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5 Steps To A 5 AP Macroeconomics 2018 2018 Edition Dodge, Eric R - Solutions
When a nation is operating at the natural rate of unemployment,(A) there is no cyclical unemployment.(B) the inflation rate is zero.(C) there is no structural unemployment.(D) the nation is experiencing a recession.(E) the unemployment rate is zero.
A negative, or contractionary, supply shock will(A) shift the Phillips curve to the left.(B) shift the investment demand curve to the right.(C) shift the money demand curve to the right.(D) shift the money supply curve to the left.(E) shift the Phillips curve to the right.
The short-run Phillips curve depicts the ____ relationship between ____ and ____.(A) positive, price level, interest rate(B) negative, interest rate, private investment(C) negative, the inflation rate, the unemployment rate(D) positive, price level, real GDP(E) negative, interest rate, money demand
Labor productivity and economic growth increase if(A) a nation subsidizes education for all citizens.(B) a nation imposes tariffs and quotas on imported goods.(C) a nation removes penalties for firms that pollute natural resources.(D) a nation ignores societal barriers like discrimination.(E) a
Which of the following is an example of expansionary monetary policy for the Federal Reserve?(A) Increasing the discount rate(B) Increasing the reserve ratio(C) Buying Treasury securities from commercial banks(D) Lowering income taxes(E) Removal of import quotas
Which of the following is true of automatic fiscal policy stabilizers?(A) For a given level of government spending, they produce a deficit during a recession and a surplus during an expansion.(B) They serve to prolong recessionary and inflationary periods.(C) The regressive tax system is a
Economic growth is best described as(A) an increase in the production possibility curve and an increase in the natural rate of unemployment.(B) an increase in the production possibility curve and a leftward shift in long-run aggregate supply.(C) a decrease in the production possibility curve and a
A nation that must consistently borrow to cover annual budget deficits risks(A) a depreciation of the nation’s currency as foreigners increase investment in the nation.(B) a decline in net exports as the nation’s goods become more expensive to foreign consumers.(C) lower interest rates that
Which of the following would likely contribute to faster rates of economic growth?(A) A more restrictive immigration policy(B) Negative net investment(C) Higher taxes on households and firms(D) Higher government funding of research on clean energy supplies(E) Protective trade policies
If the Federal Reserve was concerned about the “crowding-out” effect, they could engage in(A) expansionary monetary policy by lowering the discount rate.(B) expansionary monetary policy by selling Treasury securities.(C) contractionary monetary policy by raising the discount rate.(D)
Which of the following is a predictable consequence of import quotas?(A) Increased competition and lower consumer prices(B) Increased government tax revenue from imported goods(C) Rising net exports and a rightward shift in aggregate supply(D) An improved allocation of resources away from
The “crowding-out” effect refers to which of the following?(A) Lower interest rates that result from borrowing to conduct expansionary monetary policy(B) Higher interest rates that result from borrowing to conduct contractionary fiscal policy(C) Higher interest rates that result from borrowing
Which of the following best describes a key difference between the short-run and long-run aggregate supply curve?(A) Short-run aggregate supply is upward sloping as nominal wages quickly respond to price level changes.(B) Long-run aggregate supply is upward sloping as nominal wages quickly respond
Suppose a nation is experiencing an annual budget surplus and uses some of this surplus to pay down part of the national debt. One potential side effect of this policy would be(A) increase interest rates and throw the economy into a recession.(B) increase interest rates and depreciate the
If $1,000 is deposited into a checking account and excess reserves increase by $700, the reserve ratio must be:(A) 70%.(B) 30%.(C) 40%.(D) 90%.(E) 75%.
