AP Macro 2019 MC

An increase in which of the following will most likely promote economic growth?

A. Taxes on investment

B. The price level

C. Human capital

D. Consumption of nondurable goods

E. Interest rates

Human Capital

An economy is operating at a point inside its production possibilities curve (PPC). Which of the following will most likely cause the economy to move toward the current PPC in the short run?

A. A decrease in government spending

B. A decrease in inflation

C. An increase in human capital

D. An increase in employment

E. An increase in imports

An increase in employment

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

A. An increase in personal income taxes

B. The discovery of low-cost alternative sources of energy

C. A decrease in labor productivity with no change in nominal wages

D. Depreciation of country X's currency on the foreign exchange market

E. An increase in the price level

The discovery of low-cost alternative sources of energy

The graph above shows the production possibilities curve for Factory X and Factory Y. If Factory X uses the same amount of resources to produce skateboards and bikes as Factory Y uses, which of the following is true?

Factory X: 40 Bikes 60 Skateboards

Factory Y: 80 Bikes 60 Skateboards

A. Factory X has an absolute advantage in producing bikes.

B. Factory X has an absolute advantage in producing skateboards.

C. Factory X has a comparative advantage in producing skateboards.

D. Factory Y has a comparative advantage in producing skateboards.

E. Factory Y has an absolute advantage in producing skateboards.

Factory X has a comparative advantage in producing skateboards

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

A. A decrease in the price level

B. A decrease in short-run aggregate supply

C. A decrease in unemployment

D. An increase in real wages

E. An increase in aggregate demand

A decrease in the SRAS

An economy is currently operating at the full-employment level of output. Which of the following would result in a recessionary gap in the short run?

A. An increase in the costs of production

B. An improvement in the productivity of labor

C. An increase in money supply

D. A positive supply shock

E. A decrease in income tax rates

An increase in the costs of production

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 AD: Increase

Country X produces only apples and bananas. The following table shows prices and quantities of both products in two years.

Year 1 Apples: $1 and 100

Year 1 Bananas: $2 and 50

Year 2 Apples: $2 and 80

Year 2 Bananas: $2 and 60

Assuming year 1 is the base year, what is the nominal and real gross domestic product (GDP) for year 2?

Nominal GDP: $280

Real GDP $200

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

A. Decreasing government expenditures

B. Decreasing income taxes

C. Decreasing tax credits

D. Increasing nominal interest rates

E. Increasing required reserves

Decreasing income taxes

Increases in human capital can be achieved by which of the following?

A. Building more factories

B. Reducing immigration of skilled workers

C. Improving the quality of job-training programs

D. Increasing the physical capital per worker

E. Increasing government spending on infrastructure

Improving the quality of job-training programs

If the marginal propensity to save is 0.25

0.25, a $15 billion increase in government spending will lead to an increase in national income by a maximum of

A. $60 billion

B. $45 billion

C. $15 billion

D. $11.25 billion

E. $3.75 billion

$60 billion

Assume the economy is currently in long-run equilibrium. An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways?

Short Run: Falls below the NRU

Long Run: Rises back to NRU

The term "value added" for a firm is best defined as which of the following?

A. The firm's sales

B. The firm's sales minus depreciation

C. The firm's sales minus its losses

D. The firm's sales minus the cost of inputs purchased from other firms

E. The firm's profits from its sales

The firm's sales minus the cost of inputs purchased from other firms.

An increase in a country's current account surplus will result in which of the following in the short run?

A. A decrease in the country's government budget surplus

B. A decrease in the country's national savings

C. A decrease in the country's financial account deficit

D. An increase in the country's net financial capital outflows

E. An increase in the country's national debt

An increase in the country's net financial capital outflows

Using 2010 as the base year, the gross domestic product (GDP) deflator in 2011 was 97. Which of the following must be true?

