AP ECON FINAL REVIEW

. How can economic growth be depicted using a production possibilities curve by which of the following? (A) A rightward shift of the curve (B) A movement upward on an existing curve (C) A movement downward on an existing curve (D) A movement from a point outside the curve to a point on the curve (E) A movement from a point on the curve to a point inside the curve

A

. The short-run aggregate supply curve is likely to shift to the left when there is an increase in (A) the cost of productive resources (B) productivity (C) the money supply (D) the federal budget deficit (E) imports

A

GDP rose for four quarters in a row and subsequently declined in the next three quarters. How would you describe this situation in terms of the business cycle? (A) Expansion, peak, recession (B) Trough, expansion, peak (C) Expansion, recession, peak (D) Recession, trough, expansion (E) Peak, expansion, trough

A

In an economy at full employment, a presidential candidate proposes cutting the government debt in half in four years by increasing income tax rates and reducing government expenditures. According to Keynesian theory, implementation of these policies is most likely to increase (A) Unemployment (B) Consumer prices (C) Aggregate demand (D) Aggregate supply (E) The rate of economic growth

A

Suppose a basket of consumer goods and services costs $180 using the base period prices, and the same basket of goods and services costs $300 using the current period prices. The CPI for the current year period equals (A) 166.7 (B) 66.7 (C) 160.0 (D) 60.0 (E) 300.0

A

Suppose incomes fall in the United States, but not in Japan. Which of the following will occur? A. The US dollar will appreciate and the Japanese Yen will depreciate B. The US dollar will appreciate and the Japanese Yen will appreciate C. US imports from Japan will increase D. The US dollar will depreciate and the Japanese Yen will appreciate E. Japanese exports to the US will increase

A

The Federal reserve can cause an increase in interest rates in an attempt to (A) Reduce inflation (B) Reduce cyclical unemployment (C) Reduce structural unemployment (D) Increase aggregate demand (E) Increase investment spending

A

The unemployment rate measures the percentage of (A) people in the labor force who do not have jobs (B) people in the labor force who have a part-time job but are looking for a full-time job (C) people who do not have jobs and have given up looking for work (D) people in the adult population who do not have jobs (E) people in the adult population who have temporary jobs

A

Under a fractional reserve banking system, banks are required to (A) keep part of their demand deposits as reserves (B) expand the money supply when requested by the central bank (C) insure their deposits against losses and bank runs (D) pay a fraction of their interest income in taxes (E) charge the same interest rate on all their loans

A

Under which of the following conditions would a restrictive monetary policy be most appropriate? (A) High inflation (B) High Unemployment (C) Full employment with stable prices (D) Low interest rates (E) A budget deficit

A

What is an example of structural unemployment? (A) A factory worker replaced by an automatic production system (B) A landscape designer who doesn't work during the winter (C) An office worker who doesn't have anything to do (D) A doctor who moves his practice from Michigan to Florida (E) A factory worker laid off during a temporary plant closing in a recession

A

Which of the following would best explain a decline in potential gross domestic product? (A) Negative net investment (B) The discovery of vast new oil deposits (C) A lower price level (D) A decrease in the infant mortality rate (E) A decrease in wages and profits

A

Which type of unemployment would increase if workers lost their jobs because of a recession? (A) Cyclical (B) Frictional (C) Seasonal (D) Search (E) Structural

A

1. What will cause a decrease in the demand for beef? (A) An increase in the price of pork, if pork and beef are substitute goods (B) An increase in the price of potatoes, if potatoes and beef are complementary goods (C) A decrease in the cost of transporting beef to consumers (D) An increase in the income levels of most consumers, if beef is a normal good (E) Research showing beef is better for your health than chicken

B

11. The American Heart Association has just issued a report warning consumers about the negative health effects of eating beef. Which of the following changes in the beef market is most likely to occur as a result? (A) The supply curve will shift to the left, increasing the price of beef. (B) The demand curve will shift to the left, decreasing the price of beef. (C) The demand curve will shift to the right, increasing the price of beef. (D) Neither the supply nor demand curve will shift; only quantity will increase as price decreases. (E) Neither the supply nor demand curve will shift; only quantity will decrease as price increases.

B

An increase in the marginal propensity to consume causes an increase in which of the following? (A) Marginal propensity to save (B) Spending multiplier (C) Savings rate (D) Exports (E) Aggregate supply

B

An increase in which of the following is most likely to promote economic growth? (A) Consumption spending (B) Investment tax credits (C) The natural rate of unemployment (D) The trade deficit (E) Real interest rates

B

Assume that the reserve requirement is 20 percent, but banks voluntarily keep some excess reserves. A $1 million increase in new reserves will result in (A) an increase in the money supply of $5 million (B) an increase in the money supply of less than $5 million (C) a decrease in the money supply of $1 million (D) a decrease in the money supply of $5 million (E) a decrease in the money supply of more than $5 million

B

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is (A) $2,000 (B) $8,000 (C) $10,000 (D) $20,000 (E) $50,000

B

Assume that the supply of loanable funds increases in Canada. The international value of Canada's currency and Canada's exports will most likely change in which of the following ways Value of the Canadian Dollar Exports A. Decrease Decrease B. Decrease Increase C. Increase Decrease D. Increase Increase E. Not change Not change

B

If in a specified year nominal gross domestic product grew by 11 percent and real gross domestic production grew by 4 percent, inflation for this year would be (A) -7% (B) 7% (C) 8% (D) 11% (E) 15%

B

If on receiving a checking deposit of $300 a bank's excess reserves increased by $255, the required reserve ratio must be (A) 5% (B) 15% (C) 25% (D) 35% (E) 45%

B

Leather and beef are jointly produced such that an increase in the production of one results in an equal increase in the production of the other. An increase in the demand for leather will most likely cause (A) A decrease in the price of leather (B) A decrease in the price of beef (C) A decrease in the equilibrium quantity of beef sold (D) An increase in the demand for beef in the short run (E) An increase in the supply of leather

B

Mr. Carpenter devotes his working time to producing tables and chairs. An increase in the demand for chairs will result in (A) an increase in the amount of time he devotes to producing tables (B) an increase in his opportunity cost of producing tables (C) a decrease in the price of lumber (D) a decrease in the price of chairs (E) a decrease in his total revenue

B

Name a defining characteristic of a capitalistic economy? (A) Well-functioning capital markets (B) Private ownership and protection of property rights (C) Fair distribution of income and low income taxes (D) Equality of opportunity (E) Efficient allocation of resources

B

Suppose price level increases more in the United States than it does in Indonesia. What is the short-run impact on U.S. net exports, the value of the U.S. dollar, and the value of the Indonesian rupee? Net Exports / U.S. dollar / Indonesian rupee A. Increase / depreciate / depreciate B. Decrease / depreciate / appreciate C. Increase / depreciate / appreciate D. Decrease / appreciate / depreciate E. Increase / appreciate / depreciate

B

The Bureau of Labor Statistics reported that in June 2005, the labor force was 149.1 million, employment was 141.6 million, and the working-age population was 225.9 million. Average weekly hours for that month were 33.7. Calculate the unemployment rate for that month. (A) 2 percent (B) 5 percent (C) 7.5 percent (D) 10 percent (E) 66 percent

B

The federal funds rate is the interest rate that (A) the Federal Reserve charges the federal government on its loans (B) banks charge one another for short-term loans (C) banks charge their best customers (D) equalizes the yield on government bonds and corporate bonds (E) is equal to the inflation rate

B

The study of economics is primarily concerned with which of the following? (A) The testing of hypotheses under controlled conditions (B) The allocation of scarce resources, given unlimited wants (C) The fair and equal treatment of all households (D) The provision of conclusive answers to public policy issues (E) The development of the dynamics of group behavior

B

UNIT 3 31. An increase in energy costs will most likely cause the price level and real gross domestic product to change in which of the following ways? Price Level Real GDP (A) Increase Increase (B) Increase Decrease (C) Increase Not change (D) Decrease Increase (E) Decrease Decrease

B

What is true of the substitution effect of an increase in the price of a normal good? (A) It works to offset the income effect. (B) It works to reinforce the income effect. (C) It is less than the income effect. (D) It causes an increase in the quantity demanded of the good. (E) It causes an increase in the demand for the good.

B

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant? (A) Real national income (B) Nominal national income (C) The international value of the currency (D) Real interest rates (E) Nominal interest rates

B

When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant? (F) Real national income (G) Nominal national income (H) The international value of the currency (I) Real interest rates (J) Nominal interest rates

B

Which of the following are included in a nation's balance of payments accounts? I. International trading II. International lending III. Domestic investment A. I, II, and III only B. I and II only C. I and III only D. II and III only E. I only

B

Which of the following constitutes the largest component of the United States money supply (M1)? (A) Silver certificates (B) Checkable deposits (demand deposits) (C) Currency (paper money) (D) Coins (E) Large certificates of deposit

B

Which of the following would cause the equilibrium price of good X to increase? (A) Producers of good X find a new technology that reduces the cost of producing X. (B) The price of an essential input in the production of good X increases. (C) Goods X and Y are complements, and the government imposes a tax on good Y. (D) Good X is a normal good, and the government increases income taxes by 3%. (E) Good X is an inferior good, and the government decreases income taxes by 10%.