Suppose today’s headline is that private investment has decreased as a result of an action by the Federal Reserve. Which of the following choices is the most likely cause?(A) Selling Treasury securities to commercial banks(B) Lowering of the discount rate(C) Decreasing the reserve ratio(D)
If the reserve ratio is 10 percent and a new customer deposits $500, what is the maximum amount of money created?(A) $500(B) $4,500(C) $5,000(D) $50(E) $5,500
All else equal, when the United States exports more goods and services,(A) the value of the dollar falls as the supply of dollars increases.(B) the value of the dollar rises as demand for dollars increases.(C) the value of the dollar falls as demand for dollars decreases.(D) the value of the dollar
The fractional reserve banking system’s ability to create money is lessened if(A) households that borrow redeposit the entire loan amounts back into the banks.(B) banks hold excess reserves.(C) banks lend all excess reserves to borrowing customers.(D) households increase checking deposits in
Assuming that households save a proportion of disposable income, which of the following relationships between multipliers is correct?(A) Tax multiplier > Spending multiplier > Balanced budget multiplier(B) Spending multiplier = Tax multiplier > Balanced budget multiplier(C) Spending multiplier >
Which of the following is a component of the M1 measure of money supply?(A) Savings deposits(B) Gold bullion(C) Cash and coins(D) 30-year Treasury certificates(E) 18-month certificates of deposits
If the economy is operating at full employment, which of the following policies will create the most inflation in the short run?(A) An increase in government spending matched by an equal increase in taxes(B) An increase in government spending with no change in taxes(C) A decrease in government
Expansionary monetary policy is designed to(A) decrease the interest rate, increase private investment, increase aggregate demand, and increase domestic output.(B) decrease the interest rate, increase private investment, increase aggregate demand, and increase the unemployment rate.(C) increase the
If a nation is operating at full employment, and the central bank engages in contractionary monetary policy, the nation can expect the interest rate, the purchases of new homes, and the unemployment rate to change in which of the following ways?
If current real GDP is $5,000 and full employment real GDP is at$4,000, which of the following combinations of policies is the most likely to have brought the economy to this point?(A) A decrease in taxes and a lower discount rate(B) An increase in government spending and an increase in taxes(C) A
U.S. real GDP most likely falls when(A) tariffs and quotas are removed.(B) investment in human capital is high.(C) the money supply is increased.(D) there is a trade surplus in goods and services.(E) the value of the dollar, relative to foreign currencies, is high.
If households are more optimistic about the future, how would the consumption function be affected?(A) The marginal propensity to consume would increase, increasing the slope of the consumption function.(B) The entire consumption function would shift downward.(C) The entire consumption function
Suppose that households increase the demand for U.S. Treasury bonds as financial assets. Which of the following accurately describes changes in the money market, the interest rate, and the value of the dollar in foreign currency markets?
At the peak of a typical business cycle, which of the following is likely the greatest threat to the macroeconomy?(A) Unemployment(B) Bankruptcy(C) Declining labor productivity(D) Falling real household income(E) Inflation
Investment demand most likely increases when(A) real GDP decreases.(B) the cost of acquiring and maintaining capital equipment rises.(C) investor optimism improves.(D) the real rate of interest rises.(E) taxes on business investment rise.
Higher levels of consumer wealth and optimism would likely have which of the following changes in the market for loanable funds?
Which of the following represents a combination of contractionary fiscal and expansionary monetary policy?
Households demand more money as an asset when(A) nominal GDP falls.(B) the nominal interest rate falls.(C) bond prices fall.(D) the supply of money falls.(E) nominal GDP increases.
Which of the following tends to increase the spending multiplier?(A) An increase in the marginal propensity to consume(B) A decreased velocity of money(C) An increase in the marginal propensity to save(D) An increase in the real interest rate(E) An increase in the price level
When nominal GDP is rising, we would expect money demand to(A) increase as consumers demand more money as a financial asset, increasing the interest rate.(B) increase as consumers demand more money for transactions, increasing the interest rate.(C) decrease as the purchasing power of the dollar is
When both short-run aggregate supply and aggregate demand increase, which of the following can be said for certain?(A) The price level rises, but real GDP falls.(B) Both the price level and real GDP rise.(C) The price level rises, but the change in real GDP is uncertain.(D) The price level falls,
Which of the following most likely increases aggregate demand in the United States?(A) An American entrepreneur founds and locates a software company in London.(B) The U.S. military closes a military base in California.(C) The Chinese government makes it increasingly difficult for American firms to
Which of the following is true of the complete circular flow model of an open economy?(A) All goods and services flow through the government in exchange for resource payments.(B) There is no role for the foreign sector.(C) Households supply resources to producers in exchange for goods and
What does the presence of discouraged workers do to the measurement of the unemployment rate?(A) Discouraged workers are counted as “out of the labor force,” thus the unemployment rate is understated, making the economy look stronger than it is.(B) Discouraged workers are counted as “out of
In the long run, aggregate supply is(A) upward sloping at full employment.(B) horizontal below full employment.(C) vertical at full employment.(D) vertical below full employment.(E) vertical above full employment.