A. The inflation rate in 2011 was positive.

B. The inflation rate in 2011 was negative.

C. The inflation rate in 2011 was zero.

D. The purchasing power of a dollar decreased by 3 percent.

E. The real output increased by 3 percent.

The inflation rate in 2011 was negative

According to the business cycle represented in the diagram above, the actual rate of unemployment equals the natural rate of unemployment when the economy is

A. in expansion

B. in contraction

C. at the peak

D. at the trough

E. on the potential line

On the potential line

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

A. The required reserve ratio

B. The discount rate

C. Transfer payments

D. Government spending

E. Income tax rates

Income tax rates

The nominal gross domestic product of China in 2010 is a measure of the total value of which of the following in 2010 ?

A. Financial assets, including stocks, in China

B. Firms located within the borders of China

C. Final goods and services consumed in China

D. Final goods and services produced within the borders of China

E. Final goods and services exported by China to the rest of the world

Final goods and services produced within the borders of China

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

A. interest rates

B. unemployment

C. the money supply

D. the price level

E. personal savings

Unemployment

Which of the following is true about inflation and interest rates?

A. The higher the inflation rate, the higher the real interest rate.

B. If there is no actual or expected inflation, the nominal and real interest rates are equal.

C. If the economy is experiencing deflation, the nominal interest rate exceeds the real interest rate.

D. The higher the inflation rate, the lower the nominal interest rate.

E. The nominal interest rate is the difference between the real interest rate and the expected inflation rate.

If there is no actual or expected inflation, the nominal and real interest rates are equal.

(Nominal = real + actual or expected)

Economic growth is shown by a rightward shift in

A. the aggregate demand curve

B. the long-run Phillips curve

C. the production possibilities curve

D. the short-run aggregate supply curve

E. the money supply curve

The PPC

During a period of stagflation, a nation is most likely experiencing

A. high unemployment and low inflation

B. low unemployment and high inflation

C. low inflationary expectations

D. a decrease in short-run aggregate supply

E. an increase in taxes and government spending

A decrease in SRAS

If businesses become optimistic about the profitability of investments in an economy, which of the following will happen in the loanable funds market in the short run?

A. The supply and demand for loanable funds will increase.

B. The supply and demand for loanable funds will decrease.

C. The demand for loanable funds by the private sector will decrease.

D. The real interest rate will increase.

E. The real interest rate will decrease.

The real interest rate will increase

If investment demand becomes less responsive to changes in interest rates, which of the following is true?

A. An expansionary fiscal policy results in less crowding out.

B. An expansionary fiscal policy results in more crowding out.

C. An expansionary monetary policy is more effective.

D. A contractionary monetary policy is more effective.

E. An expansionary monetary policy results in more crowding out.

An expansionary fiscal policy results in less crowding out

Which of the following measures the opportunity cost of holding currency?

A. The nominal wage rate

B. The increase in the demand for money

C. The forgone interest on alternative assets

D. The ability to access currency to meet unexpected expenses

E. The average income tax rates

The forgone interest on alternative assets

A contractionary monetary policy combined with an expansionary fiscal policy will

A. decrease both income and consumption

B. increase both income and consumption

C. have uncertain effects on the interest rate and investment

D. increase the interest rate and decrease investment

E. increase both the interest rate and investment

Increase the interest rate and decrease investment

Ms. Smith withdraws $1,000 from her safe and deposits the money in a bank. If the bank holds no excess reserves and the reserve requirement is 10 percent, how will this deposit increase the bank's required reserves and the bank's loans?

Required reserves: $100

Loans: $900

(1000 x 1/10 = 100) (1,000-100=900)

A country can have an increased surplus in its balance of trade as a result of

A. an increase in domestic inflation

B. declining imports and rising exports

C. higher tariffs imposed by its trading partners

D. an increase in financial capital inflow

E. an appreciating currency

Declining imports and rising exports

Country X has a budget deficit. Which of the following changes in government budget outlays and tax revenues will result in a decrease in Country X's government budget deficit?

Government outlays: rise by $400 million

Tax revenues: Rise by $600 million

(Deficit = spending greater than revenue)

The table above shows the quantity of motorcycles and automobiles produced by two countries that use the same amount of resources. Which of the following is true?

Motorcycles Country X: 50

Automobiles Country X: 80

Motorcycle Country Y: 75

Automobiles Country Y: 40

Country Y has an absolute and comparative advantage in the production of motorcycles.

