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AP Macroeconomics Easy practice

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Easy practice

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Question 1

If the nominal interest rate is 7% and the expected inflation rate is 4%, what is the real interest rate?

A.11%B.3%C.4%D.7%

Question 2

The labor force participation rate is 60% and the unemployment rate is 5%. If the working-age population is 200 million, how many people are unemployed?

A.6 millionB.10 millionC.3 millionD.12 million

Question 3

Crowding out occurs when expansionary fiscal policy leads to:

A.Lower private investment because government borrowing raises interest rates.B.Higher private investment because government spending raises incomes.C.Lower price levels because increased supply of goods reduces inflation.D.Lower government spending in future periods to balance the budget.

Question 4

The consumption function is $C = 200 + 0.75 Y_{d}$ . If disposable income $(Y_{d})$ increases by $400 billion, by how much does consumption change?

A.$200 billionB.$300 billionC.$400 billionD.$100 billion

Question 5

In the money market, an increase in real GDP will shift money demand because:

A.Higher GDP reduces the need to hold money for transactions.B.Higher GDP increases the volume of transactions, raising the demand for money.C.Higher GDP causes the Fed to expand money supply automatically.D.Higher GDP lowers the opportunity cost of holding money.

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Question 6

An economy is operating below potential GDP (recessionary gap). Using the Keynesian model, which fiscal policy would best restore full employment?

A.Increase taxes and reduce government spending to balance the budget.B.Increase government spending and/or cut taxes to shift AD right.C.Reduce the money supply to raise interest rates and reduce inflation.D.Allow wages and prices to fall until the economy self-corrects.

Question 7

According to the quantity theory of money ( $M V = P Q$ ), if the velocity of money (V) and real output (Q) are constant, a 5% increase in the money supply (M) will cause:

A.A 5% increase in real output (Q).B.A 5% increase in the price level (P).C.A 5% increase in velocity (V).D.No change in any variable, as the equation must always balance.

Question 8

The exchange rate is 0.90 euros per dollar. If the dollar appreciates to 1.05 euros per dollar, what happens to U.S. exports and imports?

A.U.S. exports increase and imports decrease.B.U.S. exports decrease and imports increase.C.Both exports and imports increase.D.Net exports are unchanged because trade volumes adjust proportionally.

Question 9

The Fed raises the discount rate. How does this tool of monetary policy affect commercial bank lending?

A.Banks borrow more from the Fed, increasing reserves and expanding lending.B.Banks borrow less from the Fed, reducing reserves and contracting lending.C.Banks immediately reduce their required reserve ratio.D.Banks increase open market purchases of government securities.

Question 10

If the price of coffee rises significantly, what is the most likely effect on the demand for tea, a substitute good?

A.Demand for tea decreases, shifting the demand curve left.B.Demand for tea increases, shifting the demand curve right.C.The supply of tea increases, shifting the supply curve right.D.There is no effect on the tea market because markets are independent.

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Question 11

The marginal propensity to consume (MPC) is 0.75. The government increases spending by $100 billion. By how much does equilibrium GDP increase, assuming no crowding out?

A.$75 billionB.$400 billionC.$100 billionD.$133 billion

Question 12

A point located inside (below) the production possibilities curve (PPC) indicates that an economy is:

A.Operating at full efficiency with no unused resources.B.Producing an output combination that is currently unattainable.C.Using resources inefficiently or leaving some resources unemployed.D.Experiencing economic growth that has shifted the PPC outward.

Question 13

The short-run Phillips curve shows a trade-off between inflation and unemployment. If the government pursues expansionary fiscal policy, where does the economy move along the short-run Phillips curve?

A.Toward higher inflation and lower unemployment.B.Toward lower inflation and higher unemployment.C.Along the long-run Phillips curve toward lower unemployment.D.Upward along the long-run Phillips curve.

Question 14

In the AD/AS model, an economy is initially at long-run equilibrium. Which combination of events creates an inflationary gap?

A.AD shifts left while SRAS shifts right.B.AD shifts right, moving actual GDP above potential GDP.C.LRAS shifts right, increasing potential GDP above actual GDP.D.SRAS shifts left, reducing real GDP below potential.

Question 15

Which of the following best describes the role of the money market diagram in macroeconomics?

A.It shows how the price level is determined by the interaction of AD and AS.B.It determines the nominal interest rate through the interaction of money supply and money demand.C.It shows how commercial banks create money through the fractional reserve process.D.It illustrates the trade-off between inflation and unemployment.

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