AP Macroeconomics: Final Exam UPDATED
ACTUAL Questions and CORRECT
Answers
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)
ACTUAL Questions and CORRECT
Answers
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)