B

Which of the following would decrease the U.S. financial account? A. A boat purchased by a British investment banker in Florida B. A ski chateau purchased in Switzerland by an American entrepreneur C. An American earns $1000 in the Japanese stock market D. The purchase of $1000 of US Treasury bonds by a Chinese investor E. The purchase of a foreign car by an American diplomat living in Costa Rica

B

All of the following are counted in a nation's current account except A. A $50,000 car imported from Italy B. $500 of cheese exported from France C. A $50 million Chinese factory purchased by a Canadian D. $1 million donated in first aid supplies to Indonesia E. $1,000 sent to Russia from a Russian working in the US

C

An increase in net exports for country X will most likely be caused by which of the following? A. An increase in consumer spending B. An increase in direct foreign investment C. A decrease in the international value of the currency in country X D. An increase in the international value of the currency in country X E. An increase in the price level in country X

C

An inflationary gap could be reduced by (A) An increase in government spending (B) An increase in the supply of money (C) An increase in the income tax rate (D) A decrease in the interest rate (E) A decrease in the income tax rate

C

Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 5 percent, the real interest rate is (A) 0.5% (B) 2% (C) 5% (D) 10% (E) 15%

C

Brent loses his job at the public swimming pool when the pool closes for the winter. This is an example of (A) cyclical unemployment (B) Discouraged worker (C) Seasonal unemployment (D) Frictional unemployment (E) Structural unemployment

C

Crowding out due to government borrowing occurs when (A) Lower interest rates increase private sector investment (B) Lower interest rates decrease private sector investment (C) Higher interest rates decrease private sector investment (D) A smaller money supply increases private sector investment (E) A smaller money supply decreases private sector investment

C

Current equilibrium output equals $2,500,000, potential output equals $2,600,000, and the marginal propensity to consume equals 0.75. Under these conditions, a Keynesian economist is most likely to recommend (A) Decreasing taxes by $25,000 (B) Decreasing taxes by $100,000 (C) Increasing government spending by $25,000 (D) Increasing government spending by $33,333 (E) Increasing government spending by $100,000

C

If nominal GDP grew by 16 percent and real GDP grew by 5 percent in the same year, inflation would be (A) 7 percent (B) 8 percent (C) 11 percent (D) 15 percent (E) -11 percent

C

In a given time period, a person consumes more and more of a good or service and, as a result, enjoys each additional unit less and is willing to pay less for each additional unit. This behavior is consistent with the law of (A) diminishing returns (B) diminishing marginal product (C) diminishing marginal utility (D) increasing costs (E) scarce resources

C

In one year, spending on consumption, investment, and government purchases was equal to 103 percent of a country's gross domestic product. This would be possible only if (A) the money supply increased (B) net exports were positive (C) net exports were negative (D) the government ran a budget surplus (E) the government had a balanced budget

C

Labor Market Data for Country X (millions of persons) Population 180 Employed 94 Unemployed 6 Not in the Labor Force 80 Based on the information in the table above, what is the unemployment rate for Country X? (A) 3.3% (B) 4.0% (C) 6.0% (D) 6.38% (E) 7.5%

C

Suppose that the Federal Reserve buys $400 billion worth of government securities from the public. If the required reserve ratio is 20 percent, the maximum increase in the money supply is (A) $1,600 billion (B) $1,800 billion (C) $2,000 billion (D) $2,200 billion (E) $2,400 billion

C

The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when (A) interest rates are high (B) the velocity of money is rising (C) people hold a portion of their money in the form of currency (D) the unemployment rate is low (E) the government's budget is in deficit

C

UNIT 4 46. The Federal Reserve can increase the money supply by (A) selling gold reserves to the banks (B) selling foreign currency holdings (C) buying government bonds on the open market (D) buying gold from foreign central banks (E) borrowing reserves from foreign governments

C

Which of the following is true regarding international trade A. A country that exports more than it imports has a trade deficit B. A country that exports more than 30% of their GDP has a trade surplus C. A deficit in the current account is offset by a surplus in the financial account D. A country that exports more than it imports will have a financial account surplus E. A country with a trade deficit will have a current account surplus

C

A major advantage of automatic stabilizers in fiscal policy is that they (A) Reduce the public debt (B) Increase the possibility of a balanced budget (C) Stabilize the unemployment rate (D) Go into effect without passage of new legislation (E) Automatically reduce the inflation rate

D

According to the short-run Phillips Curve, there is a trade-off between (A) interest rates and inflation (B) the growth of the money supply and interest rates (C) unemployment and economic growth (D) inflation and unemployment (E) economic growth and interest rates

