AP Macroeconomics Remote Learning Week 6

If the interest rate on a one-year loan is 5% and the expected inflation rate is −2% for the same period, what is the expected real interest rate on the loan?

7%

Steady advances in technological development will result in which of the following?

The long-run aggregate supply curve will shift to the right, resulting in economic growth and a lower natural unemployment rate.

To reduce the size of a country's national debt, a government could potentially take all of the following actions EXCEPT

finance spending by borrowing

Use the graph below of a long-run Phillips Curve (LRPC) and a short-run Phillips Curve (SRPC) to answer the question. https://i.imgur.com/0gE4ORE.png Which of the following points illustrates an inflationary gap?

A

Which of the following is true about the loanable funds market?

Investment is financed by national savings in a closed economy.

If tax revenues are less than the total of government spending plus government transfer payments, which of the following will happen?

The national debt will increase.

An increase in the expected inflation rate will cause which of the following?

A rightward shift in the short-run Phillips curve

Which of the following changes is most likely to cause economic growth?

An increase in human capital

Country X's economy is in an inflationary gap. Which of the following combinations of fiscal and monetary policy actions would restore full employment in the short run?

An increase in income taxes and an open-market sale of government bonds by the country's central bank

Which of the following terms describes the adverse effect that results when private sector investment spending competes with government deficit financing?

Crowding out effect

Cash, a house, bonds, and a savings account are all financial assets. Which of the following rankings lists these assets from the least liquid to the most liquid?

House, bonds, savings account, cash

If economic growth through investment in the economy's infrastructure is desirable, which of the following policies will most likely achieve this objective?

If economic growth through investment in the economy's infrastructure is desirable, which of the following policies will most likely achieve this objective?

Which of the following policies will most likely promote long-run economic growth?

Increasing funding for research and development

Which of the following describes the relationship between the nominal interest rate and the quantity of money people want to hold as depicted by the money demand curve?

Inverse, and the money demand curve is downward sloping.

Which of the following transactions will keep M1 unchanged?

Leila deposited coins from her piggy bank into her checking account

Mia transferred $1,000 from her checking account to her savings account. How will M1 and M2 measures of the money supply change?

M1 will decrease and M2 will not change.

Assume an economy is in long-run equilibrium and the central bank engages in an expansionary monetary policy for a prolonged time period. If the velocity of money is constant, which of the following is true according to the quantity theory of money?

Price level will increase at the same rate as the money supply.

Which of the following will most likely occur if a country's government is continuously borrowing to finance its spending without changing taxes?

Private investment in plant and equipment will decrease, resulting in a lower rate of economic growth in the long run.

Suppose a country's government increases the allowable deduction for individual retirement accounts per person. Holding all other influences constant, how would this policy action affect the country's loanable funds market, its production possibilities curve, and its long-run aggregate supply (LRAS) curve?

Private savings would increase and real interest rates would decrease in the loanable funds market, the nation's production possibilities curve would shift outward, and its LRAS curve would shift to the right.

Suppose the nominal GDP is $25 million, the price level is 1.25 , and the central bank has set the money supply at $10 million. What is the real GDP and the velocity of money according to the quantity theory of money?

Real GDP is $20 million, and the velocity of money is 2.5 .

Suppose that an economy with flexible wages and prices is in long-run equilibrium when the central bank contracts the money supply. What is the long-run effect on real output in the economy?

Real output is unchanged.

Which of the following describes a surplus in the government budget?

Tax revenues exceed government purchases plus transfer payments.

How will a nation's production possibilities curve (PPC) and long-run aggregate supply (LRAS) curve change as a result of an increase in both the labor force and productivity?

The LRAS curve will shift to the right, and the PPC will shift outward.

Country X's economic situation is depicted by the graph above. Which of the following will happen if Country X's central bank conducts a contractionary monetary policy?

The economy will be in a recessionary gap; the price level and the real output level will decrease.

Southern City Bank has $100 million in deposits and has $8 million in excess reserves. If the required reserve ratio is 5% , which of the following is true?

The money multiplier is 20, and loans can increase in the banking system by a maximum of $160 million.

The loanable funds market is currently in equilibrium at a real interest rate of r1 . An increase in household savings will affect the loanable funds market in which of the following ways?

The supply of loanable funds will increase and the real interest rate will decrease.

Assume policy makers increased spending and cut taxes to stimulate the economy. If the government's budget was initially in balance, which of the following will occur?

There will be a budget deficit, real interest rates will increase, and investment spending will be crowded out.

Use the graph below of a long-run Phillips Curve (LRPC) and a short-run Phillips Curve (SRPC) to answer the question. https://i.imgur.com/0gE4ORE.png Assume the economy is in long-run equilibrium. A decrease in net exports will result in which of the following in the short run?

There will be a movement from point B to point C.

Country X's economy is enjoying political stability and attracting foreign financial capital. At the same time Country X's government is borrowing to finance spending. How will these changes affect the loanable funds market in Country X?

There will be an indeterminate effect on the equilibrium real interest rate.