ap macroeconomics practice exam 1

7/25/2019 AP Macroeconomics Practice Exam 1

1/12


2/12

a. $oth supply and demand shift rightward.

b. $oth supply and demand shift leftward.

c. %upply shifts to the right& demand shifts to the left.

d. %upply shifts to the left& demand shifts to the right.

e. The government imposes an effective price ceiling in the corn mar'et.

'. An increase in the &onsumer (rice )nde is commonly referred to as

a. economic growth.

b. inflation.

c. unemployment.

d. discouraged wor'ers.

e. deflation.

*. Which of the following is characteristic of a centrally planned economic system?

a. (esources are allocated based on relative prices.

b. The circular flow of goods and services minimizes the role of the federal government.

c. !rivate ownership of resources is fundamental to economic growth.d. )overnment planners decide how best to produce goods and services.

e. *fficiency is superior to the mar'et economic system.

+. he go$ernment has ust lowered personal income taes. Which of the following best

describes the effects that this policy has on the economy?

a. +igher disposable income, higher consumption, higher real )!, lower unemployment.

b. +igher disposable income, lower consumption, higher real )!, lower unemployment.

c. -ower disposable income, higher consumption, higher real )!, lower unemployment.

d. -ower disposable income, lower consumption, lower real )!, higher unemployment.

e. +igher disposable income, higher consumption, higher real )!, higherunemployment.

. Which of the following are harmed by unepectedly high rates of inflation?

a. $orrowers repaying a longterm loan at a fixed interest rate.

b. %avers who have put their money in longterm assets that pay a fixed interest rate.

c. /or'ers who have negotiated costofliving raises into their contracts.

d. !ersons living on fixed incomes.

e. I and III only

f. II and III only

g. II and IV only

h. I, II, and IV only

i. II, III, and IV only

/. Which of the following statements are true?

a. The velocity of money is e0ual to real )! divided by the money supply.

b. ollars earned today have more purchasing power than dollars earned a year fromtoday.

c. The supply of loanable funds consists of investors.

d. I only

e. II only

!age " 1


3/12

f. III only

g. I and II only

h. I, II, and III

10. )f your nominal income rises % percent and your real income falls 1 percent, by how much

did the price le$el change?

a. 2 percent decrease

b. #34percent increasec. 5 percent increase

d. 5 percent decrease

e. 2 percent increase

11. Which of the following best measures changes in the price le$el of national product?

a. The consumer price index.

b. The real interest rate.

c. The unemployment rate.

d. The producer price index.

e. The )! deflator.

12. Which of the following lessens the impact of epansionary fiscal policy?

a. 6n increase in the marginal propensity to consume.

b. -ower interest rates that cause a decrease in net exports.

c. +igher interest rates that cause an increase in net exports.

d. +igher interest rates that decrease private investment.

e. Falling price levels.

1!. uppose that the unemployment rate falls from * percent to ' percent and the inflation rate

falls from ! percent to 2 percent. Which of the following best eplains these trends?a. 6n increase in aggregate demand.

b. 6 decrease in both aggregate demand and aggregate supply.

c. 6n increase in both aggregate demand and aggregate supply.

d. 6n increase in aggregate supply.

e. 6n increase in aggregate demand and a decrease in aggregate supply.

1%. Which of the following scenarios best describes the concepts of scarcity and opportunitycost?

a. 6s a birthday present, your cousin sends you a 718 bill.

b. 9our state government, in order to increase support for higher education, must increasethe sales tax to 'eep the budget balanced.

c. 9our state government, in order to increase support for higher education, must cutspending for environmental protection to 'eep the budget balanced.

d. The local fire department conducts a raffle to raise funds for new e0uipment.

e. %mo'e from a forest fire impairs air 0uality in a small mountain town.

1'. ome economists belie$e that when aggregate demand declines, prices are infleible orstic#y in the downward direction. his implies that the aggregate supply cur$e is

a. upward sloping at full employment.

b. horizontal below full employment.c. vertical at full employment.

!age " 5


4/12

d. vertical below full employment.

e. vertical above full employment.

