AP Economics MC review
Assume the required reserve ratio is .2. If a bank initially has no Excess Reserves and $100,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is
$80,000
Which of the following statements is correct?
. If supply increases and demand decreases, equilibrium price will fall.
If, at full employment, the government wants to increase its spending by $200 billion without increasing inflation in the short run, it must do which of the following?
. Lower taxes by $200 billion
If an increase in government spending of $100 billion increases equilibrium output by a total of $500 billion, then the marginal propensity to consume must be at least
.8
The formula to calculate the expenditures or simple multiplier is
1/1-MPC
If on receiving a checking deposit of $500 a bank's excess reserves increased by $400, the require reserve must be:
20%
All of the following are counted in a nation's current account except
A $50 million Chinese factory purchased by a Canadian
Which of the following is an example of direct foreign investment?
A Chinese company buying a microprocessor factory in Korea
Which of the following would best explain a decline in full-employment (potential) GDP?
A decrease in investment and capital stock
An negative supply shock would most likely result in
A decrease in national income
An increase in net exports for country X will most likely be caused by which of the following?
A decrease in the international value of the currency in country X
Which of the following is true regarding international trade
A deficit in the current account is offset by a surplus in the financial account
Which of the following would decrease the U.S. financial account?
A ski chateau purchased in Switzerland by an American entrepreneur
When the government establishes a binding price floor on a good or service then there will be
A surplus because of the quantity demanded will decrease
Refer to Figure A. What would be the effect of a price floor at $60? A. It would ineffective
A surplus of 100
Which of the following is the best example of physical capital?
A truck for a delivery company
According to Keynesian analysis (and our multipliers), if government expenditures and taxes are increased by the same amount, which of the following will occur?
Aggregate demand will increase
Which of the following would cause a rightward shift of the aggregate supply curve?
An across-the-board reduction of wages in the manufacturing sector
A economy facing extremely low employment and high GDP growth will most likely experience which of the following?
An increase in price level
Which of the following statements is correct?
An increase in the price of X will decrease the demand for complementary product Y
A point outside the production possibilities curve would represent
An inefficient use of resources
An increase in Korea's demand for U.S. goods would cause the US dollar to
Appreciate because Korea would be buying more U.S. dollars
Atlantis can produce either 2 tons of grain or 4 cars with 10 units of labor. Zoltar can produce either 5 tons of grain or 25 cars with 10 units of labor. Based on this information, which of the following is true.
Atlantis has a comparative advantage in the production of grain, while Zoltar has a comparative advantage in the production of cars.
The federal funds rate is the interest rate that
Banks charge one another for short-term loans
If the demand for the British Pound increases relative to the U.S. dollar, then the
British pound would appreciate
The Federal Reserve can increase the money supply by
Buying bonds on the open market
An increase in a country's interest rate relative to other country's interest rate will most likely cause which of the following?
Capital inflow into the country to exceed capital outflow
Claire is an economist who can earn $150 per hour. She is also an excellent chef who can cook three times as fast as the best chef in the area, whose hourly wage is $20 per hour. Which of the following is a correct economic statement?
Claire has a comparative advantage in economics so she should specialize in economics and hire the chef to cook for her.
Gross Domestic Product is equivalent to the sum of:
Consumer spending, investment spending, government purchases and net exports
Nicole was laid off as a waitress when her restaurant closed down due to the slow economy. Nicole is considered
Cyclically unemployed
A positive supply shock, such as a decrease in the price of oil, is most likely to have which of the following short-run effects on the price level and output? Price Level / Output
Decrease / Increase
If the supply for loanable funds increases, what will happen to real interest rates and investment? Real Interest Rates / Investment
Decrease / Increase
Suppose business are fearful that there will be a recession on the near future. Which of the following best describes the impact of this belief on demand for loanable funds and interest rate? Demand for Loanable Funds / Interest Rate
Decrease / decrease
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
Decrease / depreciate / appreciate
An decrease in the wages and production cost will most likely cause the price level and real GDP to change in which of the following ways in the short-run? Price Level / Real GDP
Decrease / increase
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
Decrease Increase
If Congress wants to close an inflationary gap, which policy is matched to the change in policy, output and price level? Policy / Price Level / Output
Decrease Spending / Decrease / Decrease
If Congress wants to close a recessionary gap, which policy is matched to the change in policy, output and price level? Policy / Price Level / Output
Decrease Taxes / Increase / Increase
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
Depreciate / appreciate
The Federal Reserve can change the US money supply by changing
Discount rate
The income that households have after taxes is called
Disposable income
Which of the following is true for all economies regardless of their economic system?
