AP Econ Final

Which of the following schools of thought is the MOST likely to advocate the use of fiscal policy in fighting recessions?

Keynesian

Use Table 11-5 "Price and Output Data". The value of Year 4's output in real dollars is:

$36

Use the "Demand for Loanable Funds" Figure 29-2. According to the accompanying figure, when the interest rate is 6%, the quantity demanded of loanable funds will equal:

$50 billion

Use the "Alphaland and Omegaland" Figure 4-4. The opportunity cost of producing 1 tire in Alphaland is ___________ radio(s), while the opportunity cost of producing 1 tire in Omegaland is __________ radio(s).

1/2; 2

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is:

5%

Use Table 6-1 "Supply of Lemonade". If the price of lemonade is $1 per cup, total quantity of lemonade supplied will be:

90 cups

Use "Demand for Coconuts" Figure 5-1. If there is an overall increase in taste and preference for coconuts, then the movement that would take place in the model could be:

A to C

Purchasing power parity refers to:

Adjusting GDP/exchange rate conversions that take into account the differences in cost of living across countries

A supply shock:

An unexpected event that causes the short-run aggregate supply curve to shift

If the British pound appreciates against the dollar, this will make:

British exports more expensive but lower the price of American exports to Britain

Use the "International Capital Flows" Figure 41-2. At an interest rate of 4%, the excess of loanable funds supplied by ______ lenders will be exported to ______ borrowers.

British; American

Which one of the following price indices is commonly used to measure the cost of living?

Consumer Price Index (CPI)

In the soft drink market, an increase in the price of sugar, a necessary ingredient for soft drinks, and an increased concern about tooth decay caused by the consumption of soft drinks will result in which of the following?

Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay the same

The economy is in a recession. Which of the following is a fiscal policy that the government should adopt to strengthen the economy?

Expansionary fiscal policy increases the level of aggregate demand, either through increases in government spending or through reductions in taxes.

The simplest circular-flow model shows the interaction between households and firms. In this model:

Firms supply goods and services to households; households in turn, supply factors of production to firms.

Use the "Monetary Policy and the AD-SRAS Model" Figure 31-8. An increase in the money supply is most likely to cause a shift:

From AD to AD'

Use the "Supply and Demand in the Orange Juice Market" Figure 7-3. Assume that a hurricane hits Florida. In response, what would be the most likely equilibrium point in the orange juice market illustrated?

Point A

Which of the following statistics is used to measure changes in the prices that firms pay for goods and services?

Producer Price Index (PPI)

Suppose that political instability in the Middle East temporarily interrupts the supply of oil to the United States. Which of the following is most likely to occur?

Short run aggregate supply curve shifts left, output decreases, prices increase

Which are the two markets represented in the simplest circular-flow diagram?

The market for goods and services and the market for factors of production

The long-run aggregate supply curve is:

a curve that shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

A floating exchange rate is:

a regime in which a currency's value is allowed to fluctuate in response to market mechanisms of the foreign-exchange market

Use Table 8-1 In response to popular anger over the high price of fried Twinkies, the government imposes a price ceiling of $1.20 per fried Twinkie. From this table, the price ceiling causes:

a shortage of 3000 fried twinkies

Diminishing returns to physical capital implies that, when human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to:

a smaller increase in productivity

Diminishing returns to physical capital means that, when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to:

a smaller increase in the marginal product of labor

Use the "DVD Market" Figure 6-2. At a rental price of $6, there will be:

an excess supply of 20 DVD rentals

If a county follows a contractionary monetary policy, with everything else remaining unchanged, then it leads to:

an increase in interest rates and an appreciation in currency

Assume an economy that is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment rate even while the economy continues to contract?

an increase in the number of discouraged workers

The short-run Phillips curve shows:

an inverse relationship between unemployment and inflation

Government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are known as:

automatic stabilizers

One of the most important types of infrastructure that government can provide is:

basic health measures such as a clean water supply and disease control

Use the "Classical Versus Keynesian Macroeconomics" Figure 35-1. According to the Keynesian view, if this economy shifts from AD2 to AD1, let's say due to a large increase in government spending, then:

both the price level and the real GDP will increase

The short-run alternation between economic downturns, recessions, and economic upturns and expansions is known as the:

business cycle

Banks create money when they:

buy government bonds from households, make loans, money supply, and money multiplier.

The Federal Reserve System is the _______ for the United States.

central bank

Real GDP is nominal GDP adjusted for:

changes in prices

The concept of monetary neutrality describes a situation in the long run when:

changes in the money supply have no real effects on the economy

Which of the following factors cause a movement along the demand curve?

changes in the price of a good

Which of the following is automatic stabilizer?

decreasing the amount of taxes households pay, or the government increasing taxes when the economy expands

Contractionary monetary policy:

designed to counteract the effects of inflation and return economy to full employment; decreases money supply; increases interest rate; decreases both investment and output

Economists frequently use GDP per capita to better reflect:

differences in living standards across countries; people who are employed/unemployed; impact of prices on GDP

Total income households have after paying taxes and receiving government transfers is called:

disposable income

Use the "Consumer and Capital Goods" Figure 3-3. The movement from curve 1 to curve 2 indicates:

economic growth

Physical capital would include:

factors of production (tools, machines, supplies)

