Download national-income-and-price-determination--sample

National Income and Price
Determination:
Sample Questions
AP Economics
Mr. Bordelon
My cat Emma loves you all, and is
watching you work hard.
• Suppose GDP is $8,000, autonomous
consumption is $500, and planned investment
spending is $200. The marginal propensity to
consume is 0.8.
Which of the following is an accurate equation
for the consumption function?
a. C = 8,000 + 0.8YD
b. C = 8,700 + 0.2YD
c. C = 500 + 0.8YD
d. C = 1,700 + 0.2YD
e. C = 700 + 0.8YD
• Suppose GDP is $8,000, autonomous
consumption is $500, and planned investment
spending is $200. The marginal propensity to
consume is 0.8.
Which of the following is an accurate equation
for the consumption function?
a. C = 8,000 + 0.8YD
b. C = 8,700 + 0.2YD
c. C = 500 + 0.8YD
d. C = 1,700 + 0.2YD
e. C = 700 + 0.8YD
Disposable Income (in billions)
Consumer Spending (in billions)
$0
$100
200
220
400
340
600
460
800
580
1000
700
Referring to the table provided, the autonomous consumer spending is:
a. $200.
b. $100.
c. $120.
d. $0.
e. $220.
Disposable Income (in billions)
Consumer Spending (in billions)
$0
$100
200
220
400
340
600
460
800
580
1000
700
Referring to the table provided, the autonomous consumer spending is:
a. $200.
b. $100.
c. $120.
d. $0.
e. $220.
If the marginal propensity to consume is 0.5,
individual autonomous consumption is $10,000,
and disposable income is $40,000, then
individual consumption spending is:
a. $20,000.
b. $25,000.
c. $30,000.
d. $45,000.
e. $50,000.
If the marginal propensity to consume is 0.5,
individual autonomous consumption is $10,000,
and disposable income is $40,000, then
individual consumption spending is:
a. $20,000.
b. $25,000.
c. $30,000.
d. $45,000.
e. $50,000.
If the MPC is 0.8, then the multiplier is:
a. 4.
b. 5.
c. 8.
d. 10.
e. 2.
If the MPC is 0.8, then the multiplier is:
a. 4.
b. 5.
c. 8.
d. 10.
e. 2.
According to the wealth effect, when the price
level decreases, the purchasing power of assets:
a. decreases and consumer spending decreases.
b. increases and consumer spending decreases.
c. decreases and consumer spending increases.
d. remains constant and consumer spending is
unchanged.
e. increases and consumer spending increases.
According to the wealth effect, when the price
level decreases, the purchasing power of assets:
a. decreases and consumer spending decreases.
b. increases and consumer spending decreases.
c. decreases and consumer spending increases.
d. remains constant and consumer spending is
unchanged.
e. increases and consumer spending increases.
A decrease in the money supply is likely to cause:
a. an increase in money holdings, higher interest
rates and a decrease in aggregate demand.
b. an increase in money holdings, higher interest
rates and an increase in aggregate demand.
c. a decrease in money holdings, lower interest
rates and a decrease in aggregate demand.
d. a decrease in money holdings, lower interest
rates and an increase in aggregate demand.
e. a decrease in money holdings, higher interest
rates and a decrease in aggregate demand.
A decrease in the money supply is likely to cause:
a. an increase in money holdings, higher interest
rates and a decrease in aggregate demand.
b. an increase in money holdings, higher interest
rates and an increase in aggregate demand.
c. a decrease in money holdings, lower interest
rates and a decrease in aggregate demand.
d. a decrease in money holdings, lower interest
rates and an increase in aggregate demand.
e. a decrease in money holdings, higher interest
rates and a decrease in aggregate demand.
The economy is in a recession. Which of the
following is a fiscal policy that the government
should adopt to strengthen the economy?
a. A decrease in government transfer payments.
b. An increase in government purchases of
goods and services.
c. An increase in tax rates.
d. A decrease in interest rates.
e. An increase in the money supply.
The economy is in a recession. Which of the
following is a fiscal policy that the government
should adopt to strengthen the economy?
a. A decrease in government transfer payments.
b. An increase in government purchases of
goods and services.
c. An increase in tax rates.
d. A decrease in interest rates.
e. An increase in the money supply.
Which of the following policies will shift AD to the
left?
a. The government increases its level of spending
in the economy.
b. The government increases transfer payments to
households.
c. The Federal Reserve increases the money supply
in the economy.
d. The government decreases its level of taxation
in the economy.
e. The government increases its level of taxation in
the economy.
Which of the following policies will shift AD to the
left?
a. The government increases its level of spending
in the economy.
b. The government increases transfer payments to
households.
c. The Federal Reserve increases the money supply
in the economy.
d. The government decreases its level of taxation
in the economy.
e. The government increases its level of taxation in
the economy.
Which of the following would likely cause the
SRAS to shift left?
a. a decrease in consumer spending.
b. a decrease in the price of imported oil.
c. an increase in the price of imported oil.
d. an increase in consumer spending.
e. an increase in personal income taxes.
