AP MacroEconomics: Practise Exam MC Questions

Which of the following is true when the velocity of money falls?

(CORRECT) An increase in the money supply will have less effect on nominal gross national product. (b) A change in the money supply will affect output only. (c) The Federal Reserve will decrease the money supply. (d) Output will be greater for a given money supply. (e) The public will increase its holdings of assets other than money

Fish Wheat Country A 10 labor-hours 20 labor-hours Country B 20 labor-hours 60 labor-hours 1. The table above indicates labor-hours needed to produce a single unit of each of two commodities in each of two countries. If labor is the only factor used to produce the commodities, which of the following statements must be correct? I. Country A has an absolute advantage in the production of both commodities, but a comparative advantage in the production of wheat. II. Country B has an absolute advantage in the production of both commodities, but a comparative advantage in the production of fish. III. Mutually advantageous trade can occur between the two countries when 2.5 units of fish are exchanged for 1 unit of wheat.

(d) I and III only

If your nominal income rises 4 percent and your real income falls 1 percent, by how much did the price level change?

5 percent increase The %delta in real income is equal to the %delta in the nominal income minus the rate of inflation.

When investment increases by $1, income increases by a maximum of $5

Aggregate demand will increase.

Which of the following will most likely occur as a result of an increase in labor productivity in an economy?

An increase in output and a decrease in inflation

Which of the following is a characterisstic of a centrally planned economic system?

Government planners decide how best to produce goods and services

Which of the following is most likely to cause an increase in the international value of the United States dollar?

Higher United States real interest rates

The gov has just lowered personal income taxes. Which of the following best describes the effects that this policy has on the economy?

Higher disposable income Higher consumption Higher Real GDP Lower Unemployment

Which of the following lessens the impact of expansionary fiscal policy?

Higher interest rates that decrease private investment

Which of the following statements are true of the production possibility frontiers and trade between nations? I. Nations specialize and trade based on comparative advantage in production II. Free trade allows each nation to consume beyond the production possibility frontier. III. The flow of goods and services is based on the principle of absolute advantage IV. Nations can consume at point beyond the production possibility frontier by protecting domestic industries from free trade.

I and II only: I. Nations specialize and trade based on comparative advantage in production II. Free trade allows each nation to consume beyond the production possibility frontier.

Which of the following are harmed by unexpected high rates of inflation: I. Borrowers repaying long-term loan at a fixed interest rate II. Savers who have put their money in long-term assets that pay a fixed interest rate. III. Workers who have negotiated cost-of-living raises into their contracts IV. People living on fixed incomes

II and IV only II. Savers who have put their money in long-term assets that pay a fixed interest rate. IV. People living on fixed incomes

Which of the following statements are true? I. The velocity of money is equal to real GDP divided by the money supply. II. Dollars earned today have more purchasing power than dollars earned a year from today III. The supply of loanable funds consists of investors.

II only. II. Dollars earned today have more purchasing power than dollars earned a year from today

Suppose that a national government increased deficit spending on goods and services, increasing its demand for loanable funds. In the long run, this policy would most likely result in which of the following changes in this country? Real Interest Rate Investment

Increase Decrease

Assume that Canadian consumers increase their demand for Mexican financial assets. How would the international supply of Canadian dollars, the value of the Mexican peso relative to the Canadian dollar, and Canadian net exports to Mexico change? Supply of Value of Canadian Net Canadian Dollars the Peso Exports

Increase Increase Increase

If the government simultaneously engages in expansionary monetary and fiscal policies, which of the following is the effect on interest rates and unemployment?

Indeterminate Decrease

An increase in which of the following would cause an increase in aggregate supply?

Labor productivity

Corn is exchanged in a competitive market. Which of the following definitely increases the equilibrium price of corn?

Supply shifts to the left; Demand shifts to the right

Which of the following best measures changes in the price level of national product?

The GDP Deflator It is a price index of all goods and services that go to national product. It includes more than CPI and PPI.

If nominal gross domestic product fell while real gross domestic product rose, which of the following must be true?

The inflation rate was negative.

A nation is producing at a point inside of its PPF. Which of the following is a possible explanation for this outcome?

The nation is experiencing an economic recession.

The purchase of bonds by the Federal Reserve will have the greatest effect on real gross domestic product if which of the following situations exists in the economy?

The required reserve ratio is low, and the interest rate has a large effect on investment spending

If the Federal Reserve sells a significant amount of government securities in the open market, which of the following will occur?

The total amount of loans made by commercial banks will decrease.

An increase in which of the following would reduce the United States balance-of-trade deficit?

The value of foreign currency relative to the United States dollar

In an economy with lump-sum taxes and no international trade, if the marginal propensity to consume is 0.8, which of the following is true?

When investment increases by $1, income increases by a maximum of $5

To counteract a recession, the Federal Reserve should

buy securities on the open market and lower the discount rate

If the reserve requirement is 25 percent and banks hold no excess reserves, an open market sale of $400,000 of government securities by the Federal Reserve will

decrease the money supply by up to $1.6 million

An increase in CPI is reffered to as:

inflation

A stimulative fiscal policy combined with a restrictive monetary policy will necessarily cause

interest rates to rise

On a short-run Phillips curve, high rates of inflation coincide with

low unemployment rates

Suppose that the consumer price index rises from 100 to 200. From this information we may conclude that

the prices in an average consumer's market basket are doubled