The modern tools of macroeconomic policy are:

fiscal policy and monetary policy

In the long run, wages and prices are considered to be:

flexible

The market in which foreign currencies are traded is known as the:

foreign exchange market

Fixed exchange rates are determined by the:

government

The skills, training, and education possessed by workers contribute to economic growth and are known as:

human capital

An increase in the price level that is extremely rapid (say 400% per year) is called:

hyperinflation

If the interest rate on CDs increases from 5% to 10%, the opportunity cost of holding money will ______ and the quantity demanded of money will ______.

increase; decrease

Expansionary fiscal policy:

increases aggregate demand

When the budget is in deficit, the government generally:

increases the public debt

Stagflation is a combination of:

increasing unemployment and increasing inflation

Increases in the average level of prices is called:

inflation

Stagflation is a combination of:

inflation and stagnating (falling) aggregate output; unemployment

Roads, telephone lines, power facilities, and schools are examples of a nation's:

infrastructure

Monetary policy attempts to affect the overall level of spending in the economy by changes in:

interest rates

Macroeconomics

is concerned with the overall ups and downs in the economy

Microeconomics

is the study of how people make decisions and how those decisions interact

Use the "Consumer and Capital Goods" Figure 3-3. Point Z:

is unattainable, all other things unchanged

When a corporation borrows money from lenders in exchange for a fixed rate of return and a given maturity, the corporation is:

issuing bonds

When a corporation borrows money from lenders in exchange for a fixed share of the firm's assets and potential profits, the corporation is:

issuing stock

The government has a budget deficit if:

its total revenues are less than its total expenditures.

A binding price ceiling is designed to:

keep prices low/keep the price below the equilibrium price.

Use the "International Capital Flows" Figure 41-2. At an interest rate of 4%, the quantity of loanable funds demanded by American borrowers is ______ the quantity of loanable funds supplied by American lenders.

less than?

Use the "Supply of Loanable Funds" Figure 29-4. According to the accompanying figure, when the interest rate rises from 6% to 8%, then the:

loanable funds rise from $60 to $80 billion dollars

If the Federal Reserve wanted to increase the money supply, it could:

lower the reserve requirement, decrease the discount rate, and buy bonds on the open market.

A bank run occurs when:

many bank depositors are trying to withdraw their funds from the bank, because they believe the bank may cease to function in the near future

All of the following are responsibilities of the Fed EXCEPT:

mint bills and coins

Fiat money is:

money that has no intrinsic value, backed by a government's decree that it be accepted as a means of payment.

Greenhouse gas emission is an example of:

negative externality

Use the "Supply and Demand" Figure 8-6. In the market shown in the figure, a price ceiling of P1 causes

no change to the market

Scarcity in economics means:

people do not have sufficient resources to produce all of the goods and services they want

The marginal propensity to consume is equal to:

ratio of the change in consumer spending to the change in aggregate disposable income (𝚫consumer spending/𝚫disposable income)

Too little spending in an economy often leads to:

recession

Which of the following choices would be a factor that contributes to a nation's rapid long-run economic growth?

rising productivity; human capital; technology

Reserve requirements:

rules set by the Federal Reserve that determine the required reserve ratio for banks--to ensure that it is able to meet liabilities in case of sudden withdrawals (e.g. bank runs).

Sticky wages and prices occur:

short run

Gains from trade arise because of:

specialization in production

Investment spending refers to:

spending by firms rather than by the government

Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is experiencing:

structural unemployment

Use the "Short-Run Determination of the Interest Rate" Figure 29-11. If the money supply is currently at MS1 and the central bank chooses to buy bonds, then the resulting short-run shift in the supply of savings (loanable funds) may be represented by a shift of the:

supply of loanable funds from S1 to S2 and a lower interest rate

Fiscal policy attempts to affect the level of overall spending in the economy by changes in:

tax policy or government spending

If an economy finds itself in a liquidity trap, this means that:

the economy is trapped by the conventional monetary policy to reduce nominal interest rates further

The term "Human capital" describes:

the improvement in labor created by the education and knowledge of members of the workforce

Inflation is a situation where:

the overall price level rises/increases

Use the "Classical Versus Keynesian Macroeconomics" Figure 35-1. According to the classical view, if this economy shifts from AD2 to AD1, let's say due to a large increase in government spending, then:

the price level will increase, but real GDP will not change

The money demand curve shows the relationship between the:

the quantity of money demanded and the interest rate

The inflation tax is:

the reduction in the value of money that is held by the public caused by inflation

The labor force is defined as:

the sum of the employed and the unemployed(people actively looking for work)

According to the liquidity preference model, the equilibrium interest rate is determined by:

the supply and demand for money

A direct relationship between price and quantity is represented by:

the supply curve

Unemployment rates tend to decrease when:

there is an expansion in the economy.

If a country sold more goods and services to the rest of the world than they purchased from the other countries, then the country has a:

trade surplus

When the dollar value of the euro is high:

travel in the U.S. is less expensive for Europeans.

When countries replaced gold and silver coins with paper money exchangeable for certain amounts of precious metals, the monetary system evolved from:

using commodity money to using commodity-backed money

If the disposable income increases by $1000 and the consumer spending increases by $800, then the marginal propensity to consume is:

(800/1000)=8/100=2/25=0.8)

Which of the following statements is broadly agreed upon by modern macroeconomists?

Discretionary monetary and fiscal policy cannot affect the long-run level of employment.

If goods A and B are substitutes, a decrease in the price of good B will:

decrease the demand for good A