AP MACROECONOMICS Scoring Guide

Unit 5 MCQs

1. An increase in government spending financed by borrowing will result in which of the following?
(A) Private savings will decrease in the short run.
(B) The real interest rate will decrease in the short run.
(C) Interest-sensitive private sector spending will increase in the short run.
(D) Potential real output will increase in the long run.
(E) The rate of physical capital accumulation will decrease in the long run.

2. Which of the following causes economic growth?

(A) A decrease in the money supply
(B) A decrease in the price level
(C) An increase in nominal output
(D) An increase in consumption spending
(E) An increase in labor productivity

3. For a given population and a given quantity of labor employed, what will happen to aggregate production and
income per capita if there is an increase in a nation’s capital stock?
(A) Aggregate production will increase, and income per capita will decrease.
(B) Aggregate production will increase, and income per capita will increase.
(C) Aggregate production will decrease, and income per capita will be indeterminate.
(D) Aggregate production will decrease, and income per capita will increase.
(E) Aggregate production will decrease, and income per capita will be indeterminate.

4. If the actual inflation rate is less than the expected inflation rate, which of the following must be true?
(A) There is an inflationary gap.
(B) The economy is in long-run equilibrium.
(C) Potential real output exceeds equilibrium real output.
(D) The cyclical rate of unemployment equals zero.
(E) The frictional rate of unemployment equals zero.

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The table below provides the values, in billions of dollars, of selected macroeconomic variables for a nation at the current
real interest rate. The nation is a closed economy with no international transactions.

Private Savings 300

Tax Revenues 200
Government Spending 200
Government Transfer Payments 100
Investment in Plant and Equipment 300

5. Based on the table above, which of the following is most likely true?
(A) The government has a budget surplus.
(B) Consumer spending exceeds disposable income.
(C) Public savings exceeds private savings.
(D) National debt is decreasing.
(E) The government is borrowing.

6. Based on the table above, what will happen to the real interest rate in the loanable funds market and private
investment spending in plant and equipment?
(A) The real interest rate will increase, and private investment spending will increase.
(B) The real interest rate will increase, and private investment spending will decrease.
(C) The real interest rate will decrease, and private investment spending will decrease.
(D) The real interest rate will decrease, and private investment spending will increase.
(E) The real interest rate will increase, and private investment spending will not change.

7. If an economy is in long-run equilibrium, which of the following combinations of policy actions will necessarily
result in inflation in the short run?
(A) Decreasing administered interest rates and increasing government spending
(B) Increasing the discount rate and decreasing income taxes
(C) Increasing the required reserve ratio and increasing the discount rate
(D) Selling government bonds on the open market and decreasing government spending
(E) Buying government bonds on the open market and decreasing government spending

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8.
2015 Real Gross Domestic Product
Country Population

X 490,000 70
Y 200,000 20

Which conclusion can be supported by the data in the table above?

(A) Country X’s real growth rate is 7 percent.
(B) Country X’s real per capita is $4,000.
(C) Country X’s economy grew at a faster rate than Country Y’s economy did.
(D) Income is more equally distributed in Country X than in Country Y.
(E) Country Y’s real per capita is greater than Country X’s real per capita.

9. Suppose that in 2017 government outlays exceeded tax revenues. An increase in government purchases in 2018,
with no other budgetary changes, would lead to which of the following from 2017 to 2018 ?
(A) An increase in the government budget surplus
(B) A decrease in the government budget surplus
(C) An increase in the government budget deficit
(D) A decrease in the government budget deficit
(E) A decrease in the national debt

10. If the total of government spending plus government transfer payments is less than tax revenues, which of the
following must be true?
(A) The national debt will increase.
(B) There is a recessionary gap.
(C) The government budget is in surplus.
(D) The velocity of money will increase.
(E) The money multiplier will increase.

11. If subsidies for research and development on new technologies lead to an increase in the average productivity of
labor, what will most likely happen to real per capita and long-run aggregate supply for a given
population size?
(A) Real per capita will decrease, and will increase.
(B) Real per capita will decrease, and will decrease.
(C) Real per capita will increase, and will increase.
(D) Real per capita will increase, and will decrease.
(E) Real per capita will decrease, and will not change.

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12.

