AP Macroeconomics Full-length practice exam 1

If the U.S. runs a current account deficit, by accounting identity, what must be true?

In the foreign exchange market, which of the following causes the supply of dollars to increase (shift right)?

A country pegs its currency to the U.S. dollar at an overvalued rate. To maintain this peg, the central bank must:

If the U.S. dollar–euro exchange rate changes from 1.20/€ to \1.40/€, what has happened to the dollar and how does this affect a U.S. tourist in Europe?

In a closed economy with no government, the equilibrium condition is $Y=C+I$. If $C=100+0.8Y$ and $I=200$, what is the equilibrium level of income $Y$?

Automatic stabilizers help smooth the business cycle without new legislative action. Which of the following is the best example of an automatic stabilizer?

When an economy has an inflationary gap, the long-run self-correction mechanism works through:

Which of the following best explains why fiscal policy may be less effective when an economy is at or near full employment?

A market basket costs 200 in the base year and \230 in the current year. The CPI in the current year is closest to:

Country A has a trade surplus with Country B. Which of the following is a likely explanation, all else equal?

A decrease in the price of steel (an input to car production) will most likely:

The natural rate of unemployment consists of which two types of unemployment?

Which of the following correctly describes the Federal Reserve's policy tools for controlling the money supply?

The CPI in Year 1 is 120 and in Year 2 is 126. A worker earned a nominal wage of $50,000 in Year 1. What nominal wage in Year 2 is required to maintain the same purchasing power?

In a competitive market, the price of good X rises. Which of the following best describes what happens to producer surplus?

An economy currently produces at a point on its PPC. Technological improvement occurs only in the production of manufactured goods. How does the PPC shift?

The long-run Phillips curve (LRPC) is vertical at the natural rate of unemployment (NRU). This vertical shape implies that:

Which of the following is counted in U.S. GDP using the expenditure approach?

If the MPC is 0.8 and the government simultaneously increases spending by 50 billion AND raises taxes by \50 billion, what is the net change in equilibrium GDP (balanced budget multiplier)?

The Federal Reserve conducts open market operations by purchasing government securities. What is the immediate effect on the money supply and interest rates?

A nation runs a large government budget deficit. Using the open-economy loanable funds framework, what is the likely effect on the nation's current account?

Which phase of the business cycle is characterized by falling real GDP, rising unemployment, and decreasing business investment?

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

Nominal GDP in Year 2 is $800 billion. The GDP deflator for Year 2 is 125 (base year = 100). What is real GDP in Year 2?

A positive supply shock (e.g., a dramatic fall in energy prices) shifts SRAS to the right. What are the short-run and long-run effects on the price level and real GDP?

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

Stagflation is most directly caused by which of the following?

In the foreign exchange market for the U.S. dollar, which event would cause the dollar to appreciate?

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

The short-run Phillips curve shifts upward (worsens the trade-off) primarily because of:

A country can produce either 100 units of wheat or 50 units of cloth per day. If it currently produces 80 units of wheat, what is the opportunity cost of producing the 80th unit of wheat?

If the short-run aggregate supply (SRAS) curve shifts left due to a sharp rise in oil prices, the most likely immediate outcome is:

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

In the long run, an increase in aggregate demand with an economy already at full employment will result in which of the following, according to classical macroeconomic theory?

A bank has $500 million in deposits and a required reserve ratio of 10%. If the bank holds only required reserves, what is the maximum amount the bank can lend?

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?

Net capital outflows from the U.S. increase. What is the direct effect on the U.S. exchange rate and current account?

In a market with a binding price floor set above equilibrium, which of the following outcomes is most likely?

If expected inflation increases while the nominal interest rate is unchanged, which of the following is most likely to occur in the loanable funds market?

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?

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

A country's GDP is $500billioninYear1and$550 billion in Year 2, both measured in Year 1 prices. The general price level rose 4% between Year 1 and Year 2. What is the real GDP growth rate?

The interest rate on bonds and the price of bonds have an inverse relationship. If the Federal Reserve conducts open market sales of bonds, what happens to bond prices and interest rates?

In the AD/AS model, a decrease in aggregate demand (AD) with a downward-sticky price level will most likely result in:

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?

An economist argues that expansionary fiscal policy in the long run primarily increases the price level rather than real GDP. This position is most consistent with which framework?

Which of the following events would shift the Aggregate Demand (AD) curve to the right?

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

The current account of the balance of payments records which of the following?

A worker loses her job at a coal mine because the nation has shifted to renewable energy, making coal uneconomical. This worker is experiencing which type of unemployment?

The law of increasing opportunity costs suggests that a PPC is bowed outward (concave to the origin) because:

Country A's opportunity cost of producing 1 unit of wheat is 3 units of cloth. Country B's opportunity cost of producing 1 unit of wheat is 2 units of cloth. Which of the following trade arrangements could benefit both countries?

The U.S. Federal Reserve raises interest rates. Tracing the effects through the foreign exchange market: which of the following best describes the full chain of effects on net exports?

The required reserve ratio is 20%. If the Fed injects $1,000 in new reserves into the banking system, what is the maximum potential expansion of the money supply?

The multiplier effect on GDP from a change in taxes is different from the multiplier effect from a change in government spending. Given $MPC=0.75$, what are the spending multiplier and the tax multiplier, respectively?

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

Which of the following best illustrates the economic concept of scarcity?

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

In a flexible (floating) exchange rate system, a U.S. current account deficit tends to be self-correcting because:

Two countries can both gain from trade even if one country has an absolute advantage in producing all goods. This is explained by: