AP Macroeconomics Final

49. Recession can be caused by A. an increase in the price level B. an increase in exports C. a decrease in interest rates D. a decrease in aggregate demand E. a decrease in wages

D

9. According to the data above, in which year was real gross domestic product (GDP) the largest? A. 1980 B. 1990 C. 2000 D. 2010 E. 2015

D

17. Which of the following would cause a movement from point S to point R on the short-run Phillips Curve? A. An unanticipated increase in government spending B. An unanticipated adverse supply shock C. A decrease in net investment D. An increase in real interest rates E. An increase in the labor force participation rate

A

25. Which of the following transactions would increase the current account surplus in Japan's balance of payments accounts? (A) A Japan-based company sells roasted coffee to Canada. (B) Mari, a Japanese investor, buys stocks in a Japanese company. (C) Bob, a Canadian, buys stocks in a Japanese company. (D) A Japan-based company buys a piece of equipment from Germany. (E) Artois, a French citizen, works at a Japanese company in Paris

A

28. A decrease in taxes will necessarily result in an increase in which of the following? A. Nominal gross domestic product B. Unemployment C. Exports D. Marginal Propensity to Save E. Money supply

A

29. Which of the following will cause an increase in the equilibrium real interest rate? A. An increase in investment demand B. An increase in national saving C. An increase in the government budget surplus D. A decrease in the government budget deficit E. The purchase of government bonds by the central bank

A

31. In the foreign exchange market, the exchange rate is defined as A. the price of one currency in terms of another currency B. the price of goods around the world C. the price of a good in terms of another good D. the discount that companies take when goods are returned E. the quantity of a good to be traded for a unit of another good

A

32. A nation's unemployment rate is the ratio of the number of unemployed seeking employment to the nation's A. labor force B. potential gross domestic product C. number of employed D. working-age population E. total population

A

39. Assume that the United States central bank sells government bonds on the open market. How will the sale affect the value of the United States dollar on the foreign exchange market and the United States exports? A. Value of $: Inc; Exports: Dec B. Value of $: No change; Exports: Dec C. Value of $: Dec; Exports: Dec D. Value of $: Dec; Exports: Inc E. Value of $: Inc; Exports: Inc

A

42. Which of the following would most likely benefit from unexpected deflation? A. Lenders B. Borrowers C. Retail shop owners D. Governments in debt E. Automobile manufacturing firms

A

5. Economic growth is best measured by a sustained increase in which of the following? A. Per capita real gross domestic product B. Government budget deficits C. Unemployment in unskilled labor markets D. Production of public goods E. Nominal gross domestic product

A

50. An increase in the number of discouraged workers causes the unemployment rate to (A) decrease along with the labor-force participation rate (B) increase while the labor-force participation rate decreases (C) stay the same because the workers are still unemployed (D) decrease while the labor-force participation rate stays the same (E) increase along with the labor-force participation rate

A

57. Government investment in human capital is likely to shift A. the aggregate demand curve to the right in the short run and the aggregate supply curve to the right in the long run B. the aggregate demand curve to the left in the short run and the aggregate supply curve to the left in the long run C. the aggregate demand curve to the right in the short run and the long-run Phillips Curve to the right D. the aggregate demand curve to the left in the long run E. the aggregate demand curve to the left in the short run and the long-run Phillips Curve to the left

A

58. The consumer price index (CPI) does not measure the true cost of inflation because A. improvements in the quality of goods or services are not fully reflected B. lenders are better off when actual inflation is less than anticipated inflation C. borrowers are better off when actual inflation is greater than anticipated inflation D. changes in consumers' real income are not accounted for E. consumers may substitute toward more expensive goods without being significantly worse off

A

60. Which of the following policy actions will directly increase the money supply? A. The central bank purchases government bonds on the open market B. The central bank sells government bonds on the open market C. The government increases taxes without changing its spending D. The government decreases taxes without changing its spending E. The government decreases taxes while simultaneously decreasing its spending

A

10. Which of the following will happen if a country's government reduces business taxes? A. The short-run Phillips curve will shift to the right B. The short-run aggregate supply curve will shift to the right C. The long-run aggregate supply curve will shift the left D. The aggregate demand curve will shift to the left E. The demand curve for loanable funds will shift to the left

B

12. An increase in inventories will increase which component of gross domestic product? A. Personal consumption expenditures B. Investment expenditures C. Government purchases D. Exports E. Imports

