AP Macroeconomics Unit 3

Which of the following represents an appropriate fiscal policy for the given economic conditions?

A contractionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.

Which of the following would cause the short-run aggregate supply curve to shift to the right?

A decrease in the expected price level

According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following?

A greater-than-one-dollar increase in aggregate demand for goods and services

Which of the following is a reason why the aggregate demand curve is downward sloping?

A higher price level decreases real wealth.

Which of the following best explains the relationship between the price level and real output along the aggregate demand curve?

A lower price level reduces the real interest rate and increases investment.

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?

Aggregate Demand Curve: No change Aggregate Supply Curve: Shift to the left

When firms restructure their operations to decrease production costs, the aggregate supply curve, the price level, and real output will change in which of the following ways?

Aggregate Supply Curve: Shift to the right Price Level: Decrease Real Output: Increase

Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession?

Aggregate demand will decrease and the price level will decrease.

An increase in military spending will affect an economy in which of the following ways in the short run?

Aggregate demand will increase.

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

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward-sloping?

An increase in the price level will increase profits and production.

Which of the following explains the relationship between the price level and real output along the aggregate demand curve?

At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods.

Suppose a nation opened its borders to the free flow of workers from other nations. How would this event likely affect the long-run aggregate supply (LRAS) curve and the production possibilities curve of the nation?

Both curves would shift to the right.

Assume that stock prices and home values have increased, raising household wealth. At the same time, productivity increased due to new technology. What is the likely short-run impact on the economy?

Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a higher real output level and indeterminate price level.

Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run?

D Equilibrium real output can be above, equal to, or below full employment.

Which of the following events will most likely cause an increase in both the price level and real gross domestic product?

Exports increase.

Suppose an economy is operating above full employment. Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment?

Increasing taxes, which will shift the AD curve leftward.

Which of the following best describes the aggregate demand curve?

It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels.

What is an automatic stabilizer?

It is a program or policy that counteracts the business cycle without any new government action required.

An increase in taxes on businesses in the United States will likely have what impact on the short-run aggregate supply SRAS curve in the United States?

It will cause the SRAS curve to shift leftward.

An increase in which of the following would most likely result in an increase in aggregate supply?

Labor-force participation rate

Assume an economy is currently at full employment. Which of the following best describes the long-run adjustments that will occur in the economy following a negative aggregate demand shock with no government intervention?

Nominal wages will decrease and short-run aggregate supply will increase until full employment is restored in the long run.

If the natural rate of unemployment exceeds the actual rate of unemployment, which of the following will occur in the long run in the absence of government intervention?

Nominal wages will increase.

Assume that the economy is in long-run equilibrium. A shift in the aggregate demand curve will change

Only the price level in the long run

An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and the price level would occur in the long run?

Output: Increase Price Level: Decrease

In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways?

Real GDP: No change Price Level: Decrease

Which of the following best explains how income taxes can moderate a business cycle during an expansion?

Tax revenues increase automatically as gross domestic product (GDP)(GDP) rises, which dampens consumption spending.

Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run?

The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run.

Which of the following would indicate that economic growth has occurred?

The long-run aggregate supply curve shifts to the right.

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)?

The maximum sustainable capacity

An increase in which of the following is most likely to cause the short-run aggregate supply curve to shift to the left?

The per unit cost of production

Country X is currently in long-run macroeconomic equilibrium. If the country's economy experiences a significant increase in the price of energy, a major input in production, which of the following will occur in the short run?

The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment.

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand (AD) in Euroland?

There will be a rightward shift in the AD curve.

In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level?

There will be an upward movement along the short-run aggregate supply curve to a higher real output level.

How will automatic stabilizers affect the economy during a recession?

They will shift the aggregate demand curve to the right, increasing real output.

Which of the following statements concerning economic growth is true?

With long-run economic growth, there is an increase in aggregate supply.

The aggregate demand curve assumes that

changes in the price level affect real wealth

Aggregate demand may be measured by adding

consumption, investment, government spending, and net exports