1*. Which of the following policies best describes supply-side fiscal policy?

a. 6n increase in the money supply.

b. Increased government spending.

c. -ower taxes on research and development of new technology.

d. -ower taxes on household income.

e. :ore extensive government social welfare programs.

1+. A li#ely cause of falling reasury bond prices might be

a. expansionary monetary policy.

b. contractionary monetary policy.

c. a depreciating dollar.

d. fiscal policy designed to reduce the budget deficit.

e. a decrease in the money demand.

1. he economy is currently operating at full employment. Assuming fleible wages and prices,how would a decline in aggregate demand affect 34( and the price le$el in the short run,and 34( and the price le$el in the long run?

1/. )n the long run, aggregate supply is

a. upward sloping at full employment.

b. horizontal below full employment.

c. vertical at full employment.d. vertical below full employment.

e. vertical above full employment.

20. What does the presence of discouraged wor#ers do to the measurement of theunemployment rate?

a. iscouraged wor'ers are counted as ;out of the labor force,; thus understating theunemployment rate, ma'ing the economy loo' stronger than it is.

b. iscouraged wor'ers are counted as ;out of the labor force,; thus overstating theunemployment rate, ma'ing the economy loo' wea'er than it is.

c. iscouraged wor'ers are not surveyed so there is no impact on the unemployment rate.

d. iscouraged wor'ers are counted as ;unemployed,; thus understating theunemployment rate, ma'ing the economy loo' stronger than it is.

!age " 4


5/12

e. iscouraged wor'ers are counted as ;unemployed,; thus overstating the unemploymentrate, ma'ing the economy loo' wea'er than it is.

21. Which of the following is true of the complete circular flow model of an open economy?

a. 6ll goods and services flow through the government in exchange for resourcepayments.

b. There is no role for the foreign sector.

c. +ouseholds supply resources to producers in exchange for goods and services.d. !roducers provide goods and services to households in exchange for the costs of

production.

e. The government collects taxes from firms and households in exchange for goods andservices.

22. Which of the following most li#ely increases aggregate demand in the 5nited tates.?

a. 6n 6merican entrepreneur founds and locates a software company in -ondon.

b. The


6/12

c. bond prices fall.

d. the supply of money falls.

e. nominal )! increases.

2+. Which of the following represents a combination of contractionary fiscal and epansionary

monetary policy?

2. "igher le$els of consumer wealth and optimism would li#ely ha$e which of the following

changes in the mar#et for loanable funds?

2/. )n$estment demand most li#ely increases when

a. real )! increases.

b. the cost of ac0uiring and maintaining capital e0uipment rises.

c. investor optimism improves.

d. the real rate of interest rises.

e. taxes on business investment rise.

!0. At the pea# of a typical business cycle, which of the following is li#ely the greatest threat to

the macroeconomy?

a.


7/12

e. Inflation

!1. uppose that households increase the demand for 5.. reasury bonds as financial assets.Which of the following accurately describes changes in the money mar#et, the interest rate,

and the $alue of the dollar in foreign currency mar#ets?

!2. )f households are more optimistic about the future, how would the consumption function be

affected?

a. The marginal propensity to consume would increase, increasing the slope of theconsumption function.

b. The entire consumption function would shift downward.

c. The entire consumption function would shift upward.

d. The marginal propensity to consume would decrease, increasing the slope of theconsumption function.

e. The marginal propensity to consume would increase, decreasing the slope of theconsumption function.

!!. 5.. real 34( most li#ely falls when

a. tariffs and 0uotas are removed.

b. investment in human capital is high.

c. the money supply is increased.

d. there is a trade surplus in goods and services.

e. the value of the dollar, relative to foreign currencies, is high.

!%. )f current real 34( is 6'000, and full employment real 34( is at 6%000, which of the

following combinations of policies might ha$e brought the economy to this point?

a. 6 decrease in taxes and a lower discount rate.

b. 6n increase in government spending and an increase in taxes.

c. 6 decrease in taxes and selling bonds in an open mar'et operation.

d. 6n increase in government spending and an increase in the discount rate.

e. 6 decrease in taxes and a decrease in government spending.