B

16. If government spending increases and at the same time a country's central bank sells bonds in the open market, the interest rate and private investment in plant and equipment (P&E) will most likely change in which of the following ways? A. Int Rate: Increase; Private Investment: Increase B. Int Rate: Increase; Private Investment: Decrease C. Int Rate: Increase; Private Investment: No change D. Int Rate: No change; Private Investment: Decrease E. Int Rate: Decrease; Private Investment: Decrease

B

18. If policy makers use fiscal policy to reduce inflation, which of the following will most likely happen in the short run? A. The unemployment rate will decrease B. The unemployment rate will increase C. The real interest rate will increase D. The nominal interest rate will increase E. The economy will remain at the natural rate of unemployment

B

22. If the consumer price index increases from 200 to 240 in a one-year period, then the inflation rate is A. 16.67 percent B. 20 percent C. 25 percent D. 40 percent E. 140 percent

B

26. Suppose countries Alphania and Betania produce electronics and apparel using identical resources. Which of the following is true if Alphania exports electronics to and imports apparel from Betania within a free-trade system ? (A) The opportunity cost of producing electronics is higher in Alphania than in Betania. (B) Betania has a comparative advantage in producing apparel, and Alphania has a comparative advantage in producing electronics. (C) Alphania must be specializing in apparel, while Betania is specializing in electronics. (D) Workers in Alphania can produce more apparel per hour than workers in Betania. (E) Consumers in Betania buy more electronics than consumers in Alphania

B

3. Olivia volunteers full time at an animal shelter and will not accept any offers for a paid job for the next six months. Olivia is A. cyclically unemployed B. not in the labor force C. employed D. structurally unemployed E. a seasonal worker

B

35. Which of the following results when the Federal Reserve sells bonds to commercial banks? A. The total assets held by the commercial banks will eventually increase B. The money supply decreases C. The discount rate increases D. The public increases its cash holdings E. The required reserve ratio increases because of decreasing excess reserves

B

37. Ying has just graduated from college and is now interviewing for jobs. Ying would best be described as A. cyclically unemployed B. frictionally unemployed C. structurally unemployed D. not in the labor force E. a discouraged worker

B

4. With an expansionary fiscal policy, what will most likely happen to the real gross domestic product (GDP) and the nominal interest rate in the short run? A. RGDP: Increase; Nominal Interest Rate: Decrease B. RGDP: Increase; Nominal Interest Rate: Increase C. RGDP: No change; Nominal Interest Rate: No change D. RGDP: Decrease; Nominal Interest Rate: Increase E. RGDP: Decrease; Nominal Interest Rate: Decrease

B

41. As an indicator of an impending recession, inventories will most likely A. decrease as a result of a decrease in consumption B. increase as a result of a decrease in consumption C. increase as a result of a decrease in aggregate demand D. decrease as a result of an increase in aggregate supply E. remain constant as a result of economic uncertainty

B

44. The demand curve for money shifts to the right when A. the nominal interest rate decreases B. the nominal gross domestic product increases C. the real gross domestic product decreases D. inflation decreases E. the velocity of money increases

B

45. An increase in both the inflation rate and the unemployment rate can be illustrated by A. a movement along the short-run Phillips Curve B. a rightward shift of the short-run Phillips Curve C. a leftward shift of the short-run Phillips Curve D. a rightward shift of the aggregate demand curve E. a leftward shift of the aggregate demand curve

B

54. If foreign financial investors no longer see country A as a safe haven, which of the following will most likely occur in the short run? (A) Country A's currency will appreciate. (B) Country A's currency will depreciate. (C) Country A's current account will move toward deficit. (D) Country A's financial account will move toward surplus. (E) Tariff revenues received by country A will decrease as investors seek investment elsewhere.

B

13. If real output is $9,000, and the price level is 2, and the velocity of money is 3, then the money supply is A. $3,000 B. $4,500 C. $6,000 D. $18,000 E. $27,000

C

2. In the long run, government subsidies that promote the development of technology with widespread business applications will have which of the following effects? A. A negative supply shock and lower price level B. A negative supply shock and lower economic growth rate C. A positive supply shock and lower price level D. A positive supply shock and lower economic growth rate E. A lower aggregate demand and lower price level

C

20. Assume that a nation's real gross domestic product (GDP) grows at a higher rate than its population over a given period of time. It can be concluded that A. the population will grow at a faster rate in the future B. the price level has decreased C. real GDP per capita has increased D. real GDP will rise at a slower rate in the future E. real GDP will rise at a faster rate in the future

C

27. Based on the graph above, demand-pull inflation is caused by a movement from A. SRAS1 to SRAS2 B. SRAS2 to SRAS1 C. AD1 to AD2 D. AD2 to AD1 E. YF to Y1

