AP Macro FLVS Review

Which of the following is most likely to increase if the public decides to increase its holding of currency?

A. The interest rate

Which of the following is true of supply shocks?

A. They tend to change both the relative prices and the general price level in the economy

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

The demand for money increases when national income increase because

A. spending on goods and services increases

The consumer price index measures which of the following?

A. the change over time of the weighted prices of a particular group of goods and services

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

If a large increase in total spending has no effect on real gross domestic product, it must be true that

A. the price level is rising

Assume that the reserve requirement is 20%. 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

B. $8,000

Suppose the required reserve ratio is 20% and a single bank with no excess reserves receives a $100 deposit from a new customer. The bank now has excess reserves equal to

B. $80

If on receiving a checking deposit of $300 a bank's excess reserves increases by $255, the required reserve ratio must be

B. 15%

If in a specified year nominal gross domestic product grew by 11% and real gross domestic product grew by 4%, inflation for this year would be?

B. 7%

An increase in energy costs will most likely cause the price level and the real gross domestic product to change in which of the following ways?

B. B

An increase in the money supply is the most likely to have which of the following short-run effects on real interest rates and real output?

B. B

If higher United States interest rates cause foreign demand for the dollar to increase, which of the following will occur to the international value of the dollar and to United States exports?

B. B

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, and the unemployment rate are most likely to change in which of the following ways?

B. B

The graph above depicts an economy's aggregate demand and aggregate supply curves. If aggregate demand remains constant, the equilibrium price levels in the short run and in the long run will be which of the following?

B. B

Under which of the following circumstances would increasing the money supply be most effective in increasing real gross domestic product?

B. B

What would be the effect of a large increase in labor productivity on the real gross domestic product and the price level?

B. B

Which of the following policy combinations is most likely to cure a severe recession?

B. B

Which of the following constitutes the largest component of the United States money supply (M1)?

B. Checkable deposits (demand deposits)

All of the following are components of the money supply in the United States EXCEPT

B. gold bullion

Which of the following is basic tenet of classical economic analysis?

B. the economy is self-correcting to full employment

In the simple Keynesian aggregate expenditure model of an economy, changes in investment or government spending will lead to a change in which of the following?

B. the level of output and employment

If real gross domestic product is increasing at 3 percent per year, which of the following is necessarily true?

B. the price level is increasing

Which of the following is an example of structural unemployment?

C. An auto worker who is replaced by a robot

According to keynesian theory, decreasing taxes and increasing government spending will most likely change consumption expenditures and unemployment in which of the following ways?

C. C

Which of the following means of reducing military spending would have the greatest positive impact on gross domestic product for the United States?

C. Closing overseas military bases and relocating those operations to the United States

In a closed economy with no taxes in which the average propensity to consumer is 0.75, which of the following is true?

C. If income is $200, then saving is $50

Which of the following will most likely occur in an economy if more money is demanded than is supplied?

C. Interest Rates will increase

When consumers hold money rather than bonds because they expect the interest rate to increase in the future, they are holding money for which of the following purposes?

C. Speculation

An increase in which of the following is most likely to increase the long-run growth rate of an economy's real per capita income?

C. The educational attainment of the population

Which of the following transactions would represent an addition to a nation's current gross domestic product?

C. The government increases its domestic purchases of food for use by the military

Which of the following is true if the economy is producing at the full-employment level of output?

C. There is frictional unemployment

The table below indicates the number of labor hours required in Countries X and Y to produce one unit of good or one unit of clothing. Given this information, which of the following statements is correct?

C. X has a comparative advantage in food production, whereas Y has a comparative advantage in clothing production

An inflationary gap could be reduced by

C. an increase in the income tax rate

The Federal Reserve can increase the money supply by

C. buying government bonds on the open market

Crowding out due to government borrowing occurs when

C. higher interest rates decrease private sector investment

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

C. increasing government spending by $25,000

According to Keynesian theory, the most important determinant of saving and consumption is the

C. level of income

The money-creating ability of the banking system will be less than the maximum amount indicated by the money multiplier when

C. people hold a portion of their money in the form of currrency

The real value of the United States dollar is determined by

C. the goods and services it will buy

According to both monetarists and Keynesians, which of the following happens when the Federal Reserve reduces the discount rate?

C. the supply of money increases and market interest rates decrease

If the reserve requirement is 20%, the existence of $100 worth of excess reserves in the banking system can lead to a maximum expansion of the money supply equal to

D. $500

Which of the following could cause simultaneous increases in inflation and unemployment?

D. An increase in inflationary expectations

Suppose two countries are each capable of individually producing two given commodities. Instead, each specializes by producing the commodity for which it has a comparative advantage and then trades with the other country. Which of the following is most likely to result?

D. Both countries will become better off

If the Federal Reserve lowers the reserve requirement, which of the following would most likely occur?

D. Businesses will purchase more factories and equipment

In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways?

D. D

Which of the following is true according to the circular flow model?

D. Households are demanders in the product markets and suppliers in the factor markets

As nations specialize in production and trade in international markets, they can expect which of the following domestic improvements? I. Allocation of domestic resources II. Standard of living III. Self-sufficiency

D. I and II only

The circular flow of economic activity between consumers and producers includes which of the following? I. Households buy factor services from firms. II. Households sell factor services to firms. III. Households buy outputs from firms. IV. Households sell outputs to firms

D. II and III only

Which of the following is a key feature of Keynesian economics?

D. Macroeconomic equilibrium can occurs at less than full employment

If the Federal Reserve undertakes a policy to reduce interest rates, international capital flows will be affected in which of the following ways?

D. Short-run capital inflows to the United States will decrease

Which of the following would be most likely to occur if the United States placed high tariffs on imported goods?

