AP Macro practice

If the value of the United States dollar increases on the foreign exchange market, which of the following is most likely to occur in the short run?

A. Aggregate demand will decrease

Which of the following actions by the Federal Reserve of the United States increases the money supply?

A. Buying government bonds on the open market

For an economy that is operating inside its production possibilities curve, which of the following is true?

A. It can increase the production of both goods.

On the graph above, stagflation will be caused by a...

A. Leftward shift of the short-run aggregate supply curve only

The short-run aggregate supply curve would be vertical if...

A. Nominal wages adjust immediately to changes in the price level

The consumer price index (CPI) is criticized for...

A. Overstating the trudgen's burden of inflation because it does not recognize consumers' ability to substitute goods and services as prices change

Public policy that generates an unexpected increase in consumer prices will inflict short-run costs on all of the following EXCEPT...

A. borrowers

If aggregate demand is growing faster than long-run aggregate supply, the Federal Reserve is most likely to...

A. sell securities on the open market

Assume that the marginal propensity to consume out of disposable income in 0.8 and that the government taxes all income at a constant rate of 30%. If gross income increases by $100, consumption will initially increase by...

B. $56

Frictional unemployment occurs when which of the following happens?

B. A worker voluntarily quits a job to search for a better one

An increase in the price level will most likely cause which of the following?

B. An increase in the demand for money

The purchase of United States government bonds by Japanese investors will be included in Japan's...

B. Financial account (formerly called capital account)

According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation?

B. R to M; R to N Short Run: R to M; Long Run: R to N

Assume that Country A exports one bushel of wheat in exchange for 2.5 bushels of corn from Country B. If the terms of trade are beneficial to both countries, which of the following must be true?

B. The cost of producing a bushel of wheat in Country A is less than 2.5 bushels of corn.

Country A's growth rate in the per capita real gross domestic product (GDP) has been consistently higher than that of Country B. Which of the following factors can account for these differences in the per capita GDP growth rates?

B. The labor force of Country A is becoming more skilled than the labor force of Country B.

An increase in which of the following will most likely increase productivity?

C. Capital Stock

Which of the following will lead to a depreciation of a nation's currency?

C. Decreased real interest rates in the nation compared with the rest of the world

If the production technology of a good improves and at the same time the number of consumes willing and able to buy the good in the market increases, which of the following will definitely occur?

C. Equilibrium quantity will increase

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?

C. Increase; Increase Net Exports: Increase; Aggregate Demand: Increase

Which of the following is true of the Phillips curve?

C. It is downward sloping in the short-run, but is vertical in the long run.

The diagram above shows three production possibilities curves (PPCs). If the current PPC is PPC1, which of the following changes indicates a recession?

C. Movement from Point Y to Point Z

As a component of aggregate demand, investment refers to the...

C. Purchase of new equipment and additional inventories

In the short run, government deficit spending will most likely...

C. Raise nominal interest rates

The natural rate of unemployment can be defined as the...

C. economy's long-run equilibrium rate of unemployment

If the required reserve ratio is 10%, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will most likely be equal to...

D. $120 Million

If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of...

D. $400.00

If wages are sticky, which of the following policies will be the most effective in raising real gross domestic product to the full-employment level?

D. An increase in government spending

Which of the following will most likely cause an increase in real output in the long run?

D. An increase in immigration from abroad

A rightward shift of the short-run Phillips curve is most likely due to...

D. An increase in the expected rate of inflation (stagflation)

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?

D. Decrease; Indeterminate Nominal Interest rate: Decrease; Employment: Indeterminate

Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?

D. Increase; Indeterminate Output: Increase; Price Level: Indeterminate

If unemployed workers become discourages and give up trying to find work, the number of workers employed and the unemployment rate would changes in which of the following ways?

D. No change; Decrease Number of workers employed: No change; Unemployment rate: decrease

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?

D. Not change; increase Real output: not change; price level: increase

Increases in the real per capita income of a country are most closely associated with increases in which of the following?

D. Productivity

Potential gross domestic product will decrease under which of the following conditions?

D. The country's annual depreciation is greater than its annual gross investment

Assume that the reserve requirement for demand deposits is 20%, that banks hold no excess reserves, and that the public holds no currency. If the central bank sells $10,000 worth of government securities to central banks, the total money supply will...

D. decrease by $50,000

In the long run, an increase in aggregate demand due to an expansion in the money supply will increase...

D. nominal output and the price level

Rational expectations theory suggests that people...

D. use all available information in forming their expectations about future inflation

Suppose that country A is experiencing high inflation relative to country b, which is enjoying steady growth with a stable price level. Which of the following would occur in the foreign exchange market?

E. A depreciation of Country A's currency

If the central bank raises the required reserve ratio, the money multiplier and the money supply will change in which of the following ways?

E. Decrease; Decrease Money Multiplier: Decrease; Money Supply: Decrease

Which of the following is true of the opportunity cost of holding cash?

E. It increases as the interest rate rises