D

An increase in Korea's demand for U.S. goods would cause the US dollar to A. Depreciate because of inflation B. Depreciate because the U.S. would be selling more dollars to Korea C. Depreciate because the U.S. money supply would increase as exports rise D. Appreciate because Korea would be buying more U.S. dollars E. Appreciate because Korea would be selling more U.S. dollars

D

Consumer surplus is defined as (A) opportunity cost minus total revenue (B) total revenue minus opportunity cost (C) the difference between the resource costs and the price that consumers pay (D) the difference between the value that consumers place on a good and the price they pay (E) the sum of external costs and benefits

D

For an economy with a straight-line production possibilities curve, which of the following must be true? I. The opportunity cost of producing another unit is constant. II. Resources are completely adaptable to alternative uses. III. Resources are used efficiently. (A) I only (B) II only (C) III only (D) I and II (E) II and III

D

If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000? (A) $100,000 (B) $90,333 (C) $10,000 (D) $9,000 (E) $1,000

D

If the demand for potatoes increases whenever a person's income increases, then potatoes are an example of (A) an inferior good (B) a free good (C) a Giffen good (D) a normal good (E) a public good

D

If the demand for the British Pound increases relative to the U.S. dollar, then the A. US dollar would appreciate B. Supply of US dollars would decrease C. Quantity supplied of Pounds would decrease D. British pound would appreciate E. British pound will depreciate

D

In a mixed economy, what to produce and how much to produce are determined by (A) a central planning agency (B) a private planning agency (C) an international planning agency (D) markets and the government (E) large corporations and small entrepreneurs

D

Suppose interest rates fall in the United States, but they don't fall in Mexico. What is the short-run impact on the value of the U.S. dollar (USD) and the value of the Mexican Peso (Peso)? USD / Peso A. Appreciate / appreciete B. Appreciate / depreciate C. Depreciate / depreciate D. Depreciate / appreciate E. Depreciate / no change

D

Suppose that, from 1985 to 1986, unemployment fell from 7.2 to 7.0 percent and inflation fell from 3.8 to 1.1 percent. An explanation of these changes might be that the (A) Aggregate demand curve shifted to the left (B) Aggregate demand curve shifted to the right (C) Aggregate supply curve shifted to the left (D) Aggregate supply curve shifted to the right (E) Short-run Phillips curve shifted to the right

D

The official unemployment rate is not an accurate indicator of actual unemployment in the economy because (A) structural unemployment is greater than cyclical unemployment at the going wage rate (B) full employment is greater than natural unemployment (C) the unemployment rate is less than natural unemployment (D) the official rate does not include persons who have given up looking for work (E) the official rate does not reflect the number of people receiving unemployment compensation

D

An increase in a country's interest rate relative to other country's interest rate will most likely cause which of the following? A. An decrease in the demand for the country's currency B. An increase in the supply of the country's currency C. The depreciation of the country's currency D. An increase in the amount of domestic investment E. Capital inflow into the country to exceed capital outflow

E

An opportunity cost is entailed in which of the following situations? I. A student decides to attend college full-time. II. A family uses its $20,000 savings to purchase an automobile. III. A farmer decides to grow more wheat and less corn. (A) I only (B) II only (C) III only (D) I and III only (E) I, II, and III

E

Economic growth is best described as (A) an increase in the production possibility frontier and an increase in the natural rate of unemployment. (B) an increase in the production possibility frontier and a leftward shift in long-run aggregate supply. (C) a decrease in the production possibility frontier and a rightward shift in long-run aggregate supply. (D) a decrease in the production possibility frontier and a leftward shift in long-run aggregate supply (E) an increase in the production possibility frontier and a rightward shift in long-run aggregate supply.

E

If the increase in the price of one good decreases the demand for another, then the two goods are (A) Inferior goods (B) Luxury goods (C) Normal goods (D) Substitute goods (E) Complementary goods

E

If your nominal income rises 4 percent and your real income falls 1 percent, by how much did the price level change? (A) 5 percent decrease (B) ¼ percent increase (C) 3 percent increase (D) 3 percent decrease (E) 5 percent increase

E

Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following? Consumption Savings (A) $420 (B) $600 (C) $660 (D) $660 (E) $760 $280 $400 $320 $440 $340

E

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 increase

E

Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment? (A) The government increases spending without increasing taxes. (B) The government increases taxes without increasing spending. (C) Inflationary expectations decline. (D) Women and teen-agers stay out of the labor force. (E) Negative supply shocks cause factor prices to increase.

E

Which of the following is an example of direct foreign investment? A. An increase in the demand for US dollars by foreigners B. A decrease in the supply of US dollars by Americans C. The purchase of American planed by a Mexican company D. The sale of financial service to a foreign investor by a US bank E. A Chinese company buying a microprocessor factory in Korea

E