!'. )f a nation is operating at full employment, and the central ban# engages in contractionary

monetary policy, the nation can epect the interest rate, the purchases of new homes, and theunemployment rate to change in which of the following ways?

!age " ?


8/12

!*. 7pansionary monetary policy is designed to

a. lower the interest rate, increase private investment, increase aggregate demand, andincrease domestic output.

b. lower the interest rate, increase private investment, increase aggregate demand, andincrease the unemployment rate.

c. increase the interest rate, increase private investment, increase aggregate demand, andincrease domestic output.

d. increase the interest rate, decrease private investment, increase aggregate demand, andincrease domestic output.

e. increase the interest rate, decrease private investment, decrease aggregate demand, anddecrease the price level.

!+. )f the economy is eperiencing an inflationary gap, which of the following is most li#ely to

worsen the problem?

a. 6n increase in government spending matched by an e0ual increase in taxes.

b. 6n increase in government spending with no change in taxes.

c. 6 decrease in government spending and a matching increase in taxes.

d. 6 decrease in taxes with no change in government spending.

e. 6 decrease in government spending matched by an e0ual decrease in taxes.

!. Which of the following is a component of the 81 measure of money supply?

a. %avings deposits

b. )old bullion

c. =ash and coinsd. 58year Treasury certificates

e. #@month certificates of deposits

!/. Assuming that households sa$e a proportion of disposable income, which of the following

relationships between multipliers is correct?

a. Tax multiplier A %pending multiplier A $alanced budget multiplier.

b. %pending multiplier B Tax multiplier A $alanced budget multiplier.

c. %pending multiplier A Tax multiplier B $alanced budget multiplier.

d. %pending multiplier A Tax multiplier A $alanced budget multiplier.

e. Tax multiplier A %pending multiplier B $alanced budget multiplier.

%0. he fractional reser$e ban#ing system9s ability to create money is lessened if

!age " @


9/12

a. households that borrow redeposit the entire loan amounts bac' into the ban's.

b. ban's hold excess reserves.

c. ban's loan all excess reserves to borrowing customers.

d. households increase chec'ing deposits in ban's.

e. the Federal (eserve lowers the reserve ratio.

%1. All else equal, when the 5nited tates eports more goods and ser$ices,

a. the value of the dollar falls as the supply of dollars increases.

b. the value of the dollar rises as demand for dollars increases.

c. the value of the dollar falls as demand for dollars decreases.

d. the value of the dollar rises as the supply of dollars increases.

e. the value of the dollar falls as demand for dollars increases.

%2. )f the reser$e ratio is 10 percent and a new customer deposits 6'00, what is the maimumamount of money created?

a. 7288

b. 74288

c. 72888

d. 728

e. 72288

%!. uppose today9s headline is that pri$ate in$estment has decreased as a result of an action bythe Federal :eser$e. Which of the following choices is the most li#ely cause?

a. %elling Treasury securities to commercial ban's.

b. -owering of the discount rate.

c. ecreasing the reserve ratio.

d. *limination of a corporate tax credit on investment.e. 6 stronger stoc' mar'et has increased investor optimism.

%%. )f 61000 is deposited into a chec#ing account and ecess reser$es increase by 6+00, the

reser$e ratio must be;

a. ?8C

b. 58C

c. 48C

d. D8C

e. ?2C

%'. uppose a nation is eperiencing an annual budget surplus and uses some of this surplus topay down part of the national debt.


10/12

b. -ongrun aggregate supply is upward sloping as nominal wages 0uic'ly respond toprice level changes.

c. %hortrun aggregate supply is vertical as nominal wages 0uic'ly respond to price levelchanges.

d. %hortrun aggregate supply is upward sloping as nominal wages do not 0uic'ly respondto price level changes.

e. -ongrun aggregate supply is vertical as nominal wages do not 0uic'ly respond to pricelevel changes.

%+. he crowding out effect refers to which of the following?

a. -ower interest rates that result from borrowing to conduct expansionary monetarypolicy.

b. +igher interest rates that result from borrowing to conduct contractionary fiscal policy.

c. +igher interest rates that result from borrowing to conduct expansionary fiscal policy.

d. +igher interest rates due to borrowing to conduct contractionary monetary policy.

e. -ower interest rates due to borrowing to conduct expansionary fiscal policy.