Every economy must determine what to produce and how it produce goods and services
A mechanic that leaves his job working on cars and is currently looking for a job working on planes is considered
Frictionally unemployed
A major advantage of automatic stabilizers in fiscal policy is that they
Go into effect without passage of new legislation
Crowding out due to government borrowing occurs when
Higher interest rates decrease private sector investment
As a measure of economic welfare, GDP underestimates a country's production of goods and services when there is an increase in
Household production
Which of the following is true according to the circular flow model?
Households are demanders in the product markets and suppliers in the factor markets
Which of the following are included in a nation's balance of payments accounts? I. International trading II. International lending III. Domestic investment
I and II only
Which of the following would cause a leftward shift in aggregate demand? I. Congress increases personal income taxes II. An increase in government spending on public goods III. A recession in another country that is a close trading partner
I and III only
Which of the following is most true regarding unanticipated inflation? I. Workers with fixed wage rates are hurt by unanticipated inflation II. Employers that charge fixed wages are hurt by unanticipated inflation III. Lenders with fixed rate loans are helped by unanticipated inflation. IV. Borrowers who have fixed rate loans are helped by unanticipated inflation.
I and IV only
Which of the following is an asset for the ACDC Bank? I. Demand deposits II. Certificates of Deposits issued to ACDC's customers III. Vault cash IV. Money that ACDC has deposited with the Federal Reserve
II, III, and IV only
Which of the following will be included in the current year's calculation of GDP?
Income earned as a lifeguard at a summer camp
Assume that a perfectly competitive financial market for loanable funds is in equilibrium. Which of the following is most likely to occur to the quantity demanded and the quantity supplied of loanable funds if the government puts a cap (ceiling) on the interest rate? Quantity Demanded Quantity Supplied
Increase Decrease
If the Federal Reserve raises the discount rate, how are interest rates and real GDP affected? Interest Rates / Real GDP
Increase / Decrease
How will a decrease in personal income taxes and an increase in government spending affect consumer spending and unemployment in the short-run? Consumption / Employment
Increase / Increase
An increase in consumer spending will most likely cause the price level and real GDP to change in which of the following ways in the short-run? Price Level / Real GDP
Increase / increase
If an American student purchases a personal computer made by a Korean owned company located in California, what would happen to consumption and the GDP of the USA as a result? Consumption / GDP
Increase / increase
If the economy is operating in the intermediate range of the aggregate supply curve and if aggregate demand increases due to an increase in net exports, then the price level, output, & the unemployment rate are most likely to change in which of the following ways? Price Level / Output / Unemployment Rate
Increase / increase / decrease
If the cost of producing cell phones increases, the price and equilibrium quantity of cell phones will most likely change in which of the following ways? Price Quantity
Increase Decrease
If required reserves is 10% and that bank receives a new demand deposit of $300. Which of the following will most likely occur in the bank's balance sheet?
Increase by $300 increase by $30
An open market purchase of bonds by the Fed will most likely change the money supply, the interest rate, and the unemployment rate in which of the following ways? Money Supply Interest Rate Unemployment Rate
Increase decrease decrease
Stagflation might be caused by
Increase in the price of raw materials
If exports from the United States increased, what would most likely happen to real gross domestic product and price level? Real GDP / Price Level
Increase/ Increase
Banks may not be able to create the maximum amount of money from a new deposit as a result of
Individuals holding a larger portion of their assets as cash
If the Fed institutes a policy to reduce inflation, which of the following is most likely to increase?
Interest rates
Which of the following will most likely occur in an economy if more money is demanded than is supplied?
Interest rates will increase
The major difference between real and nominal GDP is that real GDP
Is adjusted for price-level changes using a price index
The natural rate of unemployment
Is the sum of frictional and structural unemployment
If Mike can make 2 surfboards per hour or 10 bikes per hour and Joe can produce 4 surfboards per hour and 12 bikes. Which of the following is true?
