AP macroeconomics
If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of
$400.00
If a $500 billion increase in investment spending increases income by $500 billion in the first round of the multiplier process and by $450 in the second round, income will eventually increase by:
$5,000 billion.
In the Keynesian aggregate-expenditure model, if the MPC is 0.75 and gross investment increases by $6 billion, equilibrium GDP will increase by
$6 billion. = 1/ (1- MPC)
If the government spending multiplier in an economy is 4, then the value of the tax multiplier must be
-3.
At what real exchange ratio, also referred to as the terms of trade, between grain (G) and steel (S) would both Alpha and Beta find it mutually advantageous to specialize and trade?
1G=1.5S
If the MPS is only half as large as the MPC, the multiplier:
3
If the legal reserve requirement is 25%, the value of the simple deposit expansion multiplier is
4 (1/4 = .25).
In the absence of international trade, the opportunity cost of producing one bushel of cotton in Egypt is
400 corn to 500 cotton .8 corn to 1 cotton
If 2010 were made the base year for the GDP price deflator index, the value of the index number for 2000 (rounded to the nearest whole number) would be
42
The value of the gross domestic product in 2010, in terms of 2000 prices, was
600
The full-employment unemployment rate in the economy would be:
7
Which of the above diagrams best portrays the effects of declines in the prices of imported resources?
A As imported resources become cheaper, AS will increase (when costs of production decrease, supply will increase).
Which of the above diagrams best portrays the effects of an increase in resource productivity?
A Real domestic output will increase as resource productivity rises.
Which of the following combinations of policies is designed to decrease inflation?
A decrease in government spending and an open-market sale of government securties
Which of the following is a fiscal policy that would most likely increase aggregate demand in the Keynesian model?
A decrease in personal income taxes
Assume the economy is in initial equilibrium where AS1 intersects AD1. Then a supply shock occurs that shifts AS1 to AS2. If the government counters with an expansionary fiscal policy, what should shift should happen to bring the economy back to equilibrium?
AD1 will shift to AD2
A commercial bank holds $500,000 in demand deposit liabilities and $120,000 in reserves. If the required reserve ratio is 20%, which of the following is the maximum amount by which this single commercial bank and the maximum amount by which the banking system can increase loans?
Amount created by single bank- $20,000 Amount created by banking system- $100,000
A commercial bank holds $500,000 in demand deposit liabilities and $120,000 in reserves. If the required reserve ratio is 20%, which of the following is the maximum amount by which this single commercial bank and the maximum amount by which the banking system can increase loans? Amount created by single bank- $20,000
Amount created by single bank- $20,000 Amount created by banking system- $100,000
Which of the following will cause the consumption schedule to shift upward?
An expectation of future shortages of essential consumer goods
Assume the economy is in the initial position of B1. An increase in aggregate demand will tend to:
An increase in AD will decrease the unemployment rate and increase inflation.
A professor hires two aides, assigning them the tasks of reading student papers and typing lecture notes on a computer. One of the aides, Ben, can read 1 page of a student paper per minute or type 50 words of lecture notes per minute, and the other aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lecture notes per minute.
Ann has a comparative advantage in reading student papers, and Ben has a comparative advantage in typing notes
The theory of rational expectations implies which of the following?
Attempts to decrease unemployment through government policy will be thwarted by people's reactions.
If expansionary fiscal policies in the United States lead to increased budget deficits, what will happen to real interest rates in the United States and the value of the dollar?
Budget deficits occur when the value of the dollar is high, interest rates are high because we are buying more than we are selling which tells us our currency is strong. Real interest rate - increase Value of currency - increase
In the circular flow diagram, which of the following is true in resource (factor) markets?
Business firms sell goods and services to households.
In the circular flow diagram, which of the following is true in the product market?
Business firms sell goods and services to households.
Which of the following actions by the Federal Reserve will result in an increase in banks' excess reserves? Correct answer:
Buying bonds on the open 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 this information, which of the following are true?
Country A has an comparative advantage in the production of cocoa, while Country B has a comparative advantage in the production of cars.