Given the situation illustrated in the graph and holding all other influences constant, which of the following policies
will restore the macroeconomic equilibrium to full employment?
(A) A contractionary fiscal policy and an expansionary monetary policy
(B) A contractionary fiscal policy and a contractionary monetary policy
(C) An expansionary fiscal policy and a contractionary monetary policy
(D) An expansionary fiscal policy and an expansionary monetary policy
(E) An expansionary fiscal policy without monetary policy

13. Country X’s banking system has limited reserves and its economy is in a recession. Which of the following
combinations of fiscal and monetary policy actions would necessarily move the economy toward full employment
in the short run?
(A) A decrease in government spending and an increase in the discount rate
(B) A decrease in income taxes and targeting a higher policy rate
A decrease in income taxes and a sale of government bonds on the open market by the country’s central
(C)
bank
(D) An increase in government spending and a decrease in the required reserve ratio
An increase in income taxes and a purchase of government bonds on the open market by the country’s
(E)
central bank

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14. Country X’s economy is currently at full employment. Assume Country X’s central bank increases the money
supply by 2 percent over a prolonged period. According to the quantity theory of money, which of the following
will happen in the long run for a given velocity of money?
(A) Unemployment will increase by 2%.
(B) Real output will increase by 2%.
(C) Nominal output will increase by 2%.
(D) The price level will decrease by 2%.
(E) The natural rate of unemployment will decrease by 2%.

15. An economy is in long-run equilibrium. If the central bank reduces the growth rate of the money supply, which of
the following must occur in the long run?
(A) The rate of inflation will decrease.
(B) The unemployment rate will decrease.
(C) The long-run aggregate supply curve will shift to the left.
(D) The production possibilities curve will shift to the left.
(E) The long-run Phillips curve will shift to the left.

16. Which of the following policy changes will most likely shift the long-run aggregate supply curve to the right?
(A) An increase in income taxes
(B) An increase in the money supply
(C) An increase in the required reserve ratio
(D) An increase in the government budget deficit financed by borrowing
(E) An increase in government spending on public education

17.

Which of the following will cause a movement from point X to point Y along the short-run Phillips curve
that is shown in the graph above?

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(A) An increase in the expected inflation rate

(B) An increase in the policy rate
(C) An increase in government spending
(D) An increase in input costs
(E) An increase in income taxes

18. Use the graph below of the long-run Phillips curve and short-run Phillips curve to answer the
question.

Assume members of the Organization of the Petroleum Exporting Countries ( ) agree to a coordinated
increase in oil production. If the economy is at equilibrium at point B, what effect will this have on the Phillips
curve model in the long run?
(A) The will shift to the left.
(B) The will shift to the right.
(C) The will shift to the right.
(D) There will be a movement from point B to point C.
(E) There will be a movement from point B to point A.

19. Which of the following is a supply-side fiscal policy that could stimulate economic growth?

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(A) A decrease in income tax credits

(B) A decrease in marginal income tax rates
(C) A decrease in the sales taxes imposed on household goods
(D) An increase in the discount rate
(E) An increase in the money supply

20. The national debt is equal to which of the following?

(A) The value of all government bonds held by the nation’s central bank
(B) The value of all loans in the nation’s banking system
(C) The current government budget deficit
(D) The sum of all past government budget deficits and surpluses
(E) The interest payments on the previous year’s government debt

21. According to the quantity theory of money, if the money supply is $40 billion, real output is $100 billion, and the
price level is 1.2, what is the velocity of money?
(A) 1.2
(B) 2.5
(C) 3.0
(D) 3.5
(E) 4.8

22. Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires
the government to eliminate any deficits or surpluses?
(A) Unemployment will be eliminated and prices will be stable.
(B) The national debt will increase.
(C) Business cycles will become more stable.
(D) The automatic stabilizing effect of fiscal policy will be eliminated.
(E) The government will be forced to spend less when there are surpluses.

23. An increase in which of the following is most likely to increase the long-run growth rate of an economy's real per
capita income?
(A) Population growth
(B) The proportion of gross domestic product consumed
(C) The educational attainment of the population
(D) The supply of money in circulation
(E) Personal income taxes

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24. If both contractionary monetary policy and contractionary fiscal policy are carried out, what will most likely happen
to interest rates and real gross domestic product in the short run?
(A) Both interest rates and real will increase.
(B) Both interest rates and real will decrease.
(C) Interest rates will decrease, and real will stay the same.
(D) Interest rates will increase, and real will decrease.
(E) Real will decrease, and the change in interest rates will be indeterminate.

25. If the government simultaneously engages in expansionary monetary and fiscal policies, which of the following is
the effect on interest rates and unemployment?

