AP Macro Final Exam

Suppose that the production possibility frontier (PPF) of this nation moves from PPF1 to PPF2. Which of the following could be the cause of this movement?

More Effective pesticides used to protect crops from insect damage.

Now that the economy is operating on PPF2, what has happened to the opportunity cost of producing these goods?

The opportunity cost of producing tractors has increased, while the opportunity cost of producing corn has decreased.

The price of gasoline has recently increased, while at the same time gasoline consumption has also increased. What is happening in the gasoline market?

Consumers prefer larger automobiles, shifting the demand for gasoline to the right.

If nation A can produce a good at lower opportunity cost than Nation B can produce the same good, it is said that -

Nation A has comparative advantage in the production of that good.

Which of the following is a consequence of removal of a protective tariff on imported steel?

Allocative efficiency is improved.

In recent years, firms that produce cameras have begun to produce fewer 35-mm cameras and more digital cameras. This trend is an example of -

The market system answering the question of “what” cameras should be produced.

Which of the following transaction would be included in the computation of gross domestic product?

Josh buys a new pair of running shoes.

Brent loses his job at the public swimming pool when the pool closes for the winter. This is an example of -

Seasonal employment

Which of the following is not a scarce economic resource?

Human wants

How does an increasing national debt impact the market for U.S. dollars and the value of the dollar with respect to other currencies?

Market for the dollar - Increased Demand

Value of the dollar - Appreciating

Suppose the price level in the United States has risen in the past year, but production of goods and services has remained constant. Based on this information, which of the following is true?

Nominal GDP - Increased

Real GDP - Decreased

Which of the following is not an addition to national income?

Depreciation

Which choice produces a faster rate of economic growth for the United States?

More investment in capital infrastructure and less consumption of nondurable goods and services.

The table above summarizes the local labor market. Based on this information, which of the following is an accurate statement?

The unemployment rate fell from 25 percent in 2003 to 10 percent in 2004.

Which of the following is true of money and financial markets?

When demand for stocks and bonds increases, the asset demand for money falls.

Which of the following would increase the aggregate demand function?

Lower taxes on personal income.

The figure above shows aggregate demand (AD) and supply (AS) for the economy. Assuming the aggregate demand remains constant, which of the following best predicts the short-run price level, the long-run price level, and the long-run level of output?

Short-Run Price Level - P2

Long-Run Price Level P3

Long-Run output Q1 as depicted in the figure.

Which of the following is not included in the U.S. GDP?

An American pop singer preforms a sold-out concert in Paris.

A policy supported by supply-side economists would be -

Lower tax rates on interest earned from savings.

According to the quantity theory of money, increasing the money supply serves to -

Increase short-run output, but it is the source of long-run inflation.

Of the following choices, the most direct exchange in the circular flow model of a private closed economy is when -

Firms supply goods to households in exchange for revenues.

Suppose that the federal government reclassified the purchase of a new home as consumption spending rather than investment spending. This decision would -

Have no impact on aggregate demand and real GDP

Suppose that current disposable income is $10,000 and consumption spending is $8,000. For every $100 increase in disposable income, saving increases $10. Given this information -

The marginal propensity to save is .10.

When we observe an unplanned decrease in inventories, we can expect -

Output to begin to rise

Stagflation is the result of -

A leftward shift in the aggregate supply curve.

If the short-run aggregate supply curve is horizontal, it is because -

There exist many unemployed resources so that output can be increased without increasing wages and prices.

In a private closed economy, which of the following statements are true?
I. When unplanned changes in inventories are considered, saving and investment always equal, no matter the level of GDP.

II. Real GDP equals real spending in equilibrium.

III. Household saving an never be negative.

IV. Saving is equal to zero when consumption equals disposable income.

I, II, and IV only

Which of the following is true of a typical contraction transaction of the business cycle?

Employment and inflation are low.

Which of the following is most likely to produce stronger economic growth over time?

Investment tax credits

If $100 of new autonomous private investment were added to an economy with a marginal propensity to consume of .90, by how much would aggregate demand shift to the right?

$1,000

Which of the following is true about the relationship between the M1, M2, and M3 measures of money?

M1 includes checking deposits, while M2 includes checking and saving deposits.

Which of the following increases the size of the tax multiplier?

An increase in the marginal propensity to consume.

Which of the following might worsen a nation’s trade deficit?

A higher rate of inflation relative to other nations.

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?

Decrease government spending and increase taxes.

Which of the following is an example of an expansionary supply shock?

Lower input prices in major industries.

Which of the following fiscal policy combinations would be most likely to slowly increase real GDP without putting tremendous pressure on the price level?

Increase taxes with a matching increase in government spending.

Which of the following is an example of contractionary monetary policy?

The Fed sells Treasury securities to commercial banks.

The economy is in a deep recession. Given this economic situation, which of the following statements about monetary policy are accurate?

I. Expansionary policy would only worsen the recession.

II. Contractionary policy is the appropriate stimulus for investment and consumption.

III. Expansionary policy greatly increases aggregate demand if investment is sensitive to changes in the interest rate.

IV. If the demand for money is perfectly elastic, expansionary policy might be quite effective

III only

Daddy Morebucks withdraws $1 million from his savings accound and puts the cash in his refrigerator. This affects M1, M2, and M3 in which of the following ways?

M1 - Rises

M2 - No change

M3 - No change

What is the main difference between the short-run and the long-run Phillips curve?

The short-run Phillips curve is a downward sloping and the long-run Phillips curve is vertical.

Which of the following insures the value of the U.S. dollar?

The promise of the U.S. agreement to maintain its value.

The reserve ratio is .10 and Daddy Morebucks withdraws $1 million from his checking account and keeps it as cash in his refrigerator. How does this withdrawal potentially impact money in circulation?

Decreases by $9 million

If the economy were experiencing a recessionary gap, choose the option below that would be an appropriate fiscal policy to eliminate the gap, and the predicted impact of the policy on real GDP and unemployment.

Fiscal Policy - Decrease taxes

Real GDP - Increase

Unemployment - Decrease

Monetary tools of the Federal Reserve do NOT include which of the following choices?

Changing tariffs and quotas on imported goods.

Of the following choices, which combination of fiscal and monetary policy would most likely reduce a recessionary gap?

Fiscal Policy - Decrease taxes

Monetary Policy - Buy Treasury securities

For a given level of government spending, the federal government usually experiences a budget ___ during economic ___ and a budget ___ during economic ___.

deficit, recession, surplus, expansion

Suppose that Congress and the Fed agreed to combine fiscal and monetary policies to lessen the threat to inflation. Which of the following combinations would likely accomplish this goal?

Fiscal Policy - Increase taxes

Monetary Policy - Increase the discount rate

Congress has embarked on another round of expansionary fiscal policy to boost employment and get reelected. As chair of the Fed, how would you reduce the “crowding-out” effect and what macroeconomic problem might your policy exacerbate?

Lower the discount rate, risking inflation.

Which of the following is likely to shift the long-run aggregate supply curve to the right?

Research that improves the productivity of labor and capital.

Holding all else equal, which of the following Fed monetary policies would be used to boost U.S. exports?

Buying Treasury Securities

Which of the following could limit the ability of the Fed to conduct expansionary monetary policy?

Money demand is nearly perfectly elastic

Which of the following is a predictable advantage of expansionary monetary policy in a recession?

It increases investment, which increases aggregate demand and increases employment.

Suppose the economy is in long-run equilibrium when a temporary supply shock is felt in the economy. This changes the short-run Phillips curve, the short-run unemployment rate, and the long-run unemployment rate in which of the following ways?

Phillips curve - Shifts left

Short-run unemployment - Falls

Long-run unemployment - Rises

As the Japanese economy expands, in what ways do U.S. net exports, the values of the dollar and the yen change?

U.S. Net Exports - Increase

Value of Dollar - Increase

Value of Yen - Decrease

Suppose the President plans to cut taxes for consumers and also plans to increase spending on the military. How does this affect real GDP and the price level?

GDP increases and the price level decreases.

U.S. dollars and the European Union’s (EU) euro are exchanged in global currency markets. Which of the following are true?

I. If inflation is high in the EU and the price level in the United States is stable the value of the dollar appreciates.

II. If the Fed increases the money supply the value of the dollar depreciates.

III. If EU consumers are less inclined to purchase American goods, the dollar appreciates.

IV. If U.S. income levels are rising relative to incomes in the Eu, the euro depreciates.

I and II only

If a given year the government collects more money in net taxes than it spends, there would exist -

a budget surplus

Which component of a nation’s balance of payments recognizes the purchase and sale of real and financial assets between nations?

The capital account.

An import quota on foreign automobiles is expected to -

increase the price of automobiles and protect domestic producers at the expense of consumers.

When a large increase in aggregate demand has an even greater increase in real GDP, economists refer to this as -

the spending multiplier.