Suppose that the price level in Country A increases relative to the price level in other countries. In which of the following ways are Country A's imports and exports most likely to change?
Country A's imports - increase Country A's exports - decrease Imports will increase as other countries currency is not worth less and their goods are cheaper, exports will decrease as their currency is no worth more and therefore, their goods are relatively more expensive to other countries.
Which of the above diagrams best portrays the effects of a substantial reduction in government spending?
D With the lack of government spending, AD will decrease.
Assume the economy has a low unemployment rate and a high rate of inflation. Which of the following sets of monetary and fiscal policies would be consistent and designed to reduce the rate of inflation?
Discount rate- Increase Government spending- Decrease Open Market Operations- Sell Bonds
Which of the following monetary and fiscal policy combinations would definitely cause a decrease in aggregate demand in the short run?
Discount rate- Increase Government spending- Decrease Open Market Operations- Sell Bonds
Assume the economy has a low unemployment rate and a high rate of inflation. Which of the following sets of monetary and fiscal policies would be consistent and designed to reduce the rate of inflation?
Discount rate- Increase Government spending- Decrease Open Market Operations- Sell Bonds Increasing the discount rate, decreasing government spending and selling bonds will all take money out of the economy in the hopes to curb inflation.
Which of the following indicates that the macro-economy is achieving its economic goals?
Economic growth
If Egypt and Venezuela begin to engage in bilateral trade, then
Egypt will import corn and export cotton.
The current account and the financial account must do which of the following?
Equal zero when added together
If the production technology of a good improves and at the same time the number of consumers willing and able to buy the good in the market increases, which of the following will definitely occur?
Equilibrium quantity will increase
At the economy's natural rate of employment, which of the following statement(s) are true?I. the economy achieves its potential outputII. there is only a relatively small amount of cyclical unemployment III. only frictional unemployment exists. Incorrect answer:
Frictional unemployment and structural unemployment can exist.
Which of the following would be an example of an intermediate good or service?
Gasoline purchased by an insurance agent to visit clients at their homes
Which of the following would be included in the calculation of gross domestic product?
Government purchase of a new submarine
The M1 definition of money includes which of the following? I. Currency II. Demand deposits (checkable deposits) III. Savings accounts and small time deposits IV. Eurodollars
I and II only M1 is defined as currency and demand deposits.
If the primary goal is to reduce inflation, which of the following fiscal policy actions would be appropriate during a period of a rapidly increasing consumer price index? I. Reduce government expenditures for defense and space research. II. Increase transfer payments to those most severely affected by the rising price index. III. Increase personal income tax rates.
I and III only
Which of the following problems do all economic systems face? How to allocate scarce resources among unlimited wants How to distribute income equally among all the citizens How to decentralize markets How to decide what to produce, how to produce, and for whom to produce
I and IV only
The law of demand states that:I. price and quantity demanded are inversely relatedII. the larger the number of buyers in a market, the lower the product price will beIII. price and quantity demanded are directly related
I only
A demand curve:I. shows the relationship between price and quantity demanded at all pricesII. indicates the quantity demanded at each price in a series of pricesIII. graphs as a down-sloping line
I, II , III
Expansionary monetary policy results in which of the following in the short run? I. The money supply increases. II. The nominal interest rate decreases. III. The real interest rate decreases. IV. Bond prices decrease.
I, II and III only
In the United States, an increase in which of the following will cause an increase in U.S. imports? I. Per capita real income II. Price level III. Real interest rates IV. Tariffs
I, II, and III only
According to the graph above, higher inflation in the United States relative to that in Canada, ceteris paribus, is predicted to cause a(n):
Inflation causes each dollar to be worth less as you need more of them to buy a good or service. decrease in the price of the U.S. dollar in terms of the Canadian dollar.
When the unemployment rate is 10% and the CPI is rising at 2%, the federal government cuts taxes and increases government spending. If the Federal Reserve buys bonds on the open market, interest rates, investment, real gross domestic product (GDP) and the price level are most likely to change in which of the following ways?
