AP Macro Unit 3 Exam

Which of the following will increase aggregate demand? A. A decrease in personal income taxes B. A decrease in government spending C. An increase in corporate income taxes D. A decrease in the capital stock E. An increase in interest rates

A. A decrease in personal income taxes

Which of the following shifts the short-run aggregate supply curve to the right A. A technological advance B. Rising input prices C. Higher wages D. An increase in government spending E. An increase in oil prices

A. A technological advance

Rising input price will shift which curve and create which type of inflation? A. Curve: AS & Type of inflation: Cost-push B. Curve: AS & Type of inflation: Supply-pull C. Curve: AD & Type of inflation: Cost-push D. Curve: AD & Type of inflation: Demand-pull E. Curve: AD & Type of inflation: Supply- pull

A. Curve: AS & Type of inflation: Cost-push

A rightward shift in the aggregate demand curve will cause employment and the price level to change in which of the following was in the short run? A. Employment: increase & Price level: increase B. Employment: increase & Price level: decrease C. Employment: increase & Price level: no change D. Employment: decrease & Price level: increase E. Employment: no change & Price level: no change

A. Employment: increase & Price level: increase

Which effect describes the fact that when the price level increases, the interest rate increases and consumption decreases? A. Interest rate effect B. Net export effect C. Pareto effect D. Substitution effect E. Real balance effect

A. Interest rate effect

The numerical value for the spending multiplier increases as the value of the A. MPS decreases B. APC increases C. MPC decreases D. MPS increases E. APC decreases

A. MPS decreases

An increase in personal income taxes will most likely result in which of the following changes in real GDP and the price level in the short-run? A. Real GDP: decrease & Price Level: decrease B. Real GDP: decrease & Price Level: increase C. Real GDP: increase & Price Level: no change D. Real GDP: increase & Price Level: increase E. Real GDP: increase & Price Level: no change

A. Real GDP: decrease & Price Level: decrease

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? A. The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run. B. The long-run aggregate supply curve is vertical and there is a trade-off between inflation and unemployment in the long run. C. The long-run aggregate supply curve is horizontal and there is a trade-off between inflation and unemployment in the long run. D. Real output is always greater than full employment in the long run. E. Real output is always less than full employment in the long run

A. 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 government policies will shift the aggregate demand curve to the left? A. a decrease in the quantity of money B. an increase in government purchases of goods and services C. a decrease in taxes D. a decrease in interest rates E. an increase in government transfers

A. a decrease in the quantity of money

Which of the following causes a positive demand shock? A. an increase in wealth B. pessimistic consumer expectations C. a decrease in government spending D. an increase in taxes E. a relatively high existing stock of capital

A. an increase in wealth

If Maria'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 A. consume is 0.8 B. consume is 0.4 C. consume is 0.25 D. save is 0.8 E. save is 0.25

A. consume is 0.8

Decreases in the stock market decrease aggregate demand by decreasing which of the following? A. consumer wealth B. the price level C. the stock of existing physical capital D. interest rates E. tax revenues

A. consumer wealth

Because changes in the aggregate price level have no effect on aggregate output in the long run, the long-run aggregate supply curve is A. vertical. B. horizontal. C. fixed. D. negatively sloped. E. positively sloped.

A. vertical.

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? A. Aggregate demand will increase and the price level will increase. B. Aggregate demand will decrease and the price level will decrease. C. Short-run aggregate supply will decrease and the price level will decrease. D. Short-run aggregate supply will increase and the price level will increase. E. Short-run aggregate supply will decrease and the price level will increase.

B. Aggregate demand will decrease and the price level will decrease.

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? A. The (LRAS)(LRAS) curve would shift to the right, and the production possibilities curve would not shift. B. Both curves would shift to the right. C. Neither curve would shift. D. Both curves would shift to the left. E. The (LRAS)(LRAS) curve would shift to the left, and the production possibilities curve would shift to the right.

