Download Unit III - AP Macro Practice Exam Questions Multiple Choice Identify

Unit III - AP Macro Practice Exam Questions
Multiple Choice
Identify the choice that best completes the statement or answers the question.
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1. Given the diagram below, what can be expected when the level of income in the economy is
$2,000?
a. inventories are accumulating and
d. inventories are dwindling and savings
savings are falling
are rising
b. inventories are accumulating and
e. inventories are constant and savings
savings are rising
are zero
c. inventories are dwindling and savings
are falling
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2. The diagram below
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3.
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4.
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5.
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6.
a. is incorrect since Qf can never be to
d. portrays an inflationary gap
the right of Q1
b. is incorrect because AD should slope e. portrays a Phillips Curve
upward and AS should slope down
c. portrays a recessionary gap
A country that experiences a depreciation of its currency can expect its
a. imports to rise
d. balance of trade to improve
b. exports to fall
e. balance of trade to be unaffected
c. balance of trade to worsen
In the short run, an increase in taxes can be expected to
a. decrease real GDP and prices
d. decrease real GDP and increase prices
b. increase real GDP and prices
e. decrease real GDP and not affect
prices
c. increase real GDP and decrease prices
The appropriate fiscal policy to remedy a recession is to
a. increase government spending and
d. decrease government spending and
taxes
increase taxes
b. reduce government spending and taxes e. increase the money supply
c. increase government spending and
reduce taxes
The aggregate demand curve indicates that if the price level rises
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a. total demand for goods and services
will not be affected
b. aggregate supply will fall
d. the quantity demanded of goods and
services will increase
e. the quantity demand of goods and
services will decrease
c. aggregate supply will rise
Suppose an economy in equilibrium at full employment and the government cuts taxes. This will
a. have no effect on real GDP or the price d. raise the price level, but not real GDP
level
in the short run
b. raise real GDP and the price level in
e. raise real GDP in the long run
the short run
c. raise real GDP and the price level in
the long run
If the marginal propensity to consume equals.75 and government spending increase by $100
million, then overall real GDP can be expected to_____________ by ___________.
a. decrease; $133.33 million
d. increase; $400 million
b. increase; $133.33 million
e. increase; $75 million
c. decrease; $400 million
Which of the following would NOT result in a shift to the left of the aggregate demand curve?
a. an increase in taxes
d. a decrease in consumer spending to
bleak expectations about future job
prospects
b. an increase in the money supply
e. a decrease in resources
c. a decrease in foreign preferences for
our products
According to the “rule of 70”, a variable such as GDP that grows at 5 percent a year will double in
a. 70 years
d. 70.5 years
b. 35 years
e. 14 years
c. 350 years
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8.
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9.
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10.
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11. Figure the dollar amount represented by the distance A-B in the diagram below. Assume the MPC
= 0.8.
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a. $10 million
d. $ 20 million
b. $ 8 million
e. $ 12.5 million
c. $ 25 million
12. If the marginal propensity to consume equals .8, then the multiplier is
a. undefined
d. less than 1
b. 5
e. 4
c. 1.25
13. If the government of country Z increase spending by $12 million dollars and raises tax collections
by the same amount, then what will be the overall impact of these moves on real GDP in country
Z?
a. real GDP will increase by $6 million d. real GDP will increase by $12 million
b. real GDP will decrease by $6 million e. real GDP will decrease by $12 million
c. real GDP will remain unchanged
14. As an increase in energy costs will most likely cause the price level and real gross domestic
product to change in which of the following ways?
a. Price Level - Increase; Real GDP d. Price Level - Decrease; Real GDP Increase
Increase
b. Price Level - Increase; Real GDP e. Price Level - Decrease; Real GDP Decrease
Decrease
c. Price Level - Increase; Real GDP - No
Change
15. According to the Keynesian savings schedule, when aggregate income increases by a given
amount, savings will
a. remain the same
d. increase by less than the amount of the
change in income
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b. decrease by the amount of the change e. increase by more than the amount of
in income
the change in income
c. increase by the amount of the change
in income
A contractionary supply shock would most likely result in
a. an increase in aggregate demand
d. a decrease in the general price level
b. an increase in national income
e. a decrease in employment
c. an increase in gross domestic product
If the economy is operating in the intermediate range of the aggregate supply curve and if
aggregate demand increase 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?
a. Price Level - Increase; Output d. Price Level - Increase; Output Increase; Unemployment Rate Decrease; Unemployment Rate Increase
Decrease
b. Price Level - Increase; Output e. Price Level - Decrease; Output Increase; Unemployment Rate Decrease; Unemployment Rate Decrease
Increase
c. Price Level - Increase; Output Decrease; Unemployment Rate Increase
The value of the spending multiplier decreases when
a. tax rates are reduced
d. government spending increases
b. exports decline
e. the marginal propensity to save
increases
c. imports decline
Which of the following best explains why equilibrium income will rise by more than $100 in
response to a $100 increase in government spending?
a. income will rise, resulting in a tax
d. the increased spending increases the
decrease
money supply, lowering interest rates
b. income will rise, resulting in higher
e. the higher budget deficit reduces
consumption
investment
c. the increased spending raises the
aggregate price level
A major advantage of automatic stabilizers in fiscal policy is that they
a. reduce the public debt
d. go into effect without passage of new
legislation
b. increase the possibility of balanced
e. automatically reduce the inflation rate
budget
c. stabilize the unemployment rate
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16.