Which of the following would likely cause the
SRAS to shift left?
a. a decrease in consumer spending.
b. a decrease in the price of imported oil.
c. an increase in the price of imported oil.
d. an increase in consumer spending.
e. an increase in personal income taxes.
In the long run, nominal wages are:
a. sticky downward but flexible in an upward
direction.
b. sticky upward but flexible in a downward
direction.
c. sticky in both an upward and downward
direction.
d. flexible because contracts and informal
agreements are renegotiated in the long run.
e. flexible because the government adjusts
disequilibrium in labor markets in the long run.
In the long run, nominal wages are:
a. sticky downward but flexible in an upward
direction.
b. sticky upward but flexible in a downward
direction.
c. sticky in both an upward and downward
direction.
d. flexible because contracts and informal
agreements are renegotiated in the long run.
e. flexible because the government adjusts
disequilibrium in labor markets in the long run.
When the economy is on the short-run aggregate
supply curve and to the left of the long-run
aggregate supply curve, actual aggregate output
will eventually equal potential output as:
a. nominal wages fall and the long-run aggregate
supply curve shifts to the left.
b. the aggregate price level falls and the long-run
aggregate supply curve shifts to the left.
c. nominal wages fall and the short-run aggregate
supply curve shifts to the right.
d. the aggregate price level falls and the aggregate
demand curve shifts to the right.
e. nominal wages rise and the short-run aggregate
supply curve shifts to the left.
When the economy is on the short-run aggregate
supply curve and to the left of the long-run
aggregate supply curve, actual aggregate output
will eventually equal potential output as:
a. nominal wages fall and the long-run aggregate
supply curve shifts to the left.
b. the aggregate price level falls and the long-run
aggregate supply curve shifts to the left.
c. nominal wages fall and the short-run aggregate
supply curve shifts to the right.
d. the aggregate price level falls and the aggregate
demand curve shifts to the right.
e. nominal wages rise and the short-run aggregate
supply curve shifts to the left.
Stagflation may result from:
a. an increase in the supply of money.
b. a decrease in the supply of money.
c. an increase in the price of imported oil.
d. a decrease in the price of imported oil.
e. an increase in personal income taxes.
Stagflation may result from:
a. an increase in the supply of money.
b. a decrease in the supply of money.
c. an increase in the price of imported oil.
d. a decrease in the price of imported oil.
e. an increase in personal income taxes.
Suppose the economy is operating in long-run equilibrium. If
a positive demand shock hits the economy, we would expect:
a. a short-run increase in real GDP and price level, and a
long-run decrease in real GDP and an increase in price
level.
b. a short-run increase in real GDP and price level, and a
long-run increase in real GDP and an increase in price
level.
c. a short-run increase in real GDP and price level, and a
long-run decrease in real GDP and a decrease in price
level.
d. a short-run increase in real GDP and price level, and a
long-run increase in real GDP and a decrease in price
level.
e. a short-run decrease in real GDP and price level, and a
long-run increase in real GDP and a decrease in price
level.
Suppose the economy is operating in long-run equilibrium. If
a positive demand shock hits the economy, we would expect:
a. a short-run increase in real GDP and price level, and a
long-run decrease in real GDP and an increase in price
level.
b. a short-run increase in real GDP and price level, and a
long-run increase in real GDP and an increase in price
level.
c. a short-run increase in real GDP and price level, and a
long-run decrease in real GDP and a decrease in price
level.
d. a short-run increase in real GDP and price level, and a
long-run increase in real GDP and a decrease in price
level.
e. a short-run decrease in real GDP and price level, and a
long-run increase in real GDP and a decrease in price
level.
As a recessionary gap is eliminated through selfcorrecting adjustment, the equilibrium price
level _____ and the equilibrium real output
_____.
a. increases; decreases
b. increases; increases
c. decreases; decreases
d. decreases; increases
e. remains constant; increases
As a recessionary gap is eliminated through selfcorrecting adjustment, the equilibrium price
level _____ and the equilibrium real output
_____.
a. increases; decreases
b. increases; increases
c. decreases; decreases
d. decreases; increases
e. remains constant; increases
If there is an inflationary gap, which of the following
accurately describes the adjustment to long-run equilibrium?
a. Nominal wages decrease, and the aggregate demand
curve shifts left until the economy reaches long-run
equilibrium.
b. Nominal wages increase, and the aggregate demand curve
shifts right until the economy reaches long-run
equilibrium.
c. Nominal wages decrease, and the short-run aggregate
supply curve shifts right until the economy reaches longrun equilibrium.
d. Nominal wages increase, and the short-run aggregate
supply curve shifts right until the economy reaches longrun equilibrium.
e. Nominal wages increase, and the short-run aggregate
supply cure shifts left until the economy reaches long-run
equilibrium.
