AP Econ

Which of the following best explains the increase in national income that results from equal increases in government spending and taxes? A Consumers do not reduce their spending by the full amount of the tax increase. B The government purchases some goods that consumers would have purchased on their own anyway. C Consumers believe all tax cuts are transitory. D The increase in government spending causes a decrease in investment. E Consumers are aware of tax increases but not of increases in government spending.

A: Consumers do not reduce their spending by the full amount of the tax increase.

Which of the following will result in a rightward shift of the aggregate demand curve? A An increase in the income tax rate B An increase in exports C A decrease in the price level D A decrease in household income E A decrease in government spending

B: An increase in exports

Which of the following events will most likely cause an increase in both the price level and real gross domestic product? A The prime rate increases. B Exports increase. C Income taxes increase. D Crude oil prices decrease. E Inflationary expectations decrease.

B: Exports increase.

Which of the following is true about inflationary expectations? A The actual unemployment rate equals the natural rate of unemployment if the actual inflation rate exceeds the expected inflation rate. B The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation. C Expectations are always correct in the short run. D The actual inflation rate is always equal to the expected inflation rate because of labor contracts. E The natural rate of unemployment equals the inflation rate when the actual inflation rate equals the expected inflation rate.

B: The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation.

If wages are sticky, which of the following is true? A The short-run aggregate supply curve is vertical. B The short-run aggregate supply curve is upward sloping. C The long-run aggregate supply curve is downward sloping. D The aggregate demand curve is vertical. E The aggregate demand curve is upward sloping.

B: The short-run aggregate supply curve is upward sloping.

An unanticipated decrease in aggregate demand will most likely cause the unemployment rate and the inflation rate to change in which of the following ways? A Unemployment Rate Inflation Rate Increase Increase B Unemployment Rate Inflation Rate Increase Decrease C Unemployment Rate Inflation Rate Increase No change D Unemployment Rate Inflation Rate Decrease Increase E Unemployment Rate Inflation Rate Decrease Decrease

B: Unemployment Rate Inflation Rate Increase Decrease

Which of the following will happen if the government raises both taxes and spending by $100 million and the marginal propensity to consume is 0.8? A Aggregate demand will decrease, and real GDPGDP will decrease by a maximum of $500. B Aggregate demand will decrease, and real GDPGDP will decrease by a maximum of $400. C Aggregate demand will increase, and real GDPGDP will increase by a maximum of $100. D Aggregate demand will increase, and real GDPGDP will increase by a maximum of $400. E Aggregate demand will increase, and real GDPGDP will increase by a maximum of $500.

C: Aggregate demand will increase, and real GDPGDP will increase by a maximum of $100

Which of the following will remain unchanged when the price level decreases? A Inflationary expectations B Aggregate quantity demanded C Long-run aggregate supply D Nominal wages E Nominal output

C: Long-run aggregate supply

Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. Which of the following will occur in Ornania in the short run? A The aggregate demand curve will shift to the right, causing the actual rate of unemployment to exceed the natural rate of unemployment. B The aggregate demand curve will shift to the left, resulting in an inflationary gap. C The aggregate demand curve will shift to the left, resulting in a recessionary gap. D The short-run aggregate supply curve will shift to the left, resulting in an inflationary gap. E The short-run aggregate supply curve will shift to the left, resulting in a recessionary gap.

C: The aggregate demand curve will shift to the left, resulting in a recessionary gap.

Assuming no government policies, which of the following will occur in the long run if the actual unemployment rate exceeds the natural rate of unemployment? A Prices will increase. B Unemployment will increase. C Wages will fall. D Aggregate demand will increase. E Long-run aggregate supply will decrease

C: Wages will fall.

In an economy the marginal propensity to consume is 0.90, and gross domestic product (GDP) is $100 billion. If gross private domestic investment declines by $2 billion, then GDP will A decrease by a maximum of $1.8 billion B decrease by a maximum of $2 billion C decrease by a maximum of $20 billion D increase by a maximum of $1.8 billion E increase by a maximum of $20 billion

C: decrease by a maximum of $20 billion

An increase in consumer confidence will result in which of the following in the short run? A A rightward shift of the long-run aggregate supply curve B A rightward shift of the short-run aggregate supply curve C A leftward shift of the short-run aggregate supply curve D A rightward shift of the aggregate demand curve E A leftward shift of the aggregate demand curve

D: A rightward shift of the aggregate demand curve

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? A Aggregate Demand Curve Aggregate Supply Curve Shift to the right Shift to the right B Aggregate Demand Curve Aggregate Supply Curve Shift to the left Shift to the left C Aggregate Demand Curve Aggregate Supply Curve Shift to the left No change D Aggregate Demand Curve Aggregate Supply Curve No change Shift to the left E Aggregate Demand Curve Aggregate Supply Curve No change Shift to the right

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

Which of the following is true about both the long-run aggregate supply curve and the production possibilities curve? A Both curves represent unemployment and inflation. B Points to the left of either curve represent efficient use of resources. C Points to the right of either curve represent inefficient use of resources. D Both curves represent the maximum sustainable capacity given the economy's resources. E Both curves represent fluctuations of real gross domestic product around its potential level over time.

D: Both curves represent the maximum sustainable capacity given the economy's resources.

Which of the following will shift the aggregate demand curve to the right? A A report that corporate earnings were lower than expected B An increase in interest rates caused by a tightening of monetary policy C Increased imports caused by appreciation of the dollar D Increased spending by businesses on computers E An increase in the government's budget surplus

D: Increased spending by businesses on computers

In the AD−ASAD−AS model, which of the following is true? A The economy is in an inflationary gap when the short-run equilibrium real output is below the long-run equilibrium real output. B The economy is in an inflationary gap when the short-run equilibrium real output is at the long-run equilibrium real output. C The economy is in a recessionary gap when the short-run equilibrium real output is at the long-run equilibrium real output. D The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output. E The economy is in a recessionary gap when the short-run equilibrium real output is above the long-run equilibrium real output.

D: The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output.

Stagflation is most likely to be caused by A an increase in aggregate demand B a decrease in aggregate demand C an increase in aggregate supply D a decrease in aggregate supply E a large increase in the money supply

D: a decrease in aggregate supply

An increase in spending in an economy will cause a multiplied increase in gross domestic product because A government spending is greater than zero B investment is greater than zero C investment increases as income decreases D consumption increases as income increases E taxes increase as income increases

D: consumption increases as income increases

When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is A equal to the cyclical rate B greater than the natural rate C less than the natural rate D equal to the natural rate E equal to zero

D: equal to the natural rate

The value of the spending multiplier decreases when A tax rates are reduced B exports decline C imports decline D government spending increases E the marginal propensity to save increases

E: the marginal propensity to save increases