ap macroeconomics college board questions unit 3

A change in which of the following will cause the short-run aggregate supply curve to shift?

I. The price level

II. Government spending

III. The cost of all inputs

III only

A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?

Nominal Interest Rate - Increase

Aggregate Demand - Decrease

A contractionary supply shock would most likely result in

a decrease in employment

A decrease in business taxes would lead to an increase in national income by increasing which of the following?

Both aggregate demand and aggregate supply

A decrease in labor productivity will shift the

short-run aggregate supply curve to the left

A decrease in taxes will necessarily result in an increase in which of the following?

Nominal gross domestic product

A decrease in the prices of inputs will cause which of the following to occur in the short run?

An increase in the short-run aggregate supply and a decrease in the price level

A discretionary fiscal policy action to reduce inflation in the short run would be to

increase taxes or decrease government spending

A favorable supply shock, such as a decrease in energy prices, is most likely to have which of the following short-run effects on the price level and output?

Price Level -Decrease

Output - Increase

Assume that the economy is at full-employment equilibrium in the diagram shown above. Which of the following would lead to stagflation?

A leftward shift of the short-run aggregate supply curve only

The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what range of real gross domestic product is the economy currently producing?

Greater than Y2

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?

Falling wages will shift the aggregate supply curve to the right, producing full employment.

According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

Income - Increase

Employment - Increase

A high marginal propensity to consume implies which of the following?

A low marginal propensity to save

A major advantage of automatic stabilizers in fiscal policy is that they

go into effect without passage of new legislation

A negative aggregate supply shock will result in which of the following in the short run?

An increase in both the price level and the unemployment rate

A rightward shift in the short-run aggregate supply curve will occur when

the stock of physical capital increases

A simultaneous increase in inflation and unemployment could be explained by an increase in which of the following?

Inflationary expectations

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

According to the graph above, which of the following will necessarily result in a decrease in output?

1. A rightward shift of the aggregate demand curve

2. A leftward shift of the aggregate demand curve

3. A rightward shift of the aggregate supply curve

4. A leftward shift of the aggregate supply curve

II and IV only

An increase in which of the following will most likely cause an increase in aggregate demand and inflation in the short run?

Government spending

Aggregate demand may be measured by adding

consumption, investment, government spending, and net exports

All of the following changes will shift the investment demand curve to the right EXCEPT

an increase in the real interest rate

All of the following explain why prices and wages are sticky EXCEPT

competition in the business sector

An advance in technology will cause the

long-run aggregate supply curve to shift to the right

An aggregate supply curve may be horizontal over some range because within that range

resources are underemployed and an increase in demand will be satisfied without any pressure on the price level

An economy experiences a sharp increase in energy prices, and policy makers adopt a stabilization policy to increase aggregate demand. Compared with the initial short-run equilibrium, which of the following will definitely occur?

Higher price level

An economy is at full-employment equilibrium. If consumers and firms become more optimistic about future income and profits, which of the following will occur in the short run?

Aggregate demand will shift rightward, increasing real output and the price level.

An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and the price level would occur in the long run?

Output - Increase

Price Level - Decrease

An economy's full-employment real output will decrease when

workers choose shorter weeks to enjoy more leisure time

An increase in consumer confidence will result in which of the following in the short run?

A rightward shift of the aggregate demand curve

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?

Price Level - Increase

Real Gross Domestic Product - Decrease

An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?

Aggregate Demand - Decrease

Aggregate Supply -Not change

An increase in spending in an economy will cause a multiplied increase in gross domestic product because

consumption increases as income increases

An increase in the expected inflation rate will cause the

short-run Phillips curve to shift to the right

An increase in the marginal propensity to consume causes an increase in which of the following

Spending multiplier

An increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways?

Aggregate Demand Curve - No change

Aggregate Supply Curve - Shift to the left

An increase in the purchases of newly constructed houses will result in which of the following?

Aggregate demand will increase as a result of an increase in investment spending.

An increase in which of the following is most likely to cause the short-run aggregate supply curve to shift to the left?

The per unit cost of production

An increase in which of the following will increase aggregate demand?

Government spending

An increase in which of the following will increase the value of the spending multiplier?

The marginal propensity to consume

An increase in which of the following will lead to lower inflation and lower unemployment?

Labor productivity

An increase in which of the following would cause the aggregate demand curve to shift to the left?

Income taxes

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

Labor productivity

An increase in which of the following would most likely cause the gross domestic product of a country to decrease in the short run?

Imports

An increase in which of the following would most likely result in an increase in aggregate supply?

Labor-force participation rate

An inflationary gap can be eliminated by all of the following EXCEPT

an increase in the money supply

An inflationary gap could be reduced by

an increase in the income tax rate

An ongoing increase in the price of oil will result in

cost-push inflation

An unanticipated decrease in aggregate demand when the economy is in equilibrium will result in

an increase in unplanned inventories

An unanticipated decrease in aggregate demand will most likely cause the unemployment rate and the inflation rate to change in which of the following ways?

Unemployment Rate- Increase

Inflation Rate- Decrease

As a component of aggregate demand, investment refers to the

purchase of new equipment and additional inventories

Assume a country's economy is currently in long-run equilibrium. What is the long-run effect of an increase in aggregate demand?

An increase in the price level

Assume a country's government has a balanced budget. If the economy goes into a recession, what will happen to the government's budget in the short run?