Joe's opportunity cost for producing one surfboard is 3 bikes
Fractional reserve banking means that banks are required to
Keep part of their demand deposits as reserves
When an economy is at full employmnet, an expansionary monetary policy will lead to
Lower interest rates and more investment
If purchases of education and medical care were counted as investment rather than consumption, GDP would:
Not change, because there is no change in total aggregate expenditures
The unemployment rate measures the percentage of
People in the labor force who are actively looking, but do not have jobs
An important assumption in Keynesian theory is that
Prices are rigid downward and decreases in aggregate demand will lead to an increase in unemployment.
If you use money as a store of value, you would be A. Buying a new watch
Putting money into a savings account
If the price of cars significantly increases, then the
Quantity supplied of cars will increase
The intersection of the aggregate demand and aggregate supply curve occurs at the economy's equilibrium level of
Real domestic output and the price level
If the production possibilities curve is concave from the origin (or bowed out), then economists say that
Resources are not equally suited for the production of both goods
Which of the following is NOT part of M1?
Savings deposits
To eliminate an inflationary gap, the Federal Reserve might
Sell bonds on the open market
Economic growth can be represented on graphically by
Shifting the production possibilities curve outward
Refer to Figure A. At price $20, which of the following would occur?
Shortage of 100
When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for what purposes?
Speculation
If demand for mp3 players decreases when the price of mobile phones decreases, we can say that cell phones and mp3 players are
Substitute goods
If the nominal GDP for a given year is $500 Billion and the real GDP for that year is $400 Billion then which of the following must be true
The GDP deflator is 125
Suppose incomes fall in the United States, but not in Japan. Which of the following will occur?
The US dollar will appreciate and the Japanese Yen will depreciate
. Suppose that from 2014 to 2015, unemployment fell from 7.2 to 5.6% and inflation fell from 2.17 to 1.1%. An explanation of these changes might be that the
The aggregate supply curve shifted to the right
. Assume the CPI increases from 100 to 120 between 2014 and 2015. Which of the following must be true?
The average price of a specific market basket increased 20%
Open market operations refer to which of the following activities?
The buying and selling of government securities by the Federal Reserve
An increase in which would cause an outward shift in the production possibilities curve for consumer goods and capital goods?
The efficient production of consumer goods
Federal budget deficits occur when
The federal government spends more than it collects in taxes in a given year
Which of the following would represent an addition to a nation's GDP?
The government hires workers to install street lights
Which of the following best explains why many U.S. economists support free trade?
The long-run gains to consumers and some producers exceed the losses to other producers.
The value of the simple spending multiplier (ME) decreases when
The marginal propensity to save increases
The official unemployment rate is not always the most accurate indicator of actual unemployment in the economy because
The official rate does not include persons who have given up looking for work
Which of the following is true regarding nominal and real GDP?
The only thing that can increase real GDP is an increase in output
Which of the following must be true if an individual's next best alternative to going to the beach is studying for an economics exam?
The opportunity cost of going to the beach is being better prepared for the exam
If real GDP is increasing at 5% per year and nominal GDP is increasing at 10% per year, which of the following is necessarily true?
The price level is increasing
Which of the following will occur if the federal government runs a budget deficit.
The size of the national debt will increase.
Which if the following is true for the money market graph?
There is an inverse relationship between the nominal interest rate and the quantity of money demanded
If the Consumer Price Index changes from 100 to 90, economists will know that:
There was deflation in the economy
The price for a ticket to the Super Bowl is $500." This statement best illustrates money used as a
Unit of account
When government spending cause an increase in real interest rates, gross private domestic investment
Will experience crowding-out
Which of the following will NOT cause the demand for video games to change?
a change in the price of video games
An economist for a computer company predicts that a rise in consumer incomes will increase the demand for consumers. This prediction assumes that:
computers are normal goods
Assuming Ramen noodles are an inferior good, a decrease in income will shift the
demand curve for Ramen noodles to the right
The relationship between quantity supplied and price is _ and the relationship between quantity demanded and price is _.
direct, inverse
Other things equal, if the price of a key resource used to produce product X falls, the:
product supply curve of X will shift to the right
Which of the following is a leakage from the circular flow?
saving
A leftward shift of a supply curve for avocados (a normal good) might be caused by:
some avocado farmers leaving the market
When making a decision, the next best alternative not selected is called
the opportunity cost