Interest Rate - Decrease Investment - Increase Real GDP - Increase Price Level - Increase
When the unemployment rate is 4.5% and the CPI is rising at a 12% rate, the federal government raises taxes and cuts government spending. If the Federal Reserve sells bonds on the open market, interest rates, investment, real gross domestic product (GDP) and the price level are most likely to change in which of the following ways?
Interest Rate - Increase Investment - Decrease Real GDP - Decrease Price Level - Decrease
If a country has a current account deficit, which of the following must be true?
It must show a surplus in its capital account. A current account deficit is when a country imports more goods, services and capital than it exports. The current account measures trade plus transfers of capital.
Suppose the Federal Reserve buys $400,000 worth of securities from the securities dealers on the open market. If the reserve requirement is 20% and the banks hold no excess reserves, what will happen to the total money supply?
It will expand by $2,000,000.
Which of the following is true if a nation does NOT have an absolute advantage in producing any good or service?
It will have a comparative advantage in the production of the good or service in which it has a lower opportunity cost Absolute advantage is the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.
In the graph, the values of the MPC, MPS and simple expenditure multiplier are
MPC - 0.75 MPS - 0.25 Multiplier - 4.0
Suppose the autonomous consumption is $400 and the marginal propensity to consume is 0.8. If disposable income increase by $1,200, consumption spending will increase by
MPC. 0.8 ($1200) = 960
A person should consume more of something when
Marginal benefit exceeds marginal cost
Free products offered by firms:
May or may not be free to individuals, but are never free to society.
Which of the following purchases is included in the calculation of gross domestic product?
New harvesting equipment for the farm
The phrase 'There Is No Such Thing As a Free Lunch' refers to the belief that
Nothing is without cost
Which of the following is true if real GDP in Year 1 is $5,000 and in Year 2 is $5,200?
Output has increased by 4 percent.
In which of the following ways will increases in short-run aggregate supply change the price level and unemployment?
Price Level- Decrease Unemployment- Decrease An increase or right shift of the SRAS will cause a decrease in price level and and decrease in unemployment.
An increase in which of the following would be most likely to increase long-run economic growth?
Productivity
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? Real GDP- Decrease
Real GDP- Increase Price Level- Decrease
In the short run, in which of the following ways is an expansionary monetary policy most likely to cause the real interest rate and the value of the domestic currency to change?
Real interest rate - decrease Value of currency - decrease
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?
Real output increase, unemployment decrease Crowding out is a situation where personal consumption of goods and services and investments by business are reduced because of increases in government spending and deficit financing sucking up available financial resources and raising interest rates
In order to be called an automatic, or built-in stabilizer, which of the following must taxes automatically do in a recessionary period and in an inflationary period?
Recessionary Period- Decrease Inflationary Period- Increase
Which of the following monetary and fiscal policy combinations would definitely cause an increase in aggregate demand? Reserve Requirement- Increase
Reserve Requirement- Decrease Taxes- Decrease Government spending- Increase
A rapid increase in successful research and development projects for the nation will most likely result in which of the following changes in the short-run and the long-run aggregate supply curves and the production possibilities curve?
SRAS Curve- Increase LRAS Curve- Increase PPC- Shift outward
"Sales of durable goods last month were surprisingly high. Recent price increases have pushed the CPI to more than a 7% increase for the past year. On average, the producer price index has gained 1% each month during the last year. Wage rates have increased throughout the economy, but productivity gains are minimal. The unemployment rate, however, is steady at 6%." Which of the following changes in the tax rate, government spending and the federal funds rate are most appropriate given the state of the economy?
Tax Rate - Increase Government Spending - Decrease Federal Funds Rate - Increase
Which of the following fiscal policy actions would be most effective in combating a recession?
Taxes- $25 billion decrease Government Spending- $25 billion increase
If real interest rates in the United States are increasing faster than real interest rates in other countries, which of the following is most likely to occur?
The demand for dollars will increase, and the value of the dollar will increase. If real interest rates in the United States are increasing faster than real interest rates in other countries, the demand for dollars will increase (because they are worth more), and the value of the dollar will increase.