%. Which of the following is a predictable consequence of import quotas?a. Increased competition and lower consumer prices.

b. Increased government tax revenue from imported goods.

c. (ising net exports and a rightward shift in aggregate supply.

d. 6n improved allocation of resources away from inefficient producers and lowerconsumer prices.

e. +igher consumer prices and a misallocation of resources away from efficientproducers.

%/. )f the Federal :eser$e was concerned about the crowding out effect, they could engage in

a. expansionary monetary policy by lowering the discount rate.b. expansionary monetary policy by selling Treasury securities.

c. contractionary monetary policy by raising the discount rate.

d. contractionary monetary policy by lowering the discount rate.

e. expansionary monetary policy by raising the reserve ratio.

'0. Which of the following would li#ely contribute to faster rates of economic growth?

a. 6 more restrictive immigration policy.

b. Negative net investment.

c. +igher taxes on households and firms.

d. +igher government funding of research on clean energy supplies.

e. !rotective trade policies.

'1. A nation that must consistently borrow to co$er annual budget deficits ris#s

a. a depreciation of the nations currency as foreigners increase investment in the nation.

b. a decline in net exports as the nations goods become more expensive to foreignconsumers.

c. lower interest rates that discourage foreign investment in the nation.

d. an appreciation of the nations currency as foreigners decrease investment in the nation.

e. lower interest rates that reduce private investment in productive capital.

'2. 7conomic growth is best described as

!age " #8


11/12

a. an increase in the production possibility frontier and an increase in the natural rate ofunemployment.

b. an increase in the production possibility frontier and a leftward shift in longrunaggregate supply.

c. a decrease in the production possibility frontier and a rightward shift in longrunaggregate supply.

d. a decrease in the production possibility frontier and a leftward shift in longrunaggregate supply.

e. an increase in the production possibility frontier and a rightward shift in longrunaggregate supply.

'!. Which of the following is true of automatic fiscal policy stabili=ers?

a. For a given level of government spending, they produce a deficit during a recession anda surplus during an expansion.

b. They serve to prolong recessionary and inflationary periods.

c. The regressive tax system is a fundamental component of automatic stabilizers.

d. For a given level of government spending, they produce a surplus during a recessionand a surplus during an expansion.

e. They lengthen the business cycle.

'%. Which of the following is an eample of epansionary monetary policy for the Federal:eser$e?

a. Increasing the discount rate.

b. Increasing the reserve ratio.

c. $uying Treasury securities from commercial ban's.

d. -owering income taxes.

e. (emoval of import 0uotas.''. >abor producti$ity and economic growth increase if

a. a nation subsidizes education for all citizens.

b. a nation imposes tariffs and 0uotas on imported goods.

c. a nation removes penalties for firms that pollute natural resources.

d. a nation ignores societal barriers li'e discrimination.

e. a nation taxes income from interest on saving.

'*. he short-run (hillips cur$e depicts the relationship between and .

a. positive, price level, interest rate

b. negative, interest rate, private investment

c. negative, the inflation rate, the unemployment rate

d. positive, price level, real )!

e. negative, interest rate, money demand

'+. A negati$e, or contractionary, supply shoc# will

a. shift the !hillips curve to the left.

b. shift the investment demand curve to the right.

c. shift the money demand curve to the right.

d. shift the money supply curve to the left.

e. shift the !hillips curve to the right.

!age " ##


12/12

'. When a nation is operating at the natural rate of employment,

a. there is no cyclical unemployment.

b. the inflation rate is zero.

c. there is no structural unemployment.

d. the nation is experiencing a recession.

e. the unemployment rate is zero.

'/. Which of the following li#ely results in a permanent increase in a nation9s producti$e

capacity?

a. 6 decline in the birth rate.

b. eclining adult literacy rates.

c. /idespread relocation of manufacturing firms to lowwage nations.

d. National program of child immunization.

e. 6 global increase in the price of crude oil.

*0. >ower interest rates in the 5nited tates cause the $alue of the dollar and eports to change

in which of the following ways?

!age " #1

ap macroeconomics practice exam 1

Documents