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17.
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18.
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19.
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20.
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21. Unexpected increases in inventories usually precede
a. increases in inflation
d. decreases in production
b. increases in imports
e. decrease in unemployment
c. stagflation
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22. 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
d. the federal budget deficit
b. productivity
e. imports
c. the money supply
23. 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?
a. the price level
d. the aggregate supply curve
b. the level of output and employment
e. the demand for money, unless the
economy slips into the liquidity trap
c. interest rates
24. In a closed economy with no taxes in which the average propensity to consume is 0.75, which of
the following is true?
a. if income is $100, then saving is $75 d. if income is $200, then saving is $75
b. if income is $100, then saving is $50 e. if income is $500, then saving is $100
c. if income is $200, then saving is $50
25. 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. Aggregate Demand - Decrease; Output d. Aggregate Demand - Increase; Output
- Decrease; Price Level - Decrease
- Increase; Price Level - Increase
b. Aggregate Demand - Decrease; Output e. Aggregate Demand - No change;
- Increase; Price Level - Increase
Output - No change; Price Level - No
change
c. Aggregate Demand - Increase; Output
- Decrease; Price Level - Decrease
26. Which of the following best explains how an economy could simultaneously experience high
inflation and high unemployment?
a. the government increases spending
d. women and teen-agers stay out of the
without increasing taxes
labor force
b. the government increase taxes without e. negative supply shocks cause factor
increasing spending
prices to increase
c. inflationary expectations decline
27. The intersection of the aggregate supply curve and the aggregate demand curve occurs at the
economy’s equilibrium level of
a. real investment and the investment rate d. government expenditures and taxes
b. real disposable income and
e. imports and exports
unemployment
c. real national output and the price level
28. Which of the following would most likely cause a rightward shift in an economy’s aggregate
supply curve?
a. an increase in interest rates
d. the passage of legislation mandating a
reduction in automobile pollution
b. a tax increase of 50 cents per gallon
e. the shutdown of plants and movement
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29.
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30.
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31.
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32.
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33.
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for gasoline
of production of goods abroad
c. an across-the-board reduction of wages
in the manufacturing sector
Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to
consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will
equal which of the following?
a. Consumption - $420; Savings - $280 d. Consumption - $660; Savings - $440
b. Consumption - $600; Savings - $400 e. Consumption - $760; Savings - $340
c. Consumption - $660; Savings - $320
If, at full employment, the government wants to increase its spending by $100 billion without
increasing inflation in the short run, it must do which of the following?
a. raise taxes by more than $100 billion d. lower taxes by $100 billion
b. raise taxes by $100 billion
e. lower taxes by less than $100 billion
c. raise taxes by less than $100 billion
Which of the following changes in the aggregate demand and aggregate supply curves is likely to
result in stagflation?
a. the aggregate demand curve shifts to d. the aggregate supply curve shifts to the
the left when the economy is in the
left
classical range of the aggregate supply
curve
b. the aggregate demand curve shifts to e. the aggregate supply curve shifts to the
the right when the economy is in the
right
classical range of the aggregate supply
curve
c. the aggregate demand curve shifts to
the right when the economy is in the
Keynesian range of the aggregate
supply curve
Which of the following would increase the aggregate demand function?
a. higher level of imported goods
d. lower taxes on personal income
b. lower levels of consumer wealth
e. lower levels of exported goods
c. a high real interest rate
Suppose that current disposable income is $10,000 and consumption spending is $8000. For every
$100 increase in disposable income, saving increases $10. Given this information,
a. the marginal propensity to consume is d. the marginal propensity to save is .90
.80
b. the marginal propensity to save is .20 e. the marginal propensity to consume is
.10
c. the marginal propensity to save is.10
If the economy is suffering from extremely high rates of inflation, which of the following fiscal
policies would be an appropriate strategy for the economy?
a. increase government spending and
d. the federal reserve lowers the discount
decrease taxes
rate
b. decrease government spending and
e. decrease taxes with no change in
increase taxes
government spending.
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c. increase government spending with no
change in taxes
35. When a large increase in aggregate demand has an even greater increase in real GDP, economists
refer to this as
a. the balanced budget multiplier
d. the wealth effect
b. the money multiplier
e. the spending multiplier
c. the foreign substitution effect
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Unit III - AP Macro Practice Exam Questions
Answer Section
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