The economy is currently operating at full employment. Assuming flexible wages and prices, how would a decline in aggregate demand affect GDP and the price level in the short run, and GDP and the price level in the long run?
A likely cause of falling Treasury bond prices might be(A) expansionary monetary policy.(B) contractionary monetary policy.(C) a depreciating dollar.(D) fiscal policy designed to reduce the budget deficit.(E) a decrease in the money demand.
Which of the following policies best describes supply-side fiscal policy?(A) An increase in the money supply(B) Increased government spending(C) Lower taxes on research and development of new technology(D) Higher taxes on household income(E) More extensive government social welfare programs
Some economists believe that when aggregate demand declines, prices are inflexible or “sticky” in the downward direction. This implies that the short-run aggregate supply curve is(A) upward sloping at full employment.(B) horizontal below full employment.(C) vertical at full employment.(D)
A nation’s economic growth can be seen as a(n)(A) increase in the SRAS curve.(B) increase in the AD curve.(C) increase in the LRAS curve.(D) decrease in the production possibility curve.(E) increase in the short-run Phillips curve.
Suppose that the unemployment rate falls from 6 percent to 5 percent and the inflation rate falls from 3 percent to 2 percent. Which of the following best explains these trends?(A) An increase in aggregate demand.(B) A decrease in both aggregate demand and aggregate supply.(C) An increase in both
Which of the following lessens the impact of expansionary fiscal policy?(A) An increase in the marginal propensity to consume.(B) Lower interest rates that cause a decrease in net exports.(C) Higher interest rates that cause an increase in net exports.(D) Higher interest rates that decrease private
Which of the following best measures changes in the price level of national product?(A) The consumer price index(B) The real interest rate(C) The unemployment rate(D) The producer price index(E) The GDP deflator
If your nominal income rises 4 percent and your real income falls 1 percent, by how much did the price level change?(A) 5 percent decrease(B) ¼ percent increase(C) 3 percent increase(D) 3 percent decrease(E) 5 percent increase
Which of the following statements is true?(A) The velocity of money is equal to real GDP divided by the money supply.(B) Dollars earned today have more purchasing power than dollars earned a year from today.(C) The supply of loanable funds consists of investors.(D) The demand for loanable funds
Which of the following are harmed by unexpectedly high rates of inflation?(A) Borrowers repaying a long-term loan at a fixed interest rate.(B) Savers who have put their money in long-term assets that pay a fixed interest rate.(C) Workers who have negotiated cost-of-living raises into their
The government has just lowered personal income taxes. Which of the following best describes the effects that this policy has on the economy?(A) Higher disposable income, higher consumption, higher real GDP, lower unemployment(B) Higher disposable income, lower consumption, higher real GDP, lower
Which of the following is characteristic of a centrally planned economic system?(A) Resources are allocated based on relative prices.(B) The circular flow of goods and services minimizes the role of the federal government.(C) Private ownership of resources is fundamental to economic growth.(D)
An increase in the consumer price index is commonly referred to as(A) economic growth.(B) inflation.(C) unemployment.(D) discouraged workers.(E) deflation.
Corn is exchanged in a competitive market. Which of the following definitely increases the equilibrium price of corn?(A) Both supply and demand shift rightward.(B) Both supply and demand shift leftward.(C) Supply shifts to the right; demand shifts to the left.(D) Supply shifts to the left; demand
How would fiscal and monetary policymakers combine spending, tax, and monetary policy to fight a recessionary gap, while avoiding large budget deficits?
A nation is producing at a point inside of its production possibility curve. Which of the following is a possible explanation for this outcome?(A) This nation has experienced a permanent decrease in its production capacity.(B) This nation has experienced slower than usual technological progress.(C)
Which of the following statements is true of production possibility curves and trade between nations?(A) Nations specialize and trade based on absolute advantage in production.(B) Free trade allows each nation to consume beyond the production possibility curve.(C) The flow of goods and services is
When the United States places an import quota on imported sugar, we expect which of the following effects?(A) Consumers seek substitutes for sugar and products that use sugar.(B) Consumers consume more sugar and products that use sugar.(C) The supply of sugar increases.(D) Net exports in the United
If the Japanese economy suffers a deep, prolonged recession, in what ways would U.S. net exports and the values of the dollar and yen change?