C

30. Which of the following will most likely promote long-run economic growth? A. Increasing taxes on interest earned from savings B. Increasing consumption spending on food and entertainment C. Increasing funding for research and development D. Decreasing funding for law enforcement and judicial systems E. Rapidly harvesting timber and mineral resources

C

34. Assume that the marginal propensity to consume is 0.75, net exports decline by $10 billion, and government spending increases by $20 billion. Given that there is no crowding out, the equilibrium gross domestic product can increase by a maximum of A. $7.5 billion B. $15 billion C. $40 billion D. $80 billion E. $120 billion

C

43. An economy is at full employment equilibrium. If consumers and firms become more optimistic about future income and profits, which of the following will occur in the short-run? A. Aggregate demand will shift rightward, increasing real output and decreasing the price level B. Aggregate demand will shift rightward, decreasing real output and increasing the price level C. Aggregate demand will shift rightward, increasing real output and the price level D. Short-run aggregate supply will shift rightward, increasing real output and the price level E. Short-run aggregate supply will shift rightward, decreasing real output and the price level

C

51. Which of the following will most likely result in an increase in aggregate demand? (A) An increase in the interest rates charged on credit card balances (B) A disruption in global oil supply (C) An open-market purchase of government bonds by the central bank (D) A reduction of pay and benefits for government employees (E) A decrease in the wealth of households

C

52. For Arthur's graduation gift, Arthur's grandmother gives him a choice: he can receive $1,000 today or $1,050 one year from today. At what annual interest rate would Arthur be indifferent to choosing between the two options? (A) 50% (B) 10% (C) 5% (D) 2.5% (E) 0.5%

C

55. If the government has increased the budget deficit and interest rates have remained constant, which of the following is true? (A) Government spending is less than tax revenue, and the central bank increases the money supply. (B) Government spending is greater than tax revenue, and the central bank keeps the money supply constant. (C) Government spending is greater than tax revenue, and the central bank increases the money supply. (D) Government spending is greater than tax revenue, and the central bank decreases the money supply. (E) Government spending is less than tax revenue, and the central bank keeps the money supply constant

C

8. The graph above shows the foreign exchange market for the United States dollars in terms of Japanese yen. Assume that there is an increase in United States consumers' preference for Japanese automobiles. Which of the following changes will most likely take place in the market for dollars? A. It will take more yen to purchase the same amount in dollars B. The demand for dollars will increase C. The supply of dollars will increase D. Both the demand for and supply of dollars will decrease E. There will be no change in the foreign exchange market

C

1. A production possibilities curve that is concave to the origin (bowed out) implies that as more of a good is produced, the opportunity cost A. remains constant B. decreases C. decreases at first then increases D. increases E. increases at first then decreases

D

14. Which of the following combinations of fiscal and monetary policy will reduce the price level? A. Fiscal: Inc Gov Spending; Monetary: Buying Gov Bonds B. Fiscal: Inc Gov Spending; Monetary: Selling Gov Bonds C. Fiscal: Dec Gov Spending; Monetary: Buying Gov Bonds D. Fiscal: Dec Gov Spending; Monetary: Selling Gov Bonds E. Fiscal: Dec Gov Spending; Monetary: Decreasing the discount rate

D

19. Crowding out occurs when investment spending by the private sector decreases as a result of A. decreasing interest rates caused by an increase in the supply of government bonds B. decreasing interest rates caused by a decrease in the demand for loanable funds C. decreasing interest rates caused by an increase in government spending D. increasing interest rates caused by an increase in government spending E. increasing interest rates caused by a decrease in government borrowing

D

23. In the long run, a fully anticipated expansion of the money supply will (A) increase both the price level and real gross domestic product (B) increase the price level and decrease the real wage (C) increase both the price level and the real wage (D) increase both the nominal gross domestic product and the price level (E) increase both the nominal and real gross domestic product

D

24. Which of the following policy actions will promote long-run economic growth? (A) Decreasing the investment tax credit (B) Decreasing the money supply (C) Increasing unemployment compensation (D) Increasing investment in human capital (E) Increasing tax rates on savings income

D

40. If a country has a balanced budget and then the country's government increases transfer payments without increasing taxes, which of the following will most likely occur? A. The government's budget will move into surplus, and the national debt will fall B. The government's budget will move into surplus, and the national debt will rise C. The government's budget will move into deficit, and the national debt will fall D. The government's budget will move into deficit, and the national debt will rise E. The government's budget will move into surplus, and the national debt will remain unchanged