D. The United States economy would become less efficient

An increase in which of the following will increase the value of the spending multiplier?

D. The marginal propensity to consume

The official unemployment rate is not an accurate indicator of actual unemployment in the economy because

D. The official rate does not include persons who have given up looking for work

Suppose that, from 1985 to 1986, unemployment fell from 7.2 to 7% and inflation fell from 3.8 to 1.1%. An explanation of these changes might be that the

D. aggregate supply curve shifted to the right

An increase in Japan's demand for United States goods would cause the value of the dollar to

D. appreciate because Japan would be buying more United States dollars

Unexpected increases in inventories usually precede

D. decreases in production

A major advantage of automatic stabilizers in fiscal policy is that they

D. go into effect without passage of new legislation

As a measure of economic welfare, gross domestic product underestimates a country's production of goods and services when there is an increase in

D. household production

According to the Keynesian savings schedule, when aggregate income increases by a given amount, savings will

D. increase by less than the amount of the change in income

If other things are held constant, an increase in United States imports will

D. tend to cause the dollar to depreciate because the world supply of dollars will rise

An increase in the money supply will have the greatest effect on real gross domestic product if

D. the quantity of money demanded is not very sensitive to interest rates

Which of the following will result in the greatest increase in aggregate demand?

E. A $100 increase in government expenditures, coupled with a $100 decrease in taxes

If the public's desire to hold money as currency increases, what will the impact be on the banking system?

E. Banks would be less able to expand credit

Which of the following would cause the production possibilities curve shown above to shift outward?

E. Developing a more efficient steelmaking process

Faced with a large federal budget deficit, the government decides to decrease expenditures and tax revenues by the same amount. This action will affect output and interest rates in which of the following ways?

E. E

Policymakers concerned about fostering long-run growth in an economy that is currently in a recession would most likely recommend which of the following combinations of monetary and fiscal policy actions?

E. E

Which of the following changes will occur to the demand for the United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds?

E. E

Which of the following monetary and fiscal policy combinations would most likely result in a decrease in aggregate demand?

E. E

On the basis of the diagram above showing an economy's production possibilities curve for two goods, which of the following statements must be true? I. The opportunity cost of moving from point P to point R is 10 units of Y II. The opportunity cost of moving from point R to point P is 8 units of X III. The opportunity cost of moving from point Q to point R is 0 units of Y

E. I, II, and III

According to the graph above, which of the following will necessarily result in a decrease in output? I. A rightward shift of the aggregate demand curve. II. A leftward shift of the aggregate demand curve. III. A rightward shift of the aggregate supply curve. IV. A leftward shift of the aggregate supply curve

E. II and IV only

Commercial banks can create money by

E. Lending excess reserves to customers

An increase in which of the following is most likely to cause an improvement in the standard of living over time?

E. Productivity of labor

During a mild recession, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?

E. Purchase of government securities by the Federal Reserve

Which of the following will most likely result from a decrease in government spending?

E. a decrease in aggregate demand

A contractionary supply shock would most likely result in

E. a decrease in employment

One way in which the Federal Reserve works to change the United States money supply is by changing the

E. discount rate

An increase in the labor force participation rate will

E. make it more difficult to reduce unemployment

Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment?

E. negative supply shocks cause factor prices to increase

An aggregate supply curve may be horizontal over some range because within that range

E. resources are underemployed and an increase in demand will be satisfied without any pressure on the price level

The value of the spending multiplier decreases when

E. the marginal propensity to save increases

If crowding out only partially offsets the effects of a tax cut, which of the following changes in interest rates and gross domestic product are most likely to occur?

A. A

In the short run, a restrictive fiscal policy will cause aggregate demand, output, and the price level to change in which of the following ways?

A. A

Which of the following arguments is typically associated with classical economists?

A. A market economy is self-correcting and thus will not remain in a recession indefinitely

According to the Keynesian model, which of the following would increase aggregate demand?

A. An increase in autonomous investment

If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production?

A. Government spending increases

Mary Jane is a lawyer who can earn $150 per hour in her law practice. She is also an excellent carpenter who can build cabinets three times as fast as the best carpenter, whose hourly wage is $20 per hour. Which of the following is a correct economic statement?

A. Mary Jane has a comparative advantage in law so she should specialize in law and hire a carpenter to make her cabinets

Which of the following would best explain a decline in potential gross domestic product?

A. Negative net investment

Under which of the following conditions would a restrictive monetary policy be most appropriate?

A. high inflation

If the money stock decreases but nominal gross domestic product remains constant, which of the following has occurred?

A. income velocity of money has increased

If the Federal Reserve wishes to use monetary policy to reinforces Congress' fiscal policy changes, it should

A. increase the money supply when government spending is decreased

In the Keynesian model, an expansionary monetary policy will lead to

A. lower real interest rates and more investment

To protect high-cost domestic producers, a country imposes a tariff on an imported commodity, Y. Which of the following is most likely to occur in the short run? I. A decrease in domestic production of Y. II. An increase in domestic production of Y. III. An increase in foreign output of Y.

B. II only

Which of the following groups of people would benefit from unanticipated inflation? I. Savers II. Borrowers. III. Lenders

B. II only

Which of the following best explains why equilibrium income will rise by more than $100 in response to a $100 increase in government spending?

B. Incomes will rise, resulting in higher consumption

Which of the following will occur if the federal government runs a budget deficit?

B. The size of the national debt will increase

Which of the following relationships in illustrated by a short-run Phillips curve?

B. a decrease in the rate of inflation is accompanied by an increase in the rate of unemployment

The long-run aggregate supply curve is likely to shift to the right when there is

B. an increase in productivity

An inflationary gap can be eliminated by all of the following EXCEPT

B. an increase in the money supply