AP MACROECONOMICS: FINAL EXAM WITH
ALL CORRECT & VERIFIED ANSWERS
(UPDATED TO PASS)
What is the most fundamental issue that economics addresses? Correct answer-Use of scarce
resources
Inflation occurs when there is a sustained increase in Correct answer-average price level
An increase in spending in an economy will cause a multiplied increase in GDP because Correct
answer-consumption increases as income increases
A contraction in the money supply will most likely change the nominal interest rate and aggregate
demand in what way in the short run? Correct answer-Nominal Interest Rate- Increase, Aggregate
Demand- Decrease
If the economy is in a severe recession, what policy action is most appropriate? Correct answer-
Increasing both the money supply and government spending
The most liquid asset is Correct answer-currency
If nominal interest rate is 8% and the expected inflation is 3%, the real interest rate is Correct
answer-5%
An increase in the international value of the US dollar will most likely benefit Correct answer-
retired US citizens living overseas on their social security checks
What group would most likely gain from unanticipated inflation? Correct answer-Individuals who
have borrowed money at fixed interest rates
The purchase of securities on the open market by the Federal Reserve will Correct answer-Increase
the supply of money
Total spending in the economy is most likely to increase by the largest amount if what occurs to
government spending and taxes? Correct answer-Government Spending- Increase, Taxes- Decrease
For an economy consisting of households and businesses only, what is consistent with the circular
flow of income and production? Correct answer-Households are suppliers of resources and
consumers of goods and services
If a banking system's reserves are $100 billion, demand deposits are $500 billion, and the system is
fully loaned-up, the the reserve ratio must be Correct answer-20% (100/500=0.2)
An increase in what would cause the long-run aggregate supply curve to shift to the right? Correct
answer-Potential Output
If an economy is operating with significant unemployment, an increase in what will most likely cause
employment to increase and the interest rate to decrease? Correct answer-Purchases of
government bonds by the central bank
, To counteract a recession, the Federal Reserve should Correct answer-Buy securities on the open
market and lower the reserve requirement
An appreciation of the US dollar on the foreign exchange market could be caused by a decrease in
what? Correct answer-US consumer price index
If the marginal propensity to consume (MPC) is 0.75, then a $100 increase in investment will result in
a maximum increase in equilibrium real GDP of Correct answer-$400 (Multiplier=4→4x100)
What would indicate that economic growth has occurred? Correct answer-LRAS curve shifts to the
right
Crowding out refers to the decrease in Correct answer-private investment due to increased
borrowing by the government
Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady
growth with a stable price level. What would occur in the foreign exchange market? Correct
answer-Depreciation of Country A's currency
The demand for money increase when national income increases because Correct answer-
Spending on goods and services increases
What relationship is illustrated by a short-run Phillips curve (SRPC)? Correct answer-Decrease in
inflation rate and Increase in unemployment rate
What will be counted as unemployed by the US Bureau of Labor Statistics? Correct answer-Persons
who were fired from their previous jobs and are actively applying for work
If the Federal Reserve lowers the reserve requirement, what is most likely to happen to interest rates
and gross national product? Correct answer-Interest Rates- Decrease, Gross National Product-
Increase
If the inflation rate is lower than expected Correct answer-lenders gain and borrowers lose
What is the most likely short-run effect of an increase in government expenditures? Correct
answer-Unemployment Rate- Decrease, Inflation Rate- Increase, GDP- Increase
What combination of monetary and fiscal policies are coordinated to increase output? Correct
answer-Purchase securities; decrease taxes
Frictional unemployment occurs when what happens? Correct answer-Worker voluntarily quits a
job to search for a better one
If the economy is in severe recession, what fiscal policy is the most effective in stimulating
production? Correct answer-Government spending increase
What would cause the production possibilities curve (PPF) to shift outward? Correct answer-
Developing a more efficient product making process
What would cause the US dollar to increase in value (appreciate) compared to another country's
currency? Correct answer-An increase in interest rates in the US