Which of the following is a consequence of a protective tariff on imported steel?(A) Net exports fall.(B) Income is transferred from domestic steel consumers to domestic steel producers.(C) Allocative efficiency is improved.(D) Income is transferred from domestic steel to foreign steel
You hear that the United States has a negative balance in the current account. With this information we conclude that(A) there is a trade deficit.(B) there is a capital account deficit.(C) there is a capital account surplus.(D) more U.S. dollars are being sent abroad than foreign currencies are
If the U.S. dollar and Chinese yuan are traded in flexible currency markets, which of the following causes an appreciation of the dollar relative to the Chinese yuan?(A) Lower interest rates in the United States relative to China(B) Lower price levels in China relative to the United States(C)
The United States produces rice in a competitive market. With free trade, the world price is lower than the domestic price. What must be true?(A) The United States begins to import rice to make up for a domestic shortage.(B) The United States begins to export rice to make up for a domestic
Which of the following is a predictable advantage of expansionary monetary policy in a recession?(A) Decreases aggregate demand so that the price level falls.(B) Increases aggregate demand, which increases real GDP and increases employment.(C) Increases unemployment, but low prices negate this
To move the economy closer to full employment, the central bank decides that the federal funds rate must be increased. The appropriate open market operation is to ______, which ______ the money supply, ______ aggregate demand, and fights ______.
If the money supply increases, what happens in the money market(assuming money demand is downward sloping)?(A) The nominal interest rates rises.(B) The nominal interest rates falls.(C) The nominal interest rate does not change.(D) Transaction demand for money falls.(E) Transaction demand for money
Which is not a way that the Fed can affect the money supply?(A) A change in discount rate(B) An open market operation(C) A change in reserve ratio(D) A change in tax rates(E) Buying Treasury securities from commercial banks
If a bank has $500 in checking deposits and the bank is required to reserve $50, what is the reserve ratio? How much does the bank have in excess reserves?(A) 10 percent, $450 in excess reserves(B) 90 percent, $50 in excess reserves(C) 90 percent, $450 in excess reserves(D) 10 percent, $50 in
Which function of money best defines $1.25 as the price of a 20-ounce bottle of pop?(A) Medium of exchange(B) Unit of account(C) Store of value(D) Transfer of ownership(E) Fiat money
The U.S. economy currently suffers a recessionary gap, and a budget deficit exists. If the government wishes to fix the recession, which of the following choices best describes the appropriate fiscal policy, the impact on the market for loanable funds, the interest rate, and the market for the U.S.
Which of the following would likely slow a nation’s economic growth?(A) Guaranteed low-interest loans for college students(B) Removal of a tax on income earned on saving(C) Removal of the investment tax credit(D) More research grants given to medical schools(E) Conservation policies to manage the
Which of the following fiscal policies is likely to be most effective when the economy is experiencing an inflationary gap?(A) The government decreases taxes and keeps spending unchanged.(B) The government increases spending and keeps taxes unchanged.(C) The government increases spending matched
The crowding-out effect from government borrowing is best described as(A) the rightward shift in AD in response to the decreasing interest rates from contractionary fiscal policy.(B) the leftward shift in AD in response to the rising interest rates from expansionary fiscal policy.(C) the effect of
In a long period of economic expansion the tax revenue collected ____ and the amount spent on welfare programs ____, creating a budget ____.(A) increases, decreases, surplus(B) increases, decreases, deficit(C) decreases, decreases, surplus(D) decreases, increases, deficit(E) increases, increases,
Which of the following would not be an example of contractionary fiscal policy?(A) Decreasing money spent on social programs(B) Increasing income taxes(C) Canceling the annual cost of living adjustments to the salaries of government employees(D) Increasing money spent to pay for government
The effect of the spending multiplier is lessened if(A) the price level is constant with an increase in aggregate demand.(B) the price level falls with an increase in aggregate supply.(C) the price level is constant with an increase in long-run aggregate supply.(D) the price level falls with an
What is the main contrast between the short-run and long-run Phillips curve?(A) In the short run there is a positive relationship between inflation and unemployment, and in the long run the relationship is negative.(B) In the short run there is a positive relationship between inflation and
Equilibrium real GDP is far below full employment, and the government lowers household taxes. Which is the likely result?(A) Unemployment falls with little inflation.(B) Unemployment rises with little inflation.(C) Unemployment falls with rampant inflation.(D) Unemployment rises with rampant
Stagflation most likely results from(A) increasing AD with constant SRAS.(B) decreasing SRAS with constant AD.(C) decreasing AD with constant SRAS.(D) a decrease in both AD and SRAS.(E) an increase in both AD and SRAS.
