1. AP Macroeconomics Sample Multiple Choice ?s

2. The central problem in economics is
Promoting economic growth
Ensuring stables prices; limiting inflation
Promoting private owners ship and protection of private property rights
Scarcity; the use of limited resources
Limiting unemployment
Answer: D

3. 2. What must be trust if a nation’s economic is operating inside of its production possibilities curve?
The nation is utilizing all resources as efficiently as possible
The nation currently lacks the resources and technology to operate at a point on the production possibilities curve
The nations is using its resources and technology inefficiently
The nation must increase investment spending on capital stock to produce on the curve
The nation’s nominal gross domestic product is growing at a faster rate than real gross domestic policy
Answer: C

4. 3. Which of the following would cause an inward shift of the production possibilities curve?
A decrease in real interest rates
An increase in personal income taxes
A decrease in the price level
A decrease is the size of the labor force
An increase in unemployment related to a recessionary gap
Answer: D

5. 4. Nations can benefit from free trade mainly because
It allows each nation to consume beyond its production possibilities curve
Import tariffs can increase government revenues
Income inequality will improve in both societies
Free trade fosters self-sufficiency for each nation
Unemployment will decrease in each country
Answer: A

6. 5. Who demands the factors of production in the circular flow diagram?
Consumers
Firms
The foreign sector
Financial institutions
Households
Answer: B

7. 6. Country X can produce either 2 tons of corn or 4 scooters with 20 units of labor. Country Y can produce either 5 tons of corn or 25 scooters with 20 units of labor. Based on this information, which of the following is true?
Country X has an absolute advantage in the production of corn, while Country Y has the comparative advantage in the production of scooters
Country X has an absolute advantage in the production of corn, while Country Y has a comparative advantage in the production of corn
Country X has a comparative advantage in the production of corn, while Country Y has a comparative advantage in the production of scooters
Country X has a comparative disadvantage in the production of both goods
Trading 1 ton of corn for 8 scooters would benefit both countries
Answer: C

8. 7. Which of the following best defines investment as a component of GDP?
Real estate acquisitions made for future resale profit
Buying new plants, machinery, tools, and inventory
Capital gains periodically paid out to stockholders
The difference between an individual’s total income, wages plus interest, profits and rents, and their disposable income
The purchase of stocks and bonds by private citizens
Answer: B

9. 8. A decrease in which of the following might cause a decrease in real per capita income?
Inflation
Output per unit of input
Personal and corporate income tax rates
The retirement age
The real interest rate
Answer: B

10. 9. The natural rate of employment is
The number of unemployed divided by the labor force
The rate of unemployment when there is no frictional unemployment
The rate of unemployment when the economy is in long run equilibrium
The labor force divided by the working-age non- institutionalized population
The rate of unemployment when the price level meets the Federal Reserve target for inflation.
Answer: C

11. 10. Which of the following is the best example of structural unemployment?
A worker is laid off during a recession
A worker voluntarily quits a job to go back to school
A worker is replaced by machines that are cheaper and more productive
A worker is denied on-the-job training
A worker switches from working part-time to full-time
Answer: C

12. 11. Which of the following groups would benefit in the short run from an unanticipated rise in the inflation rate?
Retirees on a fixed income
Young people repaying fixed-interest-rate student loans
Union workers whose contracts do not include cost-of- living-adjustment (COLA)
Homeowners with adjustable mortgage rate loans from banks
Financial institutions that have more fixed interest outstanding loans than adjustable rate loans on their books
Answer: B

13. 12. Which of the following best describes the concept of inflation?
Appreciation of one currency relative to another currency
An acceleration in interest rates
A steady rise in the general level of prices
Growth rate of real gross domestic product
A rise in the unemployment rate
Answer: C

14. 13. Assume that the nominal interest rate is 10 percent
13. Assume that the nominal interest rate is 10 percent. If the expected inflation rate is 3 percent, the real interest rate is
.5% 3% 7%
10%
13%
Answer: C

15. 14. Which of the following is MOST likely to promote economic growth?
A decrease in business tax credits for investment spending
A decrease in federal student education grants
An increase in investment in tools and machinery
A decrease in the labor force participation rate
An increase in the real interest rate
Answer: C

16. 15. If the aggregate supply curve is upward sloping and there is an increase in exports to foreign countries, what will be the resulting change in real gross domestic product (RGDP) and price level in the short run?
RGDP Price Level
Increase Decrease
Increase Increase
Unchanged Increase
Decrease Decrease
Decrease Increase
Answer: B