ALL CORRECT & VERIFIED ANSWERS
(UPDATED TO PASS)
What is the most fundamental issue that economics addresses? Correct answer-Use of scarce
resources
Inflation occurs when there is a sustained increase in Correct answer-average price level
An increase in spending in an economy will cause a multiplied increase in GDP because Correct
answer-consumption increases as income increases
A contraction in the money supply will most likely change the nominal interest rate and aggregate
demand in what way in the short run? Correct answer-Nominal Interest Rate- Increase, Aggregate
Demand- Decrease
If the economy is in a severe recession, what policy action is most appropriate? Correct answer-
Increasing both the money supply and government spending
The most liquid asset is Correct answer-currency
If nominal interest rate is 8% and the expected inflation is 3%, the real interest rate is Correct
answer-5%
An increase in the international value of the US dollar will most likely benefit Correct answer-
retired US citizens living overseas on their social security checks
What group would most likely gain from unanticipated inflation? Correct answer-Individuals who
have borrowed money at fixed interest rates
The purchase of securities on the open market by the Federal Reserve will Correct answer-Increase
the supply of money
Total spending in the economy is most likely to increase by the largest amount if what occurs to
government spending and taxes? Correct answer-Government Spending- Increase, Taxes- Decrease
For an economy consisting of households and businesses only, what is consistent with the circular
flow of income and production? Correct answer-Households are suppliers of resources and
consumers of goods and services
If a banking system's reserves are $100 billion, demand deposits are $500 billion, and the system is
fully loaned-up, the the reserve ratio must be Correct answer-20% (100/500=0.2)
An increase in what would cause the long-run aggregate supply curve to shift to the right? Correct
answer-Potential Output
If an economy is operating with significant unemployment, an increase in what will most likely cause
employment to increase and the interest rate to decrease? Correct answer-Purchases of
government bonds by the central bank
, To counteract a recession, the Federal Reserve should Correct answer-Buy securities on the open
market and lower the reserve requirement
An appreciation of the US dollar on the foreign exchange market could be caused by a decrease in
what? Correct answer-US consumer price index
If the marginal propensity to consume (MPC) is 0.75, then a $100 increase in investment will result in
a maximum increase in equilibrium real GDP of Correct answer-$400 (Multiplier=4→4x100)
What would indicate that economic growth has occurred? Correct answer-LRAS curve shifts to the
right
Crowding out refers to the decrease in Correct answer-private investment due to increased
borrowing by the government
Suppose that Country A is experiencing high inflation relative to Country B, which is enjoying steady
growth with a stable price level. What would occur in the foreign exchange market? Correct
answer-Depreciation of Country A's currency
The demand for money increase when national income increases because Correct answer-
Spending on goods and services increases
What relationship is illustrated by a short-run Phillips curve (SRPC)? Correct answer-Decrease in
inflation rate and Increase in unemployment rate
What will be counted as unemployed by the US Bureau of Labor Statistics? Correct answer-Persons
who were fired from their previous jobs and are actively applying for work
If the Federal Reserve lowers the reserve requirement, what is most likely to happen to interest rates
and gross national product? Correct answer-Interest Rates- Decrease, Gross National Product-
Increase
If the inflation rate is lower than expected Correct answer-lenders gain and borrowers lose
What is the most likely short-run effect of an increase in government expenditures? Correct
answer-Unemployment Rate- Decrease, Inflation Rate- Increase, GDP- Increase
What combination of monetary and fiscal policies are coordinated to increase output? Correct
answer-Purchase securities; decrease taxes
Frictional unemployment occurs when what happens? Correct answer-Worker voluntarily quits a
job to search for a better one
If the economy is in severe recession, what fiscal policy is the most effective in stimulating
production? Correct answer-Government spending increase
What would cause the production possibilities curve (PPF) to shift outward? Correct answer-
Developing a more efficient product making process
What would cause the US dollar to increase in value (appreciate) compared to another country's
currency? Correct answer-An increase in interest rates in the US