Interest Rates Unemployment

(A)

Increase Indeterminate

Interest Rates Unemployment

(B)

Increase Decrease

Interest Rates Unemployment

(C)

Decrease Decrease

Interest Rates Unemployment

(D)

Indeterminate Decrease

Interest Rates Unemployment

(E)

Indeterminate Increase

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26. Suppose that a national government increased deficit spending on goods and services, increasing its demand for
loanable funds In the long run, this policy would most likely result in which of the following changes in this
country?

Real Interest Rate Investment

(A)

Decrease Decrease

Real Interest Rate Investment

(B)

Decrease Increase

Real Interest Rate Investment

(C)

Increase Decrease

Real Interest Rate Investment

(D)

Increase No change

Real Interest Rate Investment

(E)

No change Increase

27. Crowding out occurs when

(A) increases in government spending become ineffective because tax revenues increase as income increases
(B) government borrowing to finance its spending decreases private sector investment
(C) monetary policy actions decrease the effectiveness of fiscal policy
(D) restrictive monetary policy causes the interest rate to increase
(E) government spending and private sector spending increase by the same percentage rate

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28. Crowding out due to government borrowing occurs when

(A) lower interest rates increase private sector investment
(B) lower interest rates decrease private sector investment
(C) higher interest rates decrease private sector investment
(D) a smaller money supply increases private sector investment
(E) a smaller money supply decreases private sector investment

29. Assume that the government implements a deficit-reduction policy that results in changes in aggregate income and
output. Then the Federal Reserve engages in monetary policy actions that reverse the changes in income and output
caused by fiscal policy action. Which of the following sets of changes in taxes, government spending, and
administered interest rates is most consistent with these policies?

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Taxes Government Spending Administered Interest Rates

(A)

Increase Increase Decrease

Taxes Government Spending Administered Interest Rates

(B)

Increase Decrease Decrease

Taxes Government Spending Administered Interest Rates

(C)

Increase Decrease Increase

Taxes Government Spending Administered Interest Rates

(D)

Decrease Increase No change

Taxes Government Spending Administered Interest Rates

(E)

Decrease Decrease Decrease

30. Economic growth is best defined as

(A) a reduction in the infant mortality rate
(B) a decrease in the unemployment rate
(C) an increase in the labor force participation rate
(D) a short-run increase in gross domestic product without inflation
(E) a sustained increase in real gross domestic product per capita

31. Which of the following is true about the national debt of the United States?

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(A) It is the debt owed to foreign investors.

(B) It is the accumulation of past and current budget deficits and surpluses.
(C) It increases when gross domestic product increases.
(D) It increases when exports decrease, and decreases when exports increase.
(E) It did not exist before 1980.

32. Crowding out is best described as which of the following?

(A) The decrease in full-employment output caused by an increase in taxes
The decrease in consumption or private investment spending caused by an increase in government
(B)
spending
(C) The decrease in government spending caused by a decrease in taxes
(D) The increase in the amount of capital outflow caused by the increase in government spending
(E) The increase in the amount of capital inflow caused by the increase in government spending

33. Which of the following best describes human capital?

(A) The number of workers in the labor force
(B) The physical capital used by workers
(C) The financial assets owned by workers
(D) The training and education of workers
(E) The spending by business for worker recruitment

34. If the government offers a tax credit to businesses, what will be the most likely effects of this action?
(A) An increase in consumption spending, an increase in aggregate demand, and an increase in real output
(B) An increase in consumption spending, a decrease in aggregate demand, and a decrease in real output
(C) An increase in investment spending, an increase in the capital stock, and an increase in real output
(D) A decrease in investment spending, a decrease in the capital stock, and an increase in real output
(E) A decrease in government spending, a decrease in aggregate demand, and a decrease in real output

35. A stimulative fiscal policy combined with a restrictive monetary policy will necessarily cause
(A) gross domestic product to increase
(B) gross domestic product to decrease
(C) interest rates to fall
(D) interest rates to rise
(E) the federal budget deficit to decrease

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36. Changes in which of the following factors would affect the growth of an economy?

I. Quantity and quality of human and natural resources

II. Amount of capital goods available

III. Technology
(A) I only
(B) I and II only
(C) I and III only
(D) II and III only
(E) I, II, and III

37. If the Federal Reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes, it should

(A) decrease its administered interest rates when government spending is increased

(B) decrease its administered interest rates when government spending is decreased
(C) increase its administered interest rates when government spending is increased
(D) increase its administered interest rates when income taxes are decreased
(E) decrease its administered interest rates when income taxes are increased

38. Suppose that the Federal Reserve is committed to keeping the nominal interest rate fixed. To maintain the interest
rate