ap econ final exam review
if the required reserve ratio is 10%, actual reserves $10 million and currency in circulation $20 million, M will most likely be equal to
$120 million
the marginal propensity to save for the economy is
0.2 (MPC + MPS = 1)
If MPC is .75 then a $100 increase in investment will result in a max increase in EQ RGDP of
400
MPC out of disposable income is 0.8. The government taxes all income at 30%. If gross income increases by $100, consumption will increase by
70 x 0.8 = $56
suppose that country A is experiences high inflation relative to country B, which is enjoying steady growth and stable price level. Which of the following would occur in a foreign exchange market?
A depreciation of country A's currency
Frictional unemployment occurs when which of the following happens?
A worker voluntarily quits a job to search for a better one
If the value of the US dollar increases on the foreign exchange market, which of the following will occur in the short run?
Agg demand will decrease
Which of the following will most likely cause an increase in real output in the long run?
An increase in immigration from abroad
if the central bank increases RRR, the MM and MS will change in which of the following ways?
Decrease MM and decrease MS
If the production technology of a good improves and at the same time the # of consumers willing and able to buy the good in the market increases, which of the following would definitely occur?
EQ quantity would increase
For an economy that is operating inside its production possibilities curve, which of the following is true?
It can increase the production of both goods
Which of the following is true of the Phillips curve?
It is downward sloping in short run and vertical in the long run
The diagram below shows 3 production possibilities; If the current PPC is PPC1, which of the following indicates a recession?
Move from Y to Z
If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?
No change in the number of workers employed; Decrease in the unemployment rate
If a contractionary fiscal policy is followed by an expansionary monetary policy, nominal interest rate and employment would most likely be affected in which of the following ways in the short run?
Nominal interest rate: Decrease Employment: Indeterminate
assume that country A exports one bushel of wheat in exchange from 2.5 bushels of corn from country B. In terms of trade, it is beneficial to both countries. Which of the following must be true?
The cost of producing a bushel of wheat in country A is less than 2.5 bushels of corn
Potential GDP will decrease under which of the following conditions?
The country's annual depreciation is greater than annual gross investment
Country A's growth rate in per capita rGDP has been consistently higher than that of country B. Which of the following factors account for the difference in per capita GDP growth?
The labor force of Country A is becoming more skilled than the labor force of Country B
which of the following will cause an increase in aggregate demand?
a decrease in income taxes
the graph below shows 2 aggregate demand curves, AD1 and AD2, and an aggregates supply AS. The shift from AD1 to AD2 could be caused by
a decrease in money supply
which of the following policies, if appropriately sized, would provide expansion during a recession with the smallest change in interest rates?
a decrease in taxes and an open market purchase of government securities by central bank
on the graph below, stagflation will be caused by
a leftward shift in SRAS curve only
an increase in the price level will most likely cause which of the following?
an increase in demand for money
If wages are sticky, which of the following policies will be the most effective in raising real GDP to full employment level?
an increase in government spending
a rightward shift in the short run phillips curve is most likely due to
an increase in the expected rate of inflation
Inflation occurs when there is a sustained increase in which of the following?
average price level
Public policy that generates an unexpected increase in consumer prices will inflict short run costs on all of the following except
borrowers
Which of the following actions by the federal reserve of the US increases money supply?
buying bonds on the open market
an increase in which of the following will increase productivity
capital stock
An increase in spending in the economy will cause a multiplies increase in GDP because
consumption increases as income increases
dissaving occurs when disposable income is
consumption is higher than disposable income
of the following, the most liquid asset is
currency
Assume that the reserve requirement ratio is 20%, banks hold no excess reserves, and the public holds no currency. If the central bank sells 10,000 worth of government securities to commercial banks, the total money supply will
decrease by $50,000 (MM = 5; 5 x 10,000)
Which of the following will lead to a depreciation of a nation's currency?
decreased real interest rate in the nation compared to the rest of the world
an increase in government spending will effect the demand for money and nominal interest rates in which of the following ways?
demand for money increase; nominal interest rate increase
The main benefit of free trade between two countries is that
each country can consume beyond its constraints of resources and productivity
The natural rate of unemployment can be defined as
economy's long run eq rate of unemployment
the purchase of US government bonds by japanese investors will be included in Japan's
financial account (formerly capital account)
in the circular flow diagram of a market economy, which of the following supplies factors of production?
household sector
assume that the public holds part of its money in cash and the rest in checking accounts. if the central bank lowers the reserve requirement from 16% to 8%, the money supply will
increase by less than double
Which of the following is least likely to promote economic growth?
increase in consumption of nondurable goods
if the economy is in a severe recession, which of the following actions is the most appropriate
increase money supply and government spending
Following a decrease in the real interest rate, there is an increase in financial capital outflows from Country A. The increase in capital outflows will most likely have which of the following effects on Country A's net exports and aggregate demand?
increase net exports; increase aggregate demand
A contraction in the monetary supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?
increase nominal interest rate / decrease AD
which of the following is true of the opportunity cost of holding cash?
increases as the interest rate rises
an increase in which of the following would most likely result in an increase in aggregate supply
labor force participation rate
If wages and prices are perfectly flexible and inflation is correctly anticipated, then an expansionary monetary policy will affect the real output and price level in which of the following ways?
no change in real output; increase in price level
In the long run, an increase in aggregate demand due to expansion in the money supply will increase
nominal output and price level
the short run aggregate supply curve would be vertical if
nominal wages adjusted immediately to price level
the consumer price index is criticized for
overstating the burden of inflation because it does not recognize the ability to substitute goods and services as prices change
if the velocity of money is constant and the aggregate supply curve is vertical, a doubling of money supply results in a doubling of
price level
increases in the real per capita income of a country are most closely related with increases in which of the following
productivity
As a component of aggregate demand, investment refers to
purchase of new equipment and additional inventory
Assume that agg supply curve is upward sloping. if both agg supply and agg demand increase, what will happen to eq price level?
quantity: increase; price level: indeterminate
In the short run, government deficit spending will most likely
raise nominal interest rates
An increase in the international value of the US dollar will most likely benefit
retired us citizens living overseas on social security checks
if aggregate demand is growing faster than long run aggregate supply, the federal reserve is most likely to
sell securities on the open market
According to the graph below and starting with EQ point R, which of the following shifts identifies the short run and long run impacts of demand pull inflation?
short run R --> M long run R --> N
rational expectations theory suggests that people
use all available information in forming their expectations about future inflation
Which of the following is the most fundamental issue economics addresses?
use of scarce resources