It will be in deficit, because there will be an automatic decrease in tax receipts.

Assume an economy is in a long-run equilibrium. Following a decrease in aggregate demand, which of the following is true in the short run?

The unemployment rate is greater than the natural rate of unemployment, and the rate of inflation is declining

Assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run?

An increase in the price level and a decrease in the real wage

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by

$8,000

Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?

Output- Increase

Price Level-

Indeterminate

Assume that the economy is in long-run equilibrium. A shift in the aggregate demand curve will change

only the price level in the long run

Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by

$56

Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ?

GDP will decrease by a maximum of $180 million.

Assume that the marginal propensity to consume is 0.75, net exports decline by $10 billion, and government spending increases by $20 billion. Given that there is no crowding out, the equilibrium gross domestic product can increase by a maximum of

$40 billion

Assume that the marginal propensity to consume is 0.8. If the government increases its purchases of goods and services by $200 and exports decline by $50, at most the equilibrium level of income will

increase by $750

Assume that with a proportional tax system, the government always sets the tax rate at a level that yields a balanced budget at full employment. Which of the following is necessarily true?

The national debt will increase in any year the economy operates below full employment.

Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways?

Imports: Increase

Exports: Decrease

Automatic stabilizers can do which of the following?

Cause tax revenues to decrease when gross domestic product (GDP) decreases and to increase when GDP increases

Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?

Aggregate demand will decrease by $100 billion.

An increase in the price of oil, an important input to production, will result in which of the following in the short run?

A decrease in short-run aggregate supply

Which of the following would most likely lead to cost-push inflation in the short run?

A decrease in labor productivity

Which of the following statements best describes the concept of an automatic stabilizer?

It is non-discretionary fiscal policy that mitigates business cycles by increasing aggregate demand during recessions and decreasing aggregate demand during expansions.

Which of the following will result in a rightward shift of the aggregate demand curve?

An increase in exports

Which of the following will cause aggregate supply to increase in Country X?

The discovery of low-cost alternative sources of energy

Which of the following will most likely cause the short-run aggregate supply curve to shift to the left?

An increase in energy prices

Which of the following will cause a rightward shift of the short-run aggregate supply curve?

A decrease in the costs of production

Refer to the income and consumption data presented in the table below. Assume a closed economy with no government and a marginal propensity to consume of 0.80.

Dissaving occurs when disposable income is

$620

Refer to the income and consumption data presented in the table below. Assume a closed economy with no government and a marginal propensity to consume of 0.80.

The marginal propensity to save for this economy is

0.2

Which of the following changes will necessarily cause inflation?

An increase in aggregate demand and a decrease in short-run aggregate supply.

During a mild recession, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?

Purchase of government securities by the Federal Reserve

If the marginal propensity to save is 0.25, a $15 billion increase in government spending will lead to an increase in national income by a maximum of

$60 billion

An increase in government spending that is financed by an equal increase in taxes results in which of the following changes in aggregate demand (AD) and short-run aggregate supply (SRAS) curves?

ADAD Curve- Shifts to the right

SRAS Curve- No change

Shifts to the right

No change

Assume the government reduces its spending and raises income taxes in an effort to reduce the budget deficit. The most likely short-run result will be an increase in

unemployment

Which of the following is an example of an automatic stabilizer?

Progressive income taxes

Thailand and Malaysia are trading partners. If the price level in Thailand decreases relative to the price level in Malaysia, what will happen to Thailand's exports to Malaysia and Thailand's aggregate demand?

Thailand's Exports-Increase

Thailand's Aggregate Demand- Increase

Which of the following is an example of an expansionary fiscal policy?

An increase in government expenditures

A fiscal policy action to reduce inflationary pressure would be to increase which of the following?

Income tax rates

Which of the following is a fiscal policy action aimed at reducing unemployment?

Decreasing income taxes

Following a decrease in aggregate demand, an increase in unemployment will result if

prices and nominal wages are slow to adjust in the short run

Following a decrease in exports, what fiscal policy would restore the economy to the original equilibrium?

An increase in government transfer payments

How does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when current real GDP is above potential GDP?

Nominal wages rise, shifting the short-run aggregate supply curve to the left.

if a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run?

Price Level-Decrease

Real Output-Decrease

If a large increase in total spending has no effect on real gross domestic product, it must be true that

the price level is rising

If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?

The price level will increase.

If AD and AS represent aggregate demand and aggregate supply curves, respectively, and the arrows indicate the movement of the curves, which of the following graphs best illustrates long-run economic growth?

AS1 shifts right

If an economy's aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the

unemployment rate

If crowding out only partially offsets the effects of a tax cut, which of the following changes in interest rates and gross domestic product are most likely to occur?

Interest Rates-Increase

Gross Domestic Product-Increase

If fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run?

Real Output-Increase

Unemployment-Decrease

If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run?

Aggregate Supply-Increase

Employment-Increase

If policy makers use fiscal policy to reduce inflation, which of the following will most likely happen in the short run?

The unemployment rate will increase.

If the aggregate supply curve is horizontal, an increase in government spending will result in which of the following?

Real Output-Increase

Price Level-No change

If the central bank holds interest rates constant, an autonomous decrease of $10 million in investment spending will most likely result in

a decrease of more than $10 million in gross domestic product