AP Macroeconomics Practice Test Questions with Multiple Choice Answers 2023

AP Macroeconomics Practice Test Questions with Multiple Choice Answers 2023 According to the short-run Phillips curve, lower inflation rates are associated with A) Higher unemployment rates B) Higher government spending C) Larger budget deficits D) Greater labor-force participation rates E) Smaller labor-force participation rates - A) Higher unemployment rates The Phillips curve demonstrates the inversely proportional relationship between inflation and unemployment (more unemployment = lower inflation and vice versa) Which of the following will lead to a decrease in a nation's money supply. A) A decrease in income tax rates B) A decrease in the discount rate C) An open market purchase of government securities by the central bank D) An increase in reserve requirements E) An increase in government expenditures on goods and services - D) An increase in reserve requirements An increase in reserve requirements causes the money multiplier to decrease. Also, banks are not able to lend out as much money since they are required to save more. An increase in which of the following would cause the aggregate demand curve to shift to the left? A) Consumer optimism B) Population C) Cost of resources D) Income taxes E) Net exports - D) Income taxes Income taxes being increased would allow consumers to spend less, which would cause consumers to demand products at a lower price. A leftwards shift indicates more demand for cheaper products, so income taxes would cause the aggregate demand curve to shift left. Which of the following changes in the supply of and and the demand for a good will definitely result in a decrease in both the equilibrium price and quantity of the good? A) Supply: Increase ; Demand: Increase B) Supply: Increase ; Demand: No change C) Supply: No change ; Demand: Decrease D) Supply: Decrease ; Demand: Increase E) Supply : Decrease ; Demand : Decrease - C) Supply: No change ; Demand: decrease Liabilities: Demand Deposits ; Assets: Actual reserves, loans Bank A: Actual Reserves: $1,000 ; Loans: $4,000 ; Demand deposits: $5,000 Bank B: Actual reserves: $100 ; Loans: $500 ; Demand deposits: $600 Bank C: Actual reserves: $10 ; Loans: $90 ; Demand deposits: $100 Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent? A) Bank A has no excess reserves B) Bank B has no excess reserves C) Bank B can increase its loans by $500 D) Bank B can increase its loans by $40 E) Bank C has excess reserves - D) Bank B can increase its loans by $40 To find the amount that needs to be in the actual reserves, you must take 10% of the demand deposits. This results in 0.1 * 600 = 60. Using this number, subtract from the amount in the actual reserves. This yields 100 - 60 = 40. This means that Bank B can increase its loans by $40 Which of the following will most likely lead to a decrease in inflationary expectations? A) A decrease in the marginal propensity to save B) A decrease in imports C) A decrease in the money supply D) An increase in the government budget deficit E) An increase in the prices of raw material - C) A decrease in the money supply An increase in the require reserve ratio would cause a decrease in the money supply. Because banks would be holding on to more money, the economy would not grow as quickly, so inflation would slow With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely A) reduce the price level B) Reduce the level of nominal gross domestic product C) Increase real gross domestic product D) Shift the short-run aggregate supply curve to the right E) Shift both the aggregate demand curve and the long-run aggregate supply curve to the left - C) Increase real gross domestic product Increasing government expenditure would increase the GDP of the nation, and it would likely outpace inflation, which is used in the calculation of real GDP Which of the following are the most likely short-run effects of an increase in government expenditures A) Unemployment rate: increase ; Inflation rate: increase ; Real GDP: increase B)Unemployment rate: increase ; Inflation rate: increase Real GDP: Decrease C) Unemployment rate: decrease ; Inflation rate: increase ; Real GDP : increase D) Unemployment rate: decrease ; Inflation rate : decrease ; Real GDP: increase - C) Unemployment rate: decrease ; inflation rate: increase ; Real GDP: increase Government expenditures cause a short-term decrease in unemployment. The Phillips curve demonstrates that a decrease in unemployment causes an increase in inflation rate. Increasing government expenditures also increases the expenditure GDP of the nation, which would likely outpace inflation, allowing real GDP to increase In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product? A) Price level: decrease ; real GDP: increase B) Price level: no change ; real GDP: decrease C) Price level: increase ; real GDP : no change D) Price level: increase ; real GDP: decrease E) Price level: increase ; real GDP: increase - E) Price Level: increase ; real GDP: increase Expansionary monetary policy would allow for more money to be in the economy, allowing inflation to increase, which causes an increase in price level. The increased circulation of money allows for real GDP to increase A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy? A) Fiscal: increase taxes ; monetary: sell government bonds B) Fiscal: decrease taxes ; monetary: lower margin requirements C) Fiscal: decrease taxes ; monetary: lower margin requirements D) Fiscal: decrease government spending ; monetary: lower discount rate E) Fiscal: increase government spending; monetary: raise discount rate - A) Fiscal: increase taxes ; monetary: sell government bonds Increasing taxes allows for consumers to have less spending power. When consumers buy less, inflation decreases. Also, selling bonds decreases the money supply, so inflation decreases Which of the following is likely to occur following the depreciation of the United States dollar? A) United States imports will increase B) United States exports will increase C) Demand for the United States exports will increase D) United States demand for foreign currencies will increase E) United States goods will become more expensive in foreign markets - B) United States exports will increase When a currency is valued for less, the nation's exports can be bought for less money, so the nation has to increase exports to match previous profits Country A: Computers : 24 ; Cars : 0 Computers: 0 ; Cars: 12 Country B: Computers: 45 ; Cars: 0 Computers: 0; Cars: 15 Which of the following statements is true according to the table? A) Country A has an absolute and comparative advantage in the production of computers B) Country B has an absolute advantage and comparative advantage in the production of computers C) Country B should import computers and export cars D) Since Country B has an absolute advantage in the production of both goods, it will not trade with country A E) neither country can benefit from trade - B) Country B has an absolute advantage and comparative advantage in the production of computers Country B produces more computers (absolute advantage) and its ratio of computers : cars is greater than country A's (comparative advantage) Which of the following individuals is considered officially unemployed? A) person who has not worked for more than 3 years and is no longer seeking work B) person who is going to school and waiting to find a job C) Person who left a job to look for a different job D) Person who retired after turning 65 E) Person who is working 20 hours/week and is seeking full time employment - C) Person who left a job to look for a different job All the other people are employed or not seeking employment, so they are not unemployed. This person is the only one unemployed, could be classified as frictional unemployment (seeking a new job and currently unemployed)