B. Both curves would shift to the right.

The change in real GDP that occurs when an increase in the price level leads to a change in the relative prices of imports and exports is a result of the A. Interest rate effect B. Net export effect C. Pareto effect D. Substitution effect E. Real balance effect

B. Net export effect

In which of the following ways will increases in short-run aggregate supply change the price level and unemployment A. Price Level: increases & Unemployment: no change B. Price Level: decreases & Unemployment: decrease C. Price Level: decreases & Unemployment: increase D. Price Level: decreases & Unemployment: no change E. Price Level: no change & Unemployment: increase

B. Price Level: decreases & Unemployment: decrease

An increase in labor productivity would most likely cause real gross domestic product and price level to change in which of the following ways? A. Real GDP: increase & Price Level: increase B. Real GDP: increase & Price Level: decrease C. Real GDP: increase & Price Level: no change D. Real GDP: decrease & Price Level: increase E. Real GDP: decrease & Price Level: no change

B. Real GDP: increase & Price Level: decrease

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)? A. The multiplier effect B. The maximum sustainable capacity C. The trade-off between inflation and unemployment D. Sticky wages and prices E. Business cycles

B. The maximum sustainable capacity

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? A. There will be a downward movement along the short-run aggregate supply curve and real output will decrease. B. There will be an upward movement along the short-run aggregate supply curve and real output will increase. C. The short-run aggregate supply curve will shift to the right and real output will increase. D. The short-run aggregate supply curve will shift to the left and real output will decrease. E. The aggregate demand curve will shift to the right and real output will increase.

B. There will be an upward movement along the short-run aggregate supply curve and real output will increase.

Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be A. an increase of $100 million. B. an increase of more than $100 million. C. an increase of less than $100 million. D. an increase of either more than or less than $100 million, depending on the MPC. E. a decrease of $100 million.

B. an increase of more than $100 million.

The presence of income taxes has what effect on the spending multiplier? They A. increase it. B. decrease it. C. destabilize it. D. negate it. E. have no effect on it.

B. decrease it.

The short-run aggregate supply curve slopes upward because of A. the wealth effect B. sticky wages and prices C. the law of diminishing returns D. the natural rate of unemployment E. the multiplier

B. sticky wages and prices

Which of the following explains the relationship between the price level and real output along the aggregate demand curve? A. At a lower price level, people need more money to spend and therefore deposit less money in banks, which lowers interest rates and increases real output. B. At a lower price level, the real value of savings decreases which causes an increase in spending. C. At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods. D. At a lower price level, real incomes decrease which causes an increase in spending. E. At a lower price level, the purchasing power of consumers' income decreases which causes an increase in spending.

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

A change in which of the following will cause the aggregate demand curve to shift? A. Energy prices B. Productivity rates C. Consumer wealth D. Price of inputs E. Price of consumer goods

C. Consumer wealth

"Too much money chasing too few goods" describes which of the following"? A. The income effect B. The wealth effect C. Demand-pull inflation D. The real balance effect E. Cost- push inflation

C. Demand-pull inflation

The marginal propensity to consume I. has a negative relationship to the spending multiplier. II. is equal to 1. III. represents the proportion of consumers' disposable income that is spent. A. I only B. II only C. III only D. I and III only E. I, II, and III

C. III only

Which of the following causes a negative supply shock? I. a technological advance II. increasing productivity III. an increase in oil prices A. I only B. II only C. III only D. I and III only E. I, II, and III

C. III only

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? A. Increasing government spending, which will shift the ADAD curve rightward. B. Decreasing government spending, which will shift the ADAD curve rightward. C. Increasing taxes, which will shift the ADAD curve leftward. D. Decreasing taxes, which will shift the ADAD curve leftward. E. Increasing transfer payments, which will shift the ADAD curve leftward.

C. Increasing taxes, which will shift the ADAD curve leftward.

Which of the following best describes the aggregate demand curve? A. It is a curve that shows the relationship between consumer spending and income. B. It is a curve that shows the amount of goods and services domestic consumers will buy from domestic and foreign firms. C. It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels. D. It is a curve that shows only the level of government spending at different price levels. E. It is a curve that shows the level of spending by all factors of production at different price levels.

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

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? A. There will be cyclical unemployment. B. Input prices will decrease. C. Nominal wages will increase. D. The aggregate demand curve will shift to the left. E. The short-run aggregate supply curve will shift to the right.

