Macroeconomics Practice
Using past AP exam questions
1.
A country's government runs a budget deficit when which of the following occurs in a given year?
A)
The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations.
B)
Government spending exceeds tax revenues.
C)
The debt owed to foreigners exceeds the debt owed to the country's citizens.
D)
The amount borrowed exceeds the interest payment on the national debt.
E)
Interest payments on the national debt exceed spending on goods and services.
4.
If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?
A)
Output will increase.
B)
Output will decrease.
C)
Output will not change.
D)
The price level will increase.
E)
The price level will decrease.
7.
The value of a country's currency will tend to appreciate if
A)
demand for the country's exports increases
B)
the country's money supply increases
C)
the country's citizens increase their travel abroad
D)
domestic interest rates decrease
E)
tariffs on the country's imports decrease
10.
For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?
A)
Households are producers of goods and services and consumers of resources.
B)
Households are users of resources, and businesses are sources of saving.
C)
Households are suppliers of resources and consumers of goods and services.
D)
Businesses are users of taxes, and households are sources of taxes.
E)
Businesses are suppliers of resources and consumers of goods and services.
13.
Which of the following might worsen a nation's trade deficit?
A)
Lower wages relative to other nations.
B)
Lower taxes on corporate profits relative to other nations.
C)
A higher interest rate on financial assets relative to other nations.
D)
A higher rate of inflation relative to other nations.
E)
Other nations remove tariffs and quotas on foreign imports.
16.
Under a flexible exchange rate system, the Indian Rupee will appreciate against the Japanese Yen when
A)
India's inflation rate exceeds Japan's
B)
India has a trade deficit with Japan
C)
Japan's economy enters a recession, but India's does not
D)
Japan's money supply decreases while India's money supply increases
E)
real interest rates in India decrease relative to those in Jjapan
19.
Which of the following individuals is considered officially unemployed?
A)
Chris, who has not worked for 3 years and has given up looking for a job.
B)
Sara, who is going to school full-time and is waiting until she graduates to look for a job
C)
Brandon, who recently left a job to look for a different job in another city
D)
Charlie, who retired last year after turning 65
E)
Bob, who is working 20 hours a week part-time.
2.
The value of a country's currency will tend to appreciate if
A)
demand for the country's exports increases
B)
the country's money supply increases
C)
the country's citizens increase their travel abroad
D)
domestic interest rates decrease
E)
tariffs on the country's imports decrease
5.
For an economy consisting of households and businesses only, which of the following is consistent with the circular flow of income and production?
A)
Households are producers of goods and services and consumers of resources.
B)
Households are users of resources, and businesses are sources of saving.
C)
Households are suppliers of resources and consumers of goods and services.
D)
Businesses are users of taxes, and households are sources of taxes.
E)
Businesses are suppliers of resources and consumers of goods and services.
8.
Hyperinflation is typically caused by
A)
high tax rates that discourage work effort
B)
continuous expansion of the money supply to finance government budget deficits
C)
trade surpluses that are caused by strong protectionist policies
D)
bad harvests that lead to widespread shortages
E)
a large decline in corporate profits that leads to a decrease in production
11.
If the short-run aggregate supply curve is horizontal, it is because
A)
there exist many unemployed resources so that output can be increased without increasing wages and prices.
B)
any increase in output requires a corresponding increase in wages and prices.
C)
increases in output cause prices to increase, but wages adjust much less quickly.
D)
falling interest rates increase the demand for goods and services, putting upward pressure on prices.
E)
resources are fully employed so that output can be increased but only if the price level also increases.
14.
If Country Alpha has been experiencing a higher inflation rate than Country Beta over the past decade, which of the following is true?
A)
Alpha's currency will have appreciated relative to Beta's currency.
B)
Alpha's currency will have depreciated relative to Beta's currency.
C)
Alpha will have had lower nominal interest rates than Beta.
D)
Alpha will have had slower growth in the money supply than Beta.
E)
Alpha's economy will have grown at a faster rate than Beta's.
17.
Advocates of a monetary rule recommend increasing the money supply at a rate that is equal to the rate of increase in which of the following?
A)
Price level
B)
Unemployment Rate
C)
Level of exports
D)
Level of imports
E)
Long-run real GDP
20.
Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by
A)
$4,000
B)
$8,000
C)
$9,000
D)
$10,000
E)
$14,000
3.
Hyperinflation is typically caused by
A)
high tax rates that discourage work effort
B)
continuous expansion of the money supply to finance government budget deficits
C)
trade surpluses that are caused by strong protectionist policies
D)
bad harvests that lead to widespread shortages
E)
a large decline in corporate profits that leads to a decrease in production
6.