Which of the following is an example of how the consumer price index (CPI) exhibits bias in its estimates of changes in the cost of living?

A. Energy prices have a higher impact on inflation than other input costs do.

B. New products are always overrepresented in the CPI

C. The CPI assigns greater weight to measures of welfare than it does to economic activity.

D. Product improvements are not always fully reflected in the calculation of the CPI

E. The CPI adjusts for the substation of less expensive goods by consumers

Product improvements are not always fully reflected in the calculation of the CPI.

Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?

M1: Increases

M2: No change

Which of the following is true about inflationary expectations?

A. The actual unemployment rate equals the natural rate of unemployment if the actual inflation rate exceeds the expected inflation rate.

B. The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation.

C. Expectations are always correct in the short run.

D. The actual inflation rate is always equal to the expected inflation rate because of labor contracts.

E. The natural rate of unemployment equals the inflation rate when the actual inflation rate equals the expected inflation rate.

The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation.

Which of the following transactions is included in the financial account of Country X's balance of payments accounts?

A. A firm in Country X sells robots to a firm in Country A.

B. Country X sends financial aid to Country B.

C. An individual in Country X receives dividend payments from a firm in Country C.

D. An individual in Country X sends money monthly to family members in Country D.

E. An individual in Country X buys new government bonds issued by Country E.

An individual in Country X buys new government bonds issued by Country E.

Assume a country's government increases taxes and its central bank decreases the money supply. The actions will result in an increase in which of the following in the short run?

A. Aggregate demand

B. Aggregate supply

C. Investment spending

D. Unemployment

E. Inflation

Unemployment

When there is excess demand in the loanable funds market, which of the following will occur?

A. National savings will exceed investment spending.

B. The economy will remain at full employment.

C. Real interest rates will increase.

D. An inflationary gap will exist.

E. The money supply will increase.

Real interest rates will increase

Which of the following is an assumption underlying an upward-sloping short-run aggregate supply curve?

A. The economy is experiencing high inflation.

B. The economy is at full employment.

C. National income is fixed.

D. Wages are sticky.

E. The velocity of money is constant.

Wages are sticky

The short-run Phillips curve implies there is a trade-off between

A. rule making and discretionary policies

B. monetary and fiscal policies

C. inflation and unemployment

D. budget deficits and interest rates

E. interest rates and investment

Inflation and unemployment

When Stephanie took out a one-year fixed-rate loan, she expected to pay a real interest rate of 3 percent. At the end of the year, the real interest rate had fallen to 2 percent. Which of the following could have caused the decrease in the real interest rate?

A. There was an increase in the nominal interest rate.

B. There was a decrease in the nominal interest rate.

C. There was a decrease in the money supply.

D. The actual inflation rate was greater than the expected inflation rate.

E. The actual inflation rate was less than the expected inflation rate.

The actual inflation rate was greater than the expected inflation rate.

A continuous increase in the consumer price index (CPI) is

A. deflation

B. stagflation

C. inflation

D. recession

E. disinflation

Inflation

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

A. A decrease in labor productivity

B. A decrease in income tax rates

C. A decrease in consumers' and businesses' optimism about future economic activity

D. An increase in government deficit spending to stimulate a weak economic recovery

E. Discovery of new sources of energy

A decrease in labor productivity

The measured unemployment rate is often criticized for understating the level of joblessness because

A. individuals working in the underground economy are counted as employed

B. individuals working more than one job are counted more than once

C. discouraged workers are counted as unemployed

D. discouraged workers are not counted in the labor force

E. part-time workers are counted as unemployed

Discourages workers are not counted in the labor force

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

Output: Decrease

Price Level: Increase

The table shows the production possibilities for Country X in producing shirts and chairs when it uses all its available resources. The opportunity cost of producing one additional chair is

Shirts: 20, 16, 12, 8, 4, 0

Chairs: 0, 1, 2, 3, 4, 5

Constant

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

A. Income tax rates

B. Input prices

C. Government spending

D. Real interest rates

E. Savings

Government spending

If the central bank of a country wishes to maintain a stable nominal interest rate after a decrease in consumers' spending, taking which of the following actions will achieve the goal?