C. Nominal wages will increase.

A sustained increase in oil prices would most likely cause short-run and long-run aggregate supply curves and the production possibilities curve to change in which of the following ways? A. SRAS curve: decrease & LRAS curve: no change & PPC: shift outward B. SRAS curve: decrease & LRAS curve: decrease & PPC: shift outward C. SRAS curve: decrease & LRAS curve: decrease & PPC: shift inward D. SRAS curve: increase & LRAS curve: no change & PPC: no change E. SRAS curve: increase & LRAS curve: increase & PPC: shift inward

C. SRAS curve: decrease & LRAS curve: decrease & PPC: shift inward

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? A. The aggregate demand curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment. B. The aggregate demand curve will shift to the left, and there will be an inflationary gap. C. The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment. D. The short-run aggregate supply curve will shift to the left, and the price level will fall. E. The short-run aggregate supply curve will shift to the left and cause an inflationary gap.

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

Which of the following will shift the aggregate demand curve to the right? A. a decrease in wealth B. pessimistic consumer expectations C. a decrease in the existing stock of capital D. contractionary fiscal policy E. a decrease in the quantity of money

C. a decrease in the existing stock of capital

The horizontal intercept of the long-run aggregate supply curve is A. at the origin. B. negative. C. at potential output. D. equal to the vertical intercept. E. always the same as the horizontal intercept of the short-run aggregate supply curve.

C. at potential output.

Investment demand increases as the result of A. excess productive capacity B. an increase in corporate business taxes C. businesses becoming more optimistic with respect to future business conditions D. recessions sin foreign nations that trade with the united states, causing a lower demand for US products E. a decrease in the real interest rate

C. businesses becoming more optimistic with respect to future business conditions

The Consumer Confidence Index is used to measure which of the following? A. the level of consumer spending B. the rate of return on investments C. consumer expectations D. planned investment spending E. the level of current disposable income

C. consumer expectations

The short-run aggregate supply curve will shift to the right when A. energy prices increase B. government regulation increases C. prices of inputs decrease D. investment spending decreases E. productivity rates decrease

C. prices of inputs decrease

If the spending multiplier is 5, the value of the tax multiplier must be A. 5 B. 4 C. 1 D. -4 E. -5

D. -4

During stagflation, what happens to the aggregate price level and real GDP? A. Aggregate price level: decreases Real GDP: increases B. Aggregate price level: decreases Real GDP: decreases C. Aggregate price level: increases Real GDP: increases D. Aggregate price level: increases Real GDP: decreases E. Aggregate price level: stays the same Real GDP: stays the same

D. Aggregate price level: increases Real GDP: decreases

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping? A. A decrease in the price level will increase profits and production. B. A decrease in the price level will decrease profits and increase production. C. An increase in the price level will increase real wages and production. D. An increase in the price level will increase profits and production. E. An increase in the price level will decrease real wages and decrease production.

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

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? A. The aggregate demand (AD) curve shifts right and the short-run aggregate supply (SRAS) curve shifts left, resulting in a higher price level and no change in the output level. B. The aggregate demand (AD) curve shifts left and the short-run aggregate supply (SRAS) curve shifts right, resulting in a lower price level and no change in the output level. C. The aggregate demand (AD) curve shifts right and the short-run aggregate supply (SRAS) curve shifts left, resulting in a higher output level and lower price level. D. Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a higher output level and indeterminate price level. E. Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a lower output level and indeterminate price level.

D. Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a higher 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? A. Equilibrium real output is always above full employment. B. Equilibrium real output is always below full employment. C. Equilibrium real output is always equal to full employment. D. Equilibrium real output can be above, equal to, or below full employment. E. Equilibrium real output is indeterminate.

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

Which of the following explains the slope of the aggregate demand curve? I. the wealth effect of a change in the aggregate price level II. the interest rate effect of a change in the aggregate price level III. the product-substitution effect of a change in the aggregate price level A. I only B. II only C. III only D. I and II only E. I, II, and III

D. I and II only

Which of the following statements is true about actual employment? A. It must equal full employment B. It cannot exceed full employment C. It exceeds full employment in a recession D. It is below full employment in a recession E. It is the same as full employment

D. It is below full employment in a recession

The imposition by the United States of a tariff on imported steel from the European Union will likely have what impact on the short-run aggregate supply (SRAS) curve in the United States? A. It will cause a movement along the (SRAS) curve to a higher real output. B. It will cause a movement along the (SRAS) curve to a lower real output. C. It will have no impact on the (SRAS) curve. D. It will cause the (SRAS) curve to shift leftward. E. It will cause the (SRAS) curve to shift rightward.

