Download AP Economics Study Guide Chapter 10

AP Economics Study Guide Chapter 10
6. If, in an economy, a $120 billion increase in investment
spending creates $120 billion of new income in the first
round of the multiplier process and $90 billion in the
second round, the multiplier and the marginal
propensity to consume will be, respectively,:
A) 5.00 and 0.80.
B) 4.00 and 0.75.
C) 3.33 and 0.70.
D) 2.50 and 0.40.
1. In a closed private economy, an increase in investment
spending will increase the:
A) interest rate.
B) consumption schedule.
C) equilibrium level of GDP.
D) rate of return on investment.
2. If the MPC is .75, the multiplier will be:
A) 2.
B) 3.
C) 3.5.
D) 4.
7. The value of the marginal propensity to consume is 0.8.
If real GDP increases by $30 billion, this situation was
the result of an increase in the aggregate expenditures
schedule of:
A) $5 billion.
B) $6 billion.
C) $8 billion.
D) $24 billion.
Use the following to answer questions 3-5:
The table shows a private, closed economy. All figures are in
billions of dollars.
Expected rate
of return
10%
8
6
4
2
0
Investment
$
0
100
200
300
400
500
Consumption
$400
500
600
700
800
900
$
8. In general, the steeper the aggregate expenditure
schedule the:
A) smaller is the marginal propensity to consume.
B) greater is the average propensity to consume.
C) smaller is the multiplier.
D) larger is the multiplier.
GDP
400
600
800
1000
1200
1400
9. In a closed private economy where the MPC is 0.8,
what change in investment is required to reduce
domestic output by $60 billion?
A) $12 billion
B) $15 billion
C) $20 billion
D) $25 billion
3. Refer to the above table. If the real rate of interest is
2%, then the equilibrium level of GDP will be:
A) $800 billion.
B) $1000 billion.
C) $1200 billion.
D) $1400 billion.
Use the following to answer question 10:
The data are for a closed, private (no government) economy. All
figures are in billions of dollars.
4. Refer to the above table. An increase in the real interest
rate by 4% will:
A) decrease the equilibrium level of GDP by $200 billion.
B) decrease the equilibrium level of GDP by $300 billion.
C) decrease the equilibrium level of GDP by $400 billion.
D) increase the equilibrium level of GDP by $400 billion.
Possible levels of domestic output
and income (GDP = DI)
$540
560
580
5. Refer to the above table. The multiplier for this
economy is:
A) 2.00.
B) 2.50.
C) 3.00.
D) 3.33.
Consumption
$540
555
570
10. Refer to the above information. The multiplier is:
A) 5.
B) 4.
C) 3.
D) 2.5.
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11. Other things being equal, a decrease in an economy's
exports will:
A) increase domestic aggregate expenditures and the
equilibrium level of GDP.
B) decrease domestic aggregate expenditures and the
equilibrium level of GDP.
C) have no effect on domestic GDP because imports will
offset the change in exports.
D) decrease the marginal propensity to import.
16. Assume that an economy is operating at less than its
full-employment level of output. Which event would
most likely increase an economy's exports?
A) a rise in the tariff on products imported from abroad
B) a fall in the prosperity of trading partners for this
economy
C) an appreciation of a nation's currency relative to foreign
currencies
D) a depreciation of a nation's currency relative to foreign
currencies
Use the following to answer questions 12-14:
Use the following to answer questions 17-19:
All figures are in billions.
GDP
$500
550
600
650
700
750
Aggregate expenditures
(closed economy)
$525
560
595
630
665
700
The data are for a no-government economy. All figures are in
billions of dollars.
Exports
$15
15
15
15
15
15
Imports
$10
10
10
10
10
10
GDP
$440
490
540
590
640
12. Refer to the above data. The equilibrium level of GDP
in a private, open economy is:
A) $550 billion.
B) $600 billion.
C) $650 billion.
D) $700 billion.
Consumption
$450
490
530
570
610
17. Refer to the above data. If a lump-sum tax of $30
billion is imposed at all levels of GDP and net exports
are zero, the consumption schedule becomes:
A) $420, 460, 500, 540, 580.
B) $426, 466, 506, 546, 586.
C) $430, 470, 510, 550, 590.
D) $432, 472, 512, 552, 592.
13. Refer to the above data. The multiplier for this open
economy is:
A) 1.25.
B) 2.00.
C) 2.50.
D) 3.33.
18. Refer to the above data. If gross investment is $34
billion, net exports are zero, and there is a lump-sum
tax of $30 billion at all levels of GDP, then the after-tax
equilibrium level of GDP will be:
A) $490 billion.
B) $540 billion.
C) $590 billion.
D) $640 billion.
14. Refer to the above data. If exports increased by $15
billion at each level of GDP, then the equilibrium level
of GDP would be:
A) $550 billion.
B) $600 billion.
C) $650 billion.
D) $700 billion.
19. Refer to the above data. Given the levels of investment
at $34 billion, zero net exports, and a lump-sum tax of
$30 billion, the addition of government expenditures of
$20 billion at each level of GDP will result in an
equilibrium GDP of:
A) $490 billion.
B) $540 billion.
C) $590 billion.
D) $640 billion.
15. Over time, an increase in the real output and incomes of
the trading partners of the United States will:
A) increase U.S. exports and U.S. imports.
B) decrease U.S. exports and U.S. imports.
C) increase U.S. exports and decrease U.S. imports.
D) decrease U.S. exports and increase U.S. imports.
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20. If the marginal propensity to consume is 0.8 and both
taxes and government purchases of goods and services
increase by $10 billion, real GDP will:
A) decrease by $50 billion.
B) increase by $50 billion.
C) decrease by $10 billion.
D) increase by $10 billion.
21. Suppose the GDP is in equilibrium at full employment
and the MPC is .80. If government wants to increase its
purchase of goods and services by $16 billion without
causing either inflation or unemployment, taxes should
be:
A) increased by $20 billion.
B) reduced by $16 billion.
C) increased by $16 billion.
D) reduced by $20 billion.
22. If the economy has a recessionary gap of $15 billion
and the MPS is 0.3, then the equilibrium level of GDP
is:
A) $16 billion below the full-employment level.
B) $21 billion below the full-employment level.
C) $50 billion below the full-employment level.
D) $50 billion above the full-employment level.
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