Which is the best way to describe the AS curve in the long run?(A) Always vertical in the long run.(B) Always upward sloping because it follows the Law of Supply.(C) Always horizontal.(D) Always downward sloping.(E) Without more information we cannot predict how it looks in the long run.
Using the model of AD and AS, what happens in the short run to real GDP, the price level, and unemployment with more consumption spending (C )?
Which of the following is the source of the supply of loanable funds?(A) The stock market(B) Investors(C) Net exports(D) Banks and mutual funds(E) Savers
The tax multiplier increases in magnitude when(A) the MPS increases.(B) the spending multiplier falls.(C) the MPC increases.(D) government spending increases.(E) taxes increase.
Which of the following choices is most likely to create the greatest decrease in real GDP?(A) The government decreases spending, matched with a decrease in taxes.(B) The government increases spending with no increase in taxes.(C) The government decreases spending with no change in taxes.(D) The
Which of the following events most likely increases real GDP?(A) An increase in the real rate of interest(B) An increase in taxes(C) A decrease in net exports(D) An increase in government spending(E) A lower value of consumer wealth
Which of the following is true about the consumption function?(A) The slope is equal to the MPC.(B) The slope is equal to the MPS.(C) The slope is equal to MPC + MPS.(D) It shifts upward when consumers are more pessimistic about the future.(E) It shifts downward when consumer wealth increases in
When disposable income increases by $X,(A) consumption increases by more than $X.(B) saving increases by less than $X.(C) saving increases by exactly $X.(D) saving remains constant.(E) saving decreases by more than $X.
You are working at a supermarket bagging groceries, but you are unhappy about your wage, so you quit and begin looking for a new job at a competing grocery store. What type of unemployment is this?(A) Cyclical(B) Structural(C) Seasonal(D) Frictional(E) Discouraged
What is the official unemployment rate?(A) 5 percent(B) 2.5 percent(C) 5.5 percent(D) 7 percent(E) Unknown, as we do not know the number of discouraged workers
What is the size of the labor force?(A) 2,000(B) 950(C) 900(D) 1,000(E) 1,950
If Real GDP = $200 billion and the price index = 200, Nominal GDP is(A) $4 billion(B) $400 billion(C) $200 billion(D) $2 billion(E) Impossible to determine since the base year is not given For Questions 4 to 5 use the following information for a small town:
GDP is $10 million, consumer spending is $6 million, government spending is $3 million, exports are $2 million, and imports are $3 million. How much is spent for investments?(A) $0 million(B) $1 million(C) $2 million(D) $3 million(E) $4 million
Which of the following transactions would be counted in GDP?(A) The cash you receive from babysitting your neighbor’s kids(B) The sale of illegal drugs(C) The sale of cucumbers to a pickle manufacturer(D) The sale of a pound of tomatoes at a supermarket(E) The eBay resale of a sweater you
The competitive market provides the best outcome for society because(A) consumer surplus is minimized, while producer surplus is maximized.(B) the total welfare is maximized.(C) producer surplus is minimized, while consumer surplus is maximized.(D) the difference between consumer and producer
The apple market is in equilibrium. Suppose we observe that apple growers are using more pesticides to increase apple production. At the same time, we hear that the price of pears, a substitute for apples, is rising. Which of the following is a reasonable prediction for the new price and quantity
The market for denim jeans is in equilibrium, and the price of polyester pants, a substitute good, rises. In the jean market(A) supply falls, increasing the price and decreasing the quantity.(B) supply falls, increasing the price and increasing the quantity.(C) demand falls, increasing the price
Suppose that aluminum is a key production input in the production of bicycles. If the price of aluminum falls, and all other variables are held constant, we expect(A) the demand for aluminum to rise.(B) the supply of bicycles to rise.(C) the supply of bicycles to fall.(D) the demand for bicycles to
If average household income rises and we observe that the demand for pork chops increases, pork chops must be(A) an inferior good.(B) a normal good.(C) a surplus good.(D) a public good.(E) a shortage good.
When the price of pears increases, we expect the following:(A) Quantity demanded of pears rises.(B) Quantity supplied of pears falls.(C) Quantity demanded of pears falls.(D) Demand for pears falls.(E) Supply of pears rises.
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