Practice Tests AP Macro

Which of the following is a tenet of supply-side economics?

High marginal tax rates severely discourage work, saving, and investment.

Which of the following is a true statement?

The short run Phillips Curve in downward sloping

In the US balance of payments, US purchases of assets abroad are a:

US dollar outflow or "debit"

Which of the following would be a "credit" or "inpayment" to the US?

US firms sell insurance to Brazilian shippers

According to the classical economist, does the economy go to full employment automatically?

Yes, the economy moves to full employment in the long run.

Which of the following creates a supply of Canadian dollars in foreign exchange markets?

a Canadian exporter buys insurance from a US firm

Which of the following is a final good or service?

a haircut

An adverse aggregate supply shock could result from:

a rapid rise in oil prices.

The phase of the business cycle in which real GDP declines is called:

a recession

The United States' economy is considered to be at full employment when:

about 4-5 percent of the labor force is unemployed.

Which of the following is not a supply factor in economic growth?

aggregate expenditures

Which of the following concepts provides the basic rationale for international trade?

comparative advantage

A nation's official reserves account:

compensates for differences in the current and capital account.

If recession occurs, according to monetarist what is the "cure"?

continue to increase the supply of money at a constant rate

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation

Mexican imports of US goods:

create a supply of pesos

Real GDP measures:

current output at base year prices

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:

cyclical unemployment rate is 4 percent

The presence of discouraged workers:

may cause the official unemployment rate to understate the amount of unemployment.

Other things equal, the short-run aggregate supply curve shifts positions when:

nominal wages and other input prices change

Demand-pull inflation:

occurs when total spending in the economy is excessive.

The ZZZ Corporation issued $25 million in new common stock in 2008. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:

of $18 million has occurred.

Economic growth can be portrayed as a:

outward shift of the production possibilities curve

The rational expectations theory suggests that:

people expect economic changes such as prices level increases, so they will plan accordingly.

Specialization in production is economically beneficial primarily because it:

permits the production of a larger output with fixed amounts of resources.

Curve AB is a:

production possibilities curve and curve X is a long run aggregate supply curve

The building of a production plant in China by an American firm best illustrates a(n):

resource flow

In 2002 Ortega's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Ortega's real income

rose by 3 percent

The capital account balance is a nation's:

sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners

If Ben's MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income

Eckstein has lost her job in a Massachusetts textile plant because of import competition. She intends to take a short course in electronics and move to California where she anticipates that a new job will be available. We can say that Eckstein is faced with:

structural unemployment

If intermediate goods and services were included in GDP:

the GDP would be overstated.

If the exchange rate changes from $1 = 2 euros to $1 = 3 euros:

the dollar has appreciated in value

Nominal GDP is:

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

An economist that subscribes to a supply-side approach to the economy would believe that inflation is caused by:

too much regulation of business, too little savings and no AS growth.

A large underground economy results in an

understated GDP

In the extended analysis of aggregate supply, the short-run aggregate supply curve is

upward sloping and the long run aggregate supply curve is vertical.

If the Japanese yen appreciates relative to the Swedish krona, then the krona:

will depreciate relative to the yen

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

$210 billion

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is:

$510 billion

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

3 percent

A college graduate is using the summer following graduation to search for a job would best be described as:

A part of frictional unemployment

GDP is equal to:

C + Ig + G + Xn

If a nation's goods exports are $55 billion, while its goods imports are $50 billion, we can conclude with certainty that this nation has a:

balance of trade (goods) surplus.

Recurring upswings and downswings in an economy's real GDP over time are called:

business cycle

An adverse aggregate supply shock:

can cause stagflation

The industries or sectors of the economy in which output is likely to be most strongly affected by the business cycle are

capital goods and durable consumer goods.

If a nation has a current account surplus and its official reserves account balance is zero you must have a

deficit in its capital account

Purchase of land in the US by people from Canada create a:

demand for US dollars and a supply of Canadian dollars

Travel by U.S. citizens within Europe creates a

demand for euros and a supply of dollars.

The amount of after-tax income received by households is measured by:

disposable income

The extended AD-AS model:

distinguishes between short-run and long-run aggregate supply

If yesterday $1 would buy 800 South Korean won, but today $1 will only buy 790 won, the:

dollar has depreciated in value.

Economic growth is best defined as an increase in:

either real GDP or real GDP per capita

In the US balance of payments, foreign purchases of assets in the United States are a:

foreign currency inflow or "credit"

The physical export of motorcycles from the United States to Mexico best illustrates a:

goods and services flow or also known as a trade flow.

Final goods and services refer to:

goods and services purchased by ultimate users, rather than for resale or further processing.

A nation's capital account:

includes both "credit" inflows and "debit" outflows.

The traditional Philips Curve suggests that, if government uses an expansionary fiscal policy to stimulate output and employment:

inflation may result.

A nation's GDP:

is the dollar value of the total output produced within the borders of the nation.

According to the concept of comparative advantage, a good should be produced in that nation where:

its domestic opportunity cost is least

The current account in a nation's balance of payments includes:

its goods exports and imports, and its services exports and imports.

Growth is advantageous to a nation because it:

lessens the burden of scarcity

In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the

long run

Appreciation of the Mexican peso will:

make Mexico's exports more expensive and its imports less expensive