A country's government runs a budget deficit when which of the following occurs in a given year?
A)
The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations.
B)
Government spending exceeds tax revenues.
C)
The debt owed to foreigners exceeds the debt owed to the country's citizens.
D)
The amount borrowed exceeds the interest payment on the national debt.
E)
Interest payments on the national debt exceed spending on goods and services.
9.
If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?
A)
Output will increase.
B)
Output will decrease.
C)
Output will not change.
D)
The price level will increase.
E)
The price level will decrease.
12.
Which of the following is most likely to produce stronger economic growth over time?
A)
More rapid consumption of natural resources.
B)
Higher adult illiteracy rates.
C)
A falling stock of capital goods.
D)
Investment tax credits.
E)
Higher taxes on foreign capital investment.
15.
Which of the following statements is true of unanticipated inflation?
A)
It decreases the economic well-being of all members of society proportionately.
B)
It decreases the economic well-being of all members of society equally.
C)
It increases the economic well-being of net creditors.
D)
It increases the economic well-being of net debtors.
E)
It increases the economic well-being of workers with long-term labor contracts.
18.
Which of the following is more likely to occur following the depreciation of the US dollar?
A)
United States imports will increase
B)
United States exports will increase
C)
Demand for the United States dollar will decrease
D)
United States demand for foreign currencies will increase
E)
United States goods will become more expensive in foreign markets
Question # | Correct answer | Explanation | Unit |
|---|---|---|---|
1. | B | A budget deficit occurs when a government's expenditures exceed its revenues in a given year. This means it is spending more than it collects in taxes. | Unit 5: The Financial Sector |
2. | A | Increased demand for a country's exports increases demand for its currency, leading to appreciation. | Unit 6: Open Economy: International Trade and Finance |
3. | B | Hyperinflation often results from governments printing excessive money to cover budget deficits, reducing the value of money drastically. | Unit 2: Economic Indicators and the Business Cycle |
4. | D | A leftward shift in AS raises prices, and a rightward shift in AD also raises prices—so price level will definitely rise. | Unit 3: National Income and Price Determination |
5. | C | In the circular flow model, households supply resources (like labor) and consume goods/services. Businesses do the opposite. | Unit 1: Basic Economic Concepts |
6. | B | A budget deficit occurs when a government's expenditures exceed its revenues in a given year. This means it is spending more than it collects in taxes. | Unit 5: The Financial Sector |
7. | A | Increased demand for a country's exports increases demand for its currency, leading to appreciation. | Unit 6: Open Economy: International Trade and Finance |
8. | B | Hyperinflation often results from governments printing excessive money to cover budget deficits, reducing the value of money drastically. | Unit 2: Economic Indicators and the Business Cycle |
9. | D | A leftward shift in AS raises prices, and a rightward shift in AD also raises prices—so price level will definitely rise. | Unit 3: National Income and Price Determination |
10. | C | In the circular flow model, households supply resources (like labor) and consume goods/services. Businesses do the opposite. | Unit 1: Basic Economic Concepts |
11. | A | When there are many unemployed resources, output can increase without putting upward pressure on wages and prices, making the SRAS curve horizontal. | Unit 3: National Income and Price Determination |
12. | D | Investment tax credits encourage businesses to invest in capital, boosting productivity and long-term economic growth. | Unit 5: Long-Run Consequences of Stabilization Policies |
13. | D | Higher inflation makes domestic goods more expensive relative to foreign goods, increasing imports and worsening the trade deficit. | Unit 6: Open Economy: International Trade and Finance |
14. | B | Higher inflation reduces a currency's value, causing it to depreciate relative to currencies with lower inflation. | Unit 6: Open Economy: International Trade and Finance |
15. | D | Unanticipated inflation reduces the real value of debt, benefiting borrowers (net debtors) who repay loans with less valuable money. | Unit 2: Economic Indicators and the Business Cycle |
16. | E | Higher real interest rates in India attract foreign capital, increasing demand for rupees, causing appreciation. | Unit 6: Open Economy: International Trade and Finance |
17. | E | The spending multiplier is 1 / (1 - MPC). A higher MPC (like 0.8) means a higher multiplier effect, so a $1 increase in spending leads to a $5 increase in GDP. | Unit 3: National Income and Price Determination |
18. | B | A weaker dollar makes U.S. goods cheaper abroad, boosting exports. | Unit 6: Open Economy: International Trade and Finance |
19. | C | Only Pat is actively seeking work, the key criterion for being officially unemployed. | Unit 2: Economic Indicators and the Business Cycle |
20. | B | With an MPC of 0.8, consumption rises by 80% of the income change, so a $10,000 increase in income boosts consumption by $8,000. | Unit 3: National Income and Price Determination |