AP Macroeconomics Unit Exam #2

Which fiscal policy would be most appropriate for combating inflation?

Increase taxes and decrease government spending

If the government increases its defense spending, the opportunity cost is

The next best alternative use for the money spent on defense

Economic growth is best illustrated by a

Rightward shift of the long-run aggregate supply curve

According to the preceding graph, an increase in input prices will most likely cause the price level and employment to change in which of the following ways?

Price level-Increase

Employment-Decrease

If the marginal propensity to consume is greater than one, then

Households are dissaving

An increase in which of the following would most likely hinder economic growth?

The government's budget deficit

Which of the following would lead to an increase in the United States aggregate price level?

A significant tax is placed on all capital investment in new technology

An increase in labor productivity will cause the

Long-run aggregate supply curve to shift right

Which action by government will shift short-run aggregate supply to the left?

Increase in business taxes

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

Aggregate Demand-Increase

Short-run aggregate supply-No change

Based on the information in the table above, how much is GDP? (hint: C+I+G+E+IM= GDP)

$12 Trillion

Aggregate demand and aggregate supply would simultaneously decrease because of an increase in which of the following?

Business taxes

Which of the following would be counted as part of GDP for this year?

The purchase of a new domestically produced tractor

Which of the following would cause a leftward shift in the short-run aggregate supply curve?

An increase in the expected price level

According the the graph above, which of the following is true about this economy in the long-run?

Wages will increase as they adjust to the new price level and the short-run aggregate supply curve will shift to the left and restore long-run equilibrium

Operating in the intermediate range of the aggregate supply curve, an increase in aggregate demand results in an increase in

real GDP only

If the marginal propensity to consume is 0.8, what is the largest total increase in GDP that can result from $500 of new spending?

$2500

Stagflation occurs when

The price level stays the same and output decreases

A recessionary gap exists when the short-run equilibrium level of real GDP

Is below the full-employment level of real GDP

Which of the following statements is true if this economy is operating at P1 and Y1?

I. The level of aggregate output equals potential output

II. It is in short-run macroeconomic equilibrium

III. It is in long-run macroeconomic equilibrium

II Only

The economy depicted in the graph is experiencing a

Recessionary gap

The marginal propensity to consume

I. Has a negative relationship to the spending multiplier

II. is equal to 1

III. Represents the proportion of consumers' disposable income that is spent

III Only

Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be

An increase in more than $100 million

The presence of income taxes has what effect on the spending multiplier? They

Decrease it

Which of the following is NOT an automatic stabilizer?

Monetary policy