If there is an inflationary gap, which of the following
accurately describes the adjustment to long-run equilibrium?
a. Nominal wages decrease, and the aggregate demand
curve shifts left until the economy reaches long-run
equilibrium.
b. Nominal wages increase, and the aggregate demand curve
shifts right until the economy reaches long-run
equilibrium.
c. Nominal wages decrease, and the short-run aggregate
supply curve shifts right until the economy reaches longrun equilibrium.
d. Nominal wages increase, and the short-run aggregate
supply curve shifts right until the economy reaches longrun equilibrium.
e. Nominal wages increase, and the short-run aggregate
supply cure shifts left until the economy reaches long-run
equilibrium.
The current level of real GDP lies below
potential GDP. An appropriate fiscal policy
would be to _____, which will shift the _____
curve to the _____.
a. increase government purchases; AD; left.
b. increase transfer payments; SRAS; right.
c. increase tax rates; AD; right.
d. increase government purchases; AD; right.
e. decrease government purchases; AD; left.
The current level of real GDP lies below
potential GDP. An appropriate fiscal policy
would be to _____, which will shift the _____
curve to the _____.
a. increase government purchases; AD; left.
b. increase transfer payments; SRAS; right.
c. increase tax rates; AD; right.
d. increase government purchases; AD; right.
e. decrease government purchases; AD; left.
Suppose the economy is experiencing an
inflationary gap. To move equilibrium aggregate
output closer to the level of potential output,
the best fiscal policy option is to:
a. decrease tax rates.
b. decrease government purchases.
c. increase the investment tax credit.
d. decrease the real interest rate.
e. lower the federal funds rate.
Suppose the economy is experiencing an
inflationary gap. To move equilibrium aggregate
output closer to the level of potential output,
the best fiscal policy option is to:
a. decrease tax rates.
b. decrease government purchases.
c. increase the investment tax credit.
d. decrease the real interest rate.
e. lower the federal funds rate.
An increase in taxes is considered to be an example of
_____ because it _____.
a. expansionary fiscal policy; shifts the aggregate
demand curve to the left, increasing aggregate output
b. contractionary fiscal policy; shifts the aggregate
demand curve to the left, decreasing aggregate
output.
c. expansionary fiscal policy; shifts the aggregate
demand curve to the right, increasing aggregate
output.
d. contractionary fiscal policy; shifts the aggregate
demand curve to the right, decreasing aggregate
output.
e. expansionary fiscal policy; shifts the aggregate
demand curve to the right, decreasing aggregate
output.
An increase in government transfers is considered to be
an example of _____ because it _____.
a. expansionary fiscal policy; shifts the aggregate
demand curve to the left, increasing aggregate output
b. contractionary fiscal policy; shifts the aggregate
demand curve to the left, decreasing aggregate
output.
c. expansionary fiscal policy; shifts the aggregate
demand curve to the right, increasing aggregate
output.
d. contractionary fiscal policy; shifts the aggregate
demand curve to the right, decreasing aggregate
output.
e. expansionary fiscal policy; shifts the aggregate
demand curve to the right, decreasing aggregate
output.
The existence of lags:
a. makes fiscal policy more effective than
monetary policy.
b. makes monetary policy more effective than
fiscal policy.
c. makes discretionary fiscal policy more
effective than automatic stabilizers.
d. makes both fiscal and monetary policy more
effective.
e. makes both fiscal and monetary policy more
challenging to implement.
The existence of lags:
a. makes fiscal policy more effective than
monetary policy.
b. makes monetary policy more effective than
fiscal policy.
c. makes discretionary fiscal policy more
effective than automatic stabilizers.
d. makes both fiscal and monetary policy more
effective.
e. makes both fiscal and monetary policy more
challenging to implement.
Assume that the marginal propensity to consume is
0.8, and potential output is $800 billion. If current
real GDP is $700 billion, which of the following
policies would bring the economy to potential
output?
a. Increase government spending by $25 billion.
b. Increase government spending by $100 billion.
c. Increase government spending by $20 billion.
d. Decrease government spending by $100 billion.
e. Increase government spending by $800 billion.
Assume that the marginal propensity to consume is
0.8, and potential output is $800 billion. If current
real GDP is $700 billion, which of the following
policies would bring the economy to potential
output?
a. Increase government spending by $25 billion.
b. Increase government spending by $100 billion.
c. Increase government spending by $20 billion.
d. Decrease government spending by $100 billion.
e. Increase government spending by $800 billion.
If the marginal propensity to consume is 0.8,
and the federal government decreases spending
by $200 billion, the income expenditure model
would predict that real GDP will decrease by:
a. $160 billion.
b. $200 billion.
c. $800 billion.
d. $1000 billion.
e. $750 billion.
If the marginal propensity to consume is 0.8,
and the federal government decreases spending
by $200 billion, the income expenditure model
would predict that real GDP will decrease by:
a. $160 billion.
b. $200 billion.
c. $800 billion.
d. $1000 billion.
e. $750 billion.
Assume that marginal propensity to consume is
0.8, and potential output is $800 billion. The tax
multiplier is:
a. 0.8.
b. 1.25.
c. 5.
d. 4.
e. 8.
Assume that marginal propensity to consume is
0.8, and potential output is $800 billion. The tax
multiplier is:
a. 0.8.
b. 1.25.
c. 5.
d. 4.
e. 8.