D. It will cause the (SRAS) curve to shift leftward.

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? A. Short-run aggregate supply will decrease, offsetting the initial aggregate demand shock and restoring full employment in the long run. B. The aggregate demand shock will result in a multiplier effect on real output moving the economy farther away from full employment in the long run. C. The price level will decrease and aggregate demand will increase until full employment is restored in the long run. D. Nominal wages will decrease and short-run aggregate supply will increase until full employment is restored in the long run. E. Real income will decrease and consumption spending will decrease moving the economy farther away from full employment in the long run.

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

if the marginal propensity to consume us two - thirds, then an increase in personal income taxes of $100 will most likely result in A. a decrease in consumption of $100 B. a decrease in autonomous investment of $100 C. a decrease in consumption of $67 and an increase in savings of $33 D. a decrease in consumption of $67 and a decrease in savings of $33 E. an increase in government spending of more than $100

D. a decrease in consumption of $67 and a decrease in savings of $33

A decrease in which of the following will cause the short-run aggregate supply curve to shift to the left? A. commodity prices B. the cost of health care insurance premiums paid by employers C. nominal wages D. productivity E. the use of cost-of-living allowances in labor contracts

D. productivity

As the average price level decreases, the purchasing power of people's cash balances increases. This results in an increase in spending. This effect is called A. the Laffer effect B. the Keynesian effect C. the money illusion effect D. the real balance effect E. the neutrality of money

D. the real balance effect

Which of the following best describes the short-run aggregate supply curve? A. The amount buyers plan to spend on output. B. A curve showing the relationship between inputs and outputs. C. A curve showing the trade-off between inflation and unemployment. D. A curve indicating the level of real output that will be purchased at each possible price level. E. A curve indicating the level of real output that will be produced at each possible price level.

E. A curve indicating the level of real output that will be produced at each possible 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. A one-dollar increase in government spending B. A greater-than-one-dollar increase in government spending C. A one-dollar increase in the production of goods and services D. A one-dollar increase in aggregate demand for goods and services E. A greater-than-one-dollar increase in aggregate demand for goods and services

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

Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion? A.Real output will increase by a maximum of $75 billion. B. Real output will increase by a maximum of $100billion. C. Real output will increase by a maximum of $175 billion. D. Real output will increase by a maximum of $300 billion. E. Real output will increase by a maximum of $400 billion.

E. Real output will increase by a maximum of $400 billion.

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 PPC curve? A. SRAS curve: decrease & LRAS curve: no change & PPC: no change B. SRAS curve: decrease & LRAS curve: decrease & PPC: shift inward C. SRAS curve: increase & LRAS curve: no change & PPC: shift inward D. SRAS curve: increase & LRAS curve: increase & PPC: no change E. SRAS curve: increase & LRAS curve: increase & PPC: shift outward

E. SRAS curve: increase & LRAS curve: increase & PPC: shift outward

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand in Euroland? A. There will be a movement along the AD curve to a lower real output. B. There will be a movement along the AD curve to a higher price level. C. There will be no change in the AD curve. D. There will be a leftward shift in the AD curve. E. There will be a rightward shift in the AD curve.

E. There will be a rightward shift in the AD curve.

Which of the following will shift the short-run aggregate supply curve? A change in A. profit per unit at any given price level B. commodity prices C. nominal wages D. productivity E. all of the above

E. all of the above

An increase in the capital stock will cause the A. aggregate demand curve to shift left B. aggregate demand curve to shift right C. PPC to shift in D. aggregate supply curve to shift left E. long-run aggregate supply curve to shift right

E. long-run aggregate supply curve to shift right

That employers are reluctant to decrease nominal wages during economic downturns and raise nominal wages during economic expansions is one reason nominal wages are described as A. long-run. B. unyielding. C. flexible. D. real. E. sticky.

E. sticky.

One of the reasons the aggregate demand curve is downward sloping is that as the value of cash balances decreases, aggregate spending decreases. This called A. the interest rate effect B. the net export effect C. the Pareto effect D. the substitution effect E. the real balance effect

E. the real balance effect