A. Increasing government spending

B. Increasing income tax rates

C. Decreasing the required reserve ratio

D. Decreasing the discount rate

E. Selling government bonds

Selling government bonds

Investment in physical capital is most likely to occur as a result of an increase in

A. interest rates

B. inflation rates

C. business confidence

D. money demand

E. personal consumption

Business confidence

Country X's government increases its spending without raising taxes. Which of the following is true about the effect on Country X's real interest rates and its subsequent effect on Country X's net exports?

A. Real interest rates increase and net exports increase.

B. Real interest rates increase and net exports decrease.

C. Real interest rates increase with no change in net exports.

D. Real interest rates decrease and net exports increase.

E. Real interest rates decrease and net exports decrease.

Real interest rates increases and net exports decrease

Which of the following shifts the money demand curve to the right?

A. An increase in the price level

B. A decrease in the price level

C. An increase in interest rates

D. A decrease in interest rates

E. A decrease in the nominal gross domestic product

An increase in the price level

An increase in the money supply will result in an increase in

A. output in the short run and in the long run

B. inflation in the short run and an increase in output in the long run

C. inflation in the short run and no change in output in the long run

D. output in the long run but not in the short run

E. output in the long run and no change in inflation in the short run

inflation in the short run and no change in output in the long run

Which of the following is an example of frictional unemployment?

A. A former mayor doing volunteer work

B. A factory worker who loses her job because of recession

C. A college student working part-time at the campus bookstore

D. A college graduate interviewing for two available positions

E. An architect whose job is replaced by computer software that designs buildings

A college graduate interviewing for two available positions

Assuming no government policies, which of the following will occur in the long run if the actual unemployment rate exceeds the natural rate of unemployment?

A. Prices will increase.

B. Unemployment will increase.

C. Wages will fall.

D. Aggregate demand will increase.

E. Long-run aggregate supply will decrease.

Wages will fall

Assume that the market for bottled water is in equilibrium. If both the supply of and the demand for bottled water decrease, what will be the effect on equilibrium price and quantity?

Price: indeterminate

Quantity: Decrease

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?

AD Curve: shifts to the right

SRAS Curve: no change

Assume that the United States current account balance is zero. If the United States dollar appreciates against the Japanese yen, then demand for United States exports will

A. increase and result in a deficit in the United States financial account

B. increase and result in a surplus in the United States financial account

C. decrease and result in a surplus in the United States financial account

D. decrease and result in a deficit in the United States financial account

E. remain unchanged because the surplus in the current account will be offset by the deficit in the financial account

decrease and result in a surplus in the United States financial account

If the government decreases spending while the country's central bank buys bonds on the open market, which of the following will definitely occur?

A. The aggregate demand curve will shift to the right.

B. The aggregate demand curve will shift to the left.

C. The short-run aggregate supply curve will shift to the right.

D. Interest rates will fall.

E. Interest rates will rise.

Interest rates will fall

Which of the following best illustrates rising productivity?

A. An expansion of the labor force

B. An increase in the value of financial capital

C. A decrease in the amount of physical capital per worker

D. A decrease in the amount of labor needed to produce a unit of output

E. An increase in the amount of resources required to produce a certain level of output

A decrease in the amount of labor needed to produce a unit of output

Which of the following will most likely cause a depreciation in a country's currency?

A. An increase in the country's price level

B. An increase in the country's real interest rate

C. A decrease in the country's expected inflation

D. A decrease in the country's real gross domestic product

E. A decrease in the country's money supply

An increase in the country's price level

Banks create money when

A. they make loans

B. the loans they make are repaid

C. they keep all excess reserves

D. customers increase their cash withdrawals from their savings accounts

E. the money multiplier is less than one

They make loans

Which of the following is true about a country's national debt?

A. It is the sum of the country's trade deficit and government budget deficit.

B. It increases when gross domestic product increases.

C. It increases when the country's government has a budget deficit.

D. It decreases when the country's exports exceed its imports.

E. It decreases when national savings decrease.

It increases when the country's government has a budget deficit.