D

46. Assume Country X has the following international transactions, in billions of dollars, during a given period of time. What is the balance on the current account, in billions of dollars, for that period? A. -140 B. -70 C. 0 D. 70 E. 140

D

48. If the required reserve ratio is 10%, what is the maximum change in the money supply from John's deposit of $50,000 cash into his checking account? A. $5,000 B. $45,000 C. $55,000 D. $450,000 E. $500,000

D

53. Assume a country's economy is currently in long-run equilibrium. What is the long-run effect of an increase in aggregate demand? (A) A decrease in the unemployment rate (B) A decrease in the inflation rate (C) A decrease in the long-run aggregate supply (D) An increase in the price level (E) An increase in the money supply

D

56. Suppose that the real interest rate is equal to seven percent and the expected inflation rate is currently three percent. If an oil crisis in the Middle East increases the expected inflation rate to four percent, the new nominal interest rate is equal to (A) 3% (B) 4% (C) 7% (D) 11% (E) 14%

D

59. Which of the following statements about inflation is true in the short run? A. During a period of cost-push inflation, the economy's output will rise rapidly, along with the price level B. The basic difference between cost-push and demand-pull inflation lies in the rate at which the price level is rising C. During a period of demand-pull inflation, the economy's output will be stagnant when the price level is rising D. The economy's real output increases during demand-pull inflation and decreases during cost-push inflation E. Most instances of inflation start out being cost-push, and then return to being demand-pull

D

7. Assume that a country's government increases borrowing. What will most likely happen to the prices of previously issued bonds and the price level in the short run? A. Bond Prices: Increase; Price Level: Increase B. Bond Prices: Increase; Price Level: Decrease C. Bond Prices: Increase; Price Level: No change D. Bond Prices: Decrease; Price Level: Increase E. Bond Prices: Decrease; Price Level: Decrease

D

11. In the coffee market, which of the following changes will increase the price and decrease the quantity of coffee? A. Supply: Increase; Demand: Increase B. Supply: Increase; Demand: Decrease C. Supply: Decrease; Demand: Increase D. Supply: No change; Demand: Increase E. Supply: Decrease; Demand: No change

E

15. all of the following may result in increases in real gross domestic product in the long run except A. Technical progress B. Investment in human capital C. Discovery of new natural resources D. Decrease in corporate taxes E. Decrease in factor productivity

E

21. Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money multiplier, and the money supply to change in which of the following ways? A. Total Reserves: Inc; Money Mult: Inc; Money Supply: Inc B. Total Reserves: Inc; Money Mult: No change; Money Supply: Inc C. Total Reserves: No change; Money Mult: Inc; Money Supply: Dec D. Total Reserves: Dec; Money Mult: Dec; Money Supply: Dec E. Total Reserves: No change; Money Mult: Inc; Money Supply: Inc

E

33. An open market operation by a country's central bank to reduce the unemployment rate would be to A. sell bonds to decrease the interest rate and to increase aggregate demand B. sell bonds to increase the interest rate and to decrease aggregate demand C. sell bonds to increase the interest rate and to increase investment D. buy bonds to decrease the interest rate and to decrease the aggregate demand E. buy bonds to decrease the interest rate and to increase the aggregate demand

E

36. Which of the following is true of a current account deficit? A. It is caused by a trade surplus B. It must be financed with an equally large surplus of exports C. It is caused by a deficit in the financial (capital) account D. It will self-correct in the following year E. It is financed by a surplus in the financial (capital) account

E

38. Which of the following combinations of changes in income taxes, real interest rate, and investment spending is most likely to promote economic growth? A. Income Taxes: Inc; Real Int Rate: Inc; Investment: Inc B. Income Taxes: Inc; Real Int Rate: Inc; Investment: Dec C. Income Taxes: Inc; Real Int Rate: Dec; Investment: Dec D. Income Taxes: Dec; Real Int Rate: Dec; Investment: Dec E. Income Taxes: Dec; Real Int Rate: Dec; Investment: Inc

E

47. In the short run, a tight monetary policy tends to cause A. a decrease in the interest rate and a decrease in prices B. a decrease in the interest rate and an increase in private investment C. a decrease in prices and an increase in private investment D. an increase in the interest rate and an increase in private investment E. an increase in the interest rate and a decrease in private investment

E

6. The long-run Phillips curve indicates that there are no trade-offs between A. aggregate demand and aggregate supply B. imports and exports C. consumption and investment D. consumption and saving E. inflation and unemployment

E