the labor force would be

188 million

Assume a bank is fully loaned up. If its loans are $400, its total reserves are $100, and its demand deposits are $500, then the reserve requirement is

20%

Assume a bank is fully loaned up. If its loans are $750, its total reserves are $250, and its demand deposits are $1,000, then the reserve requirement is

25%

In Drewland, the money supply equals $1,000, real GDP equals $2,000 and the price level is 1.5 then the velocity of money is

3.

If the nominal interest rate was 8% in 2008 and inflation was 2%, then the real interest rate was

6%

As a result of a recession, citizens all over the nation are withdrawing their savings. As a result of this action, there will be

A decrease in the supply of loanable funds.

Which of the following is counted in the U.S. financial account?

A factory site purchased in Ireland

Which of the following would be considered unemployed?

A salesperson who is temporarily in between jobs

All of the following are examples of automatic stabilizers except

Congress authorizes spending for new roads all across the nation.

Which of the following will cause a decrease in aggregate demand?

An increase in personal income taxes.

Carrie's Cement Company ships aggregates all over the world. The international price of cement is higher than it is in the United States, so Carrie's firm and others like it are shipping more cement to foreign nations than to companies in the United States. As a result, in the USA,

Aggregate demand will shift right

A U.S. balance of trade surplus can result from

An increase in exports from the United States.

A leftward shift in the demand for hot dogs could be caused by which of the following?

An increase in the price of hotdog buns

Stagflation (the simultaneous increase in unemployment and inflation) might be caused by

An increase in the price of raw materials.

Cost push inflation might be caused by

An increase in wages

Some economists argue that trade restrictions

Are instituted because of powerful lobbyists who demand them.

Connecticut ships large quantities of apples to all parts of the United States by rail. A hurricane destroys apple orchards in Connecticut before the apples are picked. Using the graphs above, select the graph that shows the impact of this event on the apple pie industry in the United States.

B. a leftward shift of supply

Fiat money is

Backed by the government's word

GDP underestimates a nation's production of goods and services when you

Change the oil in your car.

Another name for demand deposits is

Checkable deposits

Aggregate demand is comprised of

Consumer spending, investment spending, government spending, and exports minus imports.

If aloe balm was a free good, the production possibilities curve would look like choice

D. A straight vertical line

If the government institutes an effective price floor on volleyballs, then there will be a

Decrease in quantity demanded for volleyballs.

If the government institutes an effective price ceiling on hamburgers, then there will be a

Decrease in quantity supplied of hamburgers.

Given a normal market supply curve for bicycles, if the government required warning labels on all bicycles, then there is a/an

Decrease in supply for bicycles.

If private investors become less optimistic about the economy, we can expect that

Demand for loanable funds will decrease.

The unemployment rate in the United States underestimates true unemployment because

Discouraged workers are not included in the figures.

When a nation institutes a tariff on a trading partner,

Domestic producers gain, consumers lose, and the government gains revenue.

Greenpeace argues that we need a tariff on Brazilian products until the destruction of the rainforest is halted. This is an argument for

Environmental standards.

When inflation is increasing in the economy, what phase of the business cycle is active?

Expansion

Chris quit his job at Furniture Country because he felt he could find a better paying job at Wood World. This is an example of

Frictional unemployment

When nations trade according to comparative advantage, a good should be produced in the nation that

Has the lowest opportunity cost

In the circular flow diagram

Households earn profit through the factor market.

Which of the following is true concerning the Board of Governors of the Federal Reserve? They serve fourteen year terms. They are appointed by the President and confirmed by the Senate. They report directly to the President.

I and II only

Suppose interest rates rise in the United States, but they don't rise in other nations. As a result of this change, which of the following is true? I. The demand for the U.S. dollar will increase II. The demand for the U.S. dollar will decrease III. U.S. exports will decrease as a result of the changing value of the U.S. dollar. IV. U.S. exports will increase as a result of the changing value of the U.S. dollar.

I and III only.

Which of the following are examples of contractionary monetary policy? increase discount rate decrease reserve requirement buy bonds sell bonds

I and IV only

The graph above shows the market for trail mix snacks. Which of the following would cause a shift from D3 to D2? (It's a leftward shift on the ADAS graph) The price of fruit roll-up snacks decreases. The price of pretzel snacks increases. The price of trail mix snacks decreases.

I only

Which of the following are factors that can shift the supply curve for concert tickets? a wage increase for musicians a cut in personal income taxes a new sound system for concert halls a subsidy for concert providers the price of substitutes for concerts

I, III, and IV only

All economic systems must answer which of the following questions? I. What good should be produced II. Who should receive the goods produced III. Where will the goods be produced? IV. How will resources be used in the production process?

I,II, and IV only.

In the circular flow diagram, households and firms intermingle in which of the following? I. the product market II. the international market III. the factor market IV. financial market

I,III, and IV only

Which of the following is true regarding nominal and real GDP? I. Real GDP is stated in current prices. II. Nominal GDP is stated in current prices. III. Real GDP is adjusted for inflation.

II and III only

Which of the following are true concerning tariffs and quotas? Consumers benefit from tariffs and quotas. Some domestic producers benefit from tariffs and quotas. Government revenues may increase as a result of enacting tariffs.

II and III only.

Which of the following is true concerning federal budget deficits? I. The IRS spends more than it collects in taxes in a given year. II. The Federal Government spends more than it collects in taxes in a given year. III. Unemployment is greater than taxes collected in a given year.

II only

Which of the following is true concerning the real value of the United States dollar? It is determined by the federal government. It is determined by the value of goods and services it will buy. It is determined by the U.S. investors in the foreign exchange market.

II only.

The graph above shows the market for blue jeans in the United States. Which of the following would cause a shift from S3 to S2? (It's a leftward shift of supply) The price of blue jeans increases. The price of leather boots increases. The price of blue thread increases.

III only

In the circular flow diagram, buyers and sellers are brought together

In both markets.

When the Federal Reserve decreases the discount rate, monetarists and Keynesians would agree on which of the following changes to the money supply and interest rates. Money Supply / Interest Rates

Increase/Decrease

If, as part of supply side policy, Congress votes to decrease business taxes how will output, price level, and real interest rates be impacted? Output / Price Level / Interest Rates

Increase/Decrease/Increase

If an American woman purchases a pair of shoes in a local shoe store, what would happen to Consumption and GDP as a result? Consumption / GDP

Increase/Increase

If government spending increases or personal income taxes decrease, what are the likely effects on output, price level, and interest rates? Price Level / Output / Interest Rates

Increase/Increase/Increase

Assume the U.S. dollar and the Mexican peso are traded in flexible currency markets. Which of the following would cause the U.S. dollar to depreciate relative to the Mexican peso?

Increasing price level in the United States relative to Mexico.

In the circular flow diagram, firms

Incur costs in the factor market in return for resources.

Which of the following would cause velocity to decrease?

Interest rates on checking accounts increase.

To be counted as unemployed, an individual

Is actively searching for a job while not working.

Which of the following is an example of cyclical unemployment?

Jerry lost his job as an insurance representative because sales are down all over the city.

The Department of Defense argues that it needs a tariff on missile guidance computer chips to ensure the technology does not fall into the wrong hands. This is an argument for

National security.

Gross domestic product does not count transfer payments because

No good or services are exchanged for them

Katie Dough is a successful dentist and a wonderful pastry chef. She earns $800 a day on average in her dental practice. Her friends often cajole her into preparing mouth-watering pastries for their weekend card parties rather than using the catering service that charges the group $100 to prepare the pastries. If she makes the pastries, she must find time in her busy day to do so instead of practicing dentistry. Should Katie agree to make pastries for her friends?

No, because the opportunity cost of dentistry is higher than the opportunity cost of creating pastries.

If the money supply increases, then

Nominal GDP will increase

Which of the following would occur if Congress voted to decrease spending?

Nominal interest rates would decrease.

Kiersten decided to invite her friends to a cookout at her house. She made a delicious fruit salad from fruits she grew in her yard. The fruits are

Not counted in GDP because they are a non-market activity.

Banks may not be able to create the maximum amount of money from a new deposit as a result of

People's desire to hold cash rather than re-deposit it in the bank.

Assume the CPI increases from 100 to 110 and a person's nominal income increases from $50,000 to $55,000 over the same period. This person's real income has

Remained the same.

Assume the CPI increases from 100 to 120 and a person's nominal income increases from $40,000 to $48,000 over the same period. This person's real income has

Remained the same.

When people's wants exceed their economic resources, then _________ exists.

Scarcity

Which of the following statements about scarcity is not true?

Scarcity allows people to satisfy all their wants.

Which of the following policies will reduce hyperinflation (high inflation) most effectively? Open Market Operations / Government Spending / Personal Income Taxes

Sell bonds / Decrease / Increase

Severe weather across the nation destroys the wheat production capability for the United States. As a result

Short-run aggregate supply will shift left

Oranges Bananas United States 4 acres 5 acres Costa Rica 3 acres 2 acres The table above lists the number of acres it takes to produce one cargo container of oranges and one cargo container of bananas in the United States and Costa Rica. Based on this data, the United States

Should specialize in oranges and trade with Costa Rica for bananas.

Mike asked Rachael to go to the beach with him. Rachael knew she should stay home and study for her Macroeconomics exam but felt she could spend some time doing both. In the past, she had always studied about five hours for her exams but today she studied for only two hours. Her normal grade of an A fell to a B. What was the opportunity cost of going to the beach?

The 3 hours she could have spent studying.

Which of the following is an example of investment spending as used by economists?

The Island Fish Company purchases a new boat for its fleet.

When a change in interest rates impacts the international value of the dollar limiting the effectiveness of fiscal policy, it is due to

The Net Export Effect

A decrease in personal income taxes would be most effective when

The economy is below full employment output.

Crowding out occurs when

The government is using expansionary fiscal policy.

Which of the following will be included in the calculation of GDP?

The sale of a new cell phone by the Getaphone store.

If the economy was operating in equilibrium, which of the following might cause a recession?

The sale of bonds on the open market.

Given a normal market demand curve for M&M's®, if the price of chocolate increases, then

There is a decrease in the quantity demanded of M&M's®.

Given a normal market supply curve for milk, if the price of a gallon of milk increased from $3 to $4, then

There is an increase in the quantity supplied of milk.

Using all of their resources, Fred can produce 50 origami tea bags and 25 pairs of Technicolor tennis shoes while Christian can produce 30 origami tea bags and 3 pairs of Technicolor tennis shoes. Fred's opportunity cost of producing one pair of Technicolor tennis shoes is

Two origami tea bags

Which of the following is not counted in M2?

Vault cash

A basic question that all economies must determine is

What goods will be produced.

When government expenditures cause an increase in real interest rates, private investment

Will be crowded out.

U.S. GDP would increase under which of the following conditions?

You buy a backpack from Target online

If an economy was operating above full employment,

the intersection of AD and SRAS would be to the right of LRAS.

The Consumer Price Index (CPI) is a measure of

the price of consumer goods and services purchased by the average consumer in the current period relative to their price in some base period.