17. 16. Stagflation is the result of which of the following shifts in the AD/AS model?
The aggregate demand curve shifting to the left
The aggregate demand curve shifting to the right
The aggregate supply curve shifting to the left
The aggregate supply curve shifting to the right
The long run aggregate supply curve shifting to the left
Answer: C

18. 17. A decrease in government deficit spending will have which of the following effects in the short term?
Increase net exports
Decrease nominal interest rates
Increase nominal interest rates
Increase the price level
Decrease unemployment
Answer: B

19. 18. The federal government taxes all income at a flat rate of 20% and the marginal propensity to consume (MPC) is If Daniel’s gross income increases by $1,000, how much will his consumption expenditures increase?
$200
$600
$750
$800
$1,000
Answer: B

20. 19. In the midst of a $300 billion recessionary gap, the federal government decides to use fiscal policy to bring the economy back to long run equilibrium. If society’s marginal propensity to consume (MPC) is 0.80, which of the following could the government do to reach full employment assuming no crowding out or leakages?
Increase taxes by $60 billion
Decrease taxes by $300 billion
Increase government expenditures $60 billion
Increase government expenditures $150 billion
Increase government expenditures $300 billion
Answer: C

21. 20. An increase in the expected rate of inflation is most likely to cause which of the following changes in the Philips curve?
A move downward to a new point along the short run Phillips curve
A move upward to a new point along the short run Phillips curve
A shift of the long run Phillips curve to the right
A shift of the entire short run Phillips curve to the left
A shift of the entire short run Phillips curve to the right
Answer: E

22. 21. A rightward shift in the aggregate demand curve could most likely be caused by which of the following?
A decrease in consumer confidence
A decrease in investment spending
An increase in the price level
The purchase of government securities by the central bank
An increase in personal income taxes
Answer: D

23. 22. Which of the following assets would be characterized as having the most liquidity?
An antique Etruscan vase
Money market mutual funds
Stocks
Savings bonds
Paper currency
Answer: E

24. 23. Assuming that the velocity of money is constant in the equation of exchange, which of the following must be trust if the GDP deflator is equal to 200 while the economy is operating with a vertical aggregate supply curve?
The money supply has doubled
Nominal interest rates have decreased by half
The price level has decrease by half
Real output has increase by 100
The unemployment rate has doubled
Answer: A

25. Nominal Interest Rates AD Unemp Rate
24. If the U.S. Federal Reserve engages in expansionary monetary policy by purchasing government securities through the open market, what will be the likely result on the nominal interest rate, aggregate demand, and the unemployment rate
Nominal Interest Rates AD Unemp Rate
Decrease Decrease Decrease
Decrease Increase Decrease
Decrease No change Increase
Increase Increase Increase
Increase Decrease Increase
Answer: B

26. 25. Assume that there is no unanticipated inflation and that wages and prices are flexible. What will happen to the long run real gross domestic product (RGDP) and the price level in the long run if the Federal Reserve purchases government securities in the open market?
RGDP Price Level
Decrease Decrease
No change Increase
No change Decrease
Increase No change
Increase Increase
Answer: B

27. 26. Which of the following groups would most likely be hurt by the depreciation of the Canadian dollar in the international market?
Canadian banks holding large amounts of foreign currencies
Canadian lumber producers who sell to firms in other nations
Europeans planning on traveling in Canada for their vacations
Retired Americans living in Canada on their US government pensions
Swiss ski manufacturers that market their products in Canada
Answer: E

28. 27. What will be the resulting change in Japan’s aggregate demand and aggregate supply if the value of the Japanese Yen increases in the foreign exchange market?
AD AS
Increase Increase
Increase No change
No change Increase
Decrease No change
Decrease Increase
Answer: D

29. Capital Flow Value of the Peso
28. What is likely to happen to the value of the Mexican Peso and capital flow in Mexico if there is an increase in real interest rates in Mexico relative to the real interest rates in the rest of the world?
Capital Flow Value of the Peso
Outflow Appreciate
Inflow Appreciate
Inflow No change
Outflow Depreciate
Inflow Depreciate
Answer: B

30. 29. A country’s currency might appreciate in value because of which of the following?
A higher price level relative to the rest of the world
A higher real interest rate relative to the rest of the world
Decreased demand for the country’s currency
Increased supply of the country’s currency of the world market
A purchase of government bonds in the open market by the nation’s central bank
Answer: B

31. 30. If the relative price level in Canada is higher than in Mexico, what is the likely result in the foreign exchange market?
A decrease in the supply of Canadian dollars
A depreciation of the Mexican peso
An appreciation of the Canadian dollar
A depreciation of the Canadian dollar
An increase in the supply of the Mexican peso
Answer: D