If real interest rates in the United States increase relative to real interest rates in other countries, which of the following will occur?
The demand for loanable funds in the United States will increase
"Economic equity is one of the broad social goals of economic systems. Being a champion of equality, the U.S. should concentrate on obtaining this goal first." Which of the following is true about this pair of statements?
The first is positive and correct; the second is normative.
The increase in income which results from an increase in investment spending would be greater the
The income earned has to be greater than the MPS.
An expansionary fiscal policy will result in an increase in the interest rate unless which of the following occurs?
The money supply is increased.
James is deciding between a job as a mechanic and a pizza delivery man. The pizza delivery job pays more, but also takes up much more time. Which of the following could be considered an opportunity cost of taking the pizza delivery job?
The reduced free time
If the government increases spending without a tax increase and simultaneously no monetary policy changes are made, which of the following would most likely occur?
The rise in income may be smaller than the multiplier would predict because the higher interest rates will crowd-out private investment spending.
The concept of opportunity cost would no longer be relevant if
The supply of all resources were unlimited
Monetary Policy is subject to less political pressure than fiscal policy.
True
If the balance on the current account is zero, which of the following transactions will cause it to go into deficit?
U.S. tourists in Great Britain purchase pounds sterling.
Which of the following is at its highest at the trough of a business cycle?
Unemployment
If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways?
When interest rates decrease short run capital inflows to the US will also decrease as people have less incentives to invest in the U.S. short run capital inflows to the US will decrease
Which of the following would cause the United States dollar to increase in value compared to the Japanese Yen?
When interest rates increase, the value of the currency will also increase. An increase in interest rates in the United States
Which does not contribute to the production of the domestic output of an economy?
a full-time student
A rightward shift of the Phillips Curve suggests that:
a higher rate of unemployment is associated with each inflation rate.
A college graduate using the summer following graduation to search for a job would best be classified as:
a part of frictional unemployment
The multiplier effect means that
a small increase in investment can cause national income to change by a large amount.
If the price index in a country were 100 for the year 2010 and 120 for the year 2015 and nominal gross domestic product in 2015 was $480 billion, then real gross domestic product for 2015 in 2010 dollars would be
about $400 billion.
The crucial problem of economics is
allocating scarce productive resources to satisfy unlimited wants
The crucial problem of economics is
allocating scarce productive resources to satisfy wants
An expansionary monetary policy may promote long-run growth if it leads to
an increase in investment.
Aggregate demand and aggregate supply analysis suggests that, in the short run, an expansionary monetary policy will result in
an increase in real GDP without much inflation when the economy in on the horizontal portion of the aggregate supply curve.
A leftward shift of a product supply curve might be caused by:
an increase in the prices of needed inputs
An increase in Japan's demand for US good would cause the value of the dollar to
appreciate because Japan would be buying more US dollars
Which of the following statements is correct? Unanticipated inflation
arbitrarily "taxes" fixed-income groups
Which of the above diagrams best portrays the effects of an increase in foreign spending on our products?
c The foreign spending is on the AD of more goods.
If Maria Smith's disposable income increases from $600 to $650 and her level of personal consumption expenditures increases from $480 to $520, you may conclude that her marginal propensity to
consume is 0.8. MPC = change in consumption/ change in income 40/50 = 0.8
In the gross domestic product, the largest dollar amount is
consumer spending.
If a lump-sum income tax of $25 billion is levied and the MPS is 0.20, the:
consumption schedule will shift downward by $20 billion.
Assume that the supply of loanable funds increase in Country X. The international value of Country X's currency and Country's X exports will most likely change in which of the following ways?(International value of X's currency) (Country X's exports)
decrease increase As the supply of loanable funds increase in Country X, the international value of Country X's currency will increase and Country's X exports will decrease.
The crowding-out effect works through interest rates to:
decrease the effectiveness of expansionary fiscal policy.
Vault cash and reserve accounts are similar in that each
earns no interest.
Changes in government spending and tax revenues for the purpose of achieving a full-employment and noninflationary level of domestic output is called:
fiscal policy.
In the circular flow model, profits flow between which two sectors (markets are not considered sectors)?
from households to the product market
The market value of all final goods and services produced in the economy in a given year is
gross domestic product.
Assume the economy is in the initial position of B1. An increase in aggregate demand will tend to:
have no effect in shifting the economy from point B1.
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
increase aggregate supply only.
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
increase aggregate supply only. Increasing AS will increase output without affecting inflation.
New costly regulations to protect workers are introduced in the production of Twinkies. Which of the following indicates the changes in the price and quantity of Twinkies? (Price of Twinkies) (Quantity of Twinkies)
increase decrease
Which of the following changes will occur to the demand for US dollars and the international value of the dollar in the short run if investors in the US and abroad increase their purchases of US government bonds? (Demand for Dollar) (International Value of Dollar)
increase increase
With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely
increase real gross domestic product.
Which combination of fiscal policy actions would most likely be offsetting?
increase taxes and increase government spending
If the country moves from Point C to Point D, future economic growth will
increase.
If there is an increase in demand for a good, what will most likely happen to the price and quantity of the good exchanged? Price/ Quantity
increase/ increase
The neutrality of money refers to the situation where
increases in the money supply eventually result in no change in real output
The traditional Phillips Curve shows the:
inverse relationship between the rate of inflation and the unemployment rate.
If an American importer can purchase ₤10,000 for $20,000, the rate of exchange:
is $2 = ₤1 in the United States.
When the United States government engages in deficit spending, that spending is primarily financed by
issuing new bonds
Suppose that a typical consumer buys the following quantities of three commodities in 1993 and 1994. Commodity Quantity 1993 per Unit price 1994 per unit price Food 5 units $ 6.00 $ 5.00Clothing 2 units $ 7.00 $ 9.00Shelter 3 units $ 12.00 $ 19.00 Which of the following can be concluded about the consumer price index (CPI) for this individual from 1993 to 1994?
it increased by 25 %
According to the theory of comparative advantage, a good should be produced where
its opportunity costs are least.
Which of the following is true of an import quota? It
limits quantity of imports allowed into a country.
When money is used as a standard of value, a person is
making price comparisons among products.
A person states that: "A large public debt will bankrupt the United States government." An economist is likely to respond:
no, because the government can refinance the public debt by selling new bonds.
The real interest rate is simply stated as the
nominal interest rate minus the expected inflation rate.
The value of the best alternative forgone when a decision is made defines
opportunity cost
The unemployment rate is the:
percentage of the civilian labor force which is out of work.
The law of increasing opportunity cost is reflected in the shape of the
production possibilities curve concave to the origin.
If Congress and the Federal Reserve both wished to encourage growth of productive capacity in an economy already close to full employment, it would be most appropriate to
reduce interest rates by engaging in open-market operations and raise taxes on personal income.
In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a:
rightward shift in the aggregate demand curve.
If the production possibilities curve of an economy shifts from AB to CD, it most likely is caused by
technology advances.
The value of the US dollar will rise in relation to the Euro if:
the European demand for Kentucky bourbon increases Demand for U.S. goods increase, causing an increase demand for the U.S. dollar to pay for those goods.
In the Keynesian aggregate-expenditure model, the simple spending multiplier can be best calculated by dividing
the change in real gross domestic product by the initial change in spending. , Not Selected
During a serious recession we would expect output to fall the most in:
the clothing industry
According to the graph above, if Canadians buy more U.S. goods, then:
the demand curve will increase
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
Unanticipated inflation helps borrowers because:
the money they pay back has less purchasing power than the money that was borrowed
In the market for artichokes, if the surgeon general announces that eating an artichoke a day dramatically reduces one's likelihood of developing cancer. Simultaneously an infestation of the artichoke weevil severely damages the crop. Which of the following will definitely occur as a result?
the price of artichokes will increase
Which of the following effects best explains why the aggregate demand curve is assumed to be downward sloping?
the real-balance effect
An example of a public transfer payment is a(n):
veteran's benefit payment.