Professional Documents
Culture Documents
AP Macro MC Practice Test
AP Macro MC Practice Test
5. If the government increased spending by 10 and increased taxes 9. Which combination of events described below would be the most
by 10 to pay for the increased spending then which of the expansionary for an economy, assuming that they all happened at the
following combinations would correctly explain the effect on same time?
the budget and GDP?
Budget GDP Taxes Government Net exports reserve
A. unchanged decrease spending requirement
A. decrease increase increase decrease
B. surplus decrease
B. increase increase increase decrease
C. unchanged no change C. decrease increase decrease decrease
D. surplus increase D. decrease decrease decrease decrease
E. unchanged increase E. increase decrease decrease increase
A. A
B. B 10. If an economy is suffering from inflation, what fiscal policy
C. C measure could be taken to help alleviate the problem?
D. D A. Increase money supply
E. E. B. Increase government spending
C. Increase taxes
D. Increase the reserve requirement
E. Increase deficit spending
AP Macro MC Practice test with AKey.docx
11. Which of the following would be an appropriate monetary
policy measure to combat inflation? 14. Based on Figure 2 the size of the simple multiplier is:
A. increase taxes A. one
B. decrease taxes B. two
C. sell bonds C. three
D. buy bonds D. four
E. lower the reserve requirement E. five
Figure 2
AP Macro MC Practice test with AKey.docx
20. Crowding out describes a relationship among deficits, interest 23. In a typical circular flow model describing the interaction of
rates, and private spending. Which of the following describe that businesses and households, which of the following is/are true?
relationship?
Deficit interest rate private spending I. Households buy factors of production and goods
II. Firms buy factors of production and goods
A. increase increase increase III. Households buy factors of production
B. decrease decrease decrease IV. Firms buy factors of production
C. increase increase decrease V. Firms buy goods
D. increase decrease increase VI. Households buy goods
E. increase decrease decrease
A. I only
21. Which of the following correctly describe the concept of the B. II only
multiplier? C. III and IV only
D. IV and VI only
I. It takes time for the multiplier to work. The impact of an E. V and VI only
independent change in investment during the first six
months will be considerably smaller than the multiplier 24. If Americans suddenly decide to hold more cash for carrying
analysis implies. on transactions and for precautionary reasons, which of the
II. When the marginal propensity to consume is 0.8, an following is most likely to result?
independent increase in investment of $10 billion will A. Increase in interest rates
cause the aggregate income of a fully employed economy B. Decrease in interest rates
to rise to $50 billion. C. Dollar depreciates in value
III. The multiplier effect may be even larger over time as its D. Exports will rise
effect is supported by the interest rate and foreign E. Gross private domestic investment will rise
purchases effect. 25. If the federal government and the Federal Reserve both attempt
to contract the economy, which of the following sets correctly
A. I, II, and III are all true describes the probable results of these actions? (FP = fiscal policy,
B. I is true, II and III are false MP = monetary policy)
C. I and II are true, III is false
D. I and III are true, II is false Interest rates Price level Output
E. I, II, and III are all false FP MP FP MP FP MP
A. increase increase increase increase increase increase
22. “In the first half of 1973, prices rose at an annual rate of 8 B. decrease decrease decrease decrease decrease decrease
percent and real output at 4.5 percent, while unemployment fell from C. increase decrease decrease decrease decrease decrease
5.0 percent to 4.8 percent. From June 1972 to June 1973, the money D. decrease increase decrease decrease decrease decrease
supply increased 11 percent, while the U.S. government ran a deficit E. decrease increase decrease increase decrease increase
equal to 2 percent of GDP.” Since unemployment was already at or
near its natural rate during 1972-73, 26. The Keynesian model would find monetary policy to be less
effective if:
A. greater monetary expansion was necessary to stabilize A. Interest rates fell
prices. B. Interest rates rose
B. monetary and fiscal policy of the period added to the C. Investment demand is elastic
inflationary pressure already plaguing the economy. D. Investment demand is inelastic
C. $14 billion budget deficit probably caused unemployment to E. Fiscal policy remains neutral
fall and real income to expand without adding to the
inflation problem. 27. Banks create money when they:
D. monetary and fiscal policy of the period probably helped A. collect interest on loans to the public
stabilize the growth rate of aggregate demand and promote B. buy government securities from the Federal Reserve
price stability in the long run. C. allow customers to transfer money from time accounts to
E. Expansionary fiscal policy was necessary to stabilize prices demand accounts
D. keep required reserves as vault cash
E. loan excess reserves to the public
A. Portugal has a comparative advantage in the production of 48. Which of the following best illustrates the difference between
cloth and wine GDP and GNP?
B. England has a comparative advantage in the production of A. GDP measures the goods and services consumed by the
cloth and wine citizens of a country, while GNP measures output exported
C. Portugal has a comparative advantage in cloth and England to other countries.
has a comparative advantage in wine B. GDP measures output produced by the citizens within a
D. England has a comparative advantage in cloth and Portugal country, while GNP measures output produced by non-
has a comparative advantage in wine citizens within a country.
E. England has an absolute advantage in the production of C. GDP measures the output produced by the citizens of a
cloth and wine country, while GNP measures output produced within the
borders of a cpuntry.
43. On day 1, it cost $.7354 U.S. to buy one Canadian dollar. How D. GDP measures the output produced within the borders of a
many Canadian dollars would $1 U.S. buy? country, while GNP measures output produced by the
A. 1.36 citizens of a country.
B. 1.27 E. GDP measures goods produced by the citizens of a
C. 1.11 country, while GNP measures the output of goods and
D. 0.84 services produced by the citizens of a country.
E. 0.73
49. If decision makers underestimate inflation, the real wage will
44. On the next day (see Question 43) it cost $.845 U.S. to buy one A. rise, increasing unemployment
Canadian dollar. From this information we can conclude that: B. rise, reducing unemployment
A. The U.S. dollar got stronger and U.S. exports will rise C. fall, increasing unemployment
B. The U.S. dollar got weaker and U.S. exports will rise D. fall, reducing unemployment
C. The U.S. dollar got stronger and U.S. exports will fall E. Is as likely to rise or fall making the effect on
D. The U.S. dollar got weaker and U.S. exports will fall unemployment indeterminate
E. The U.S. dollar got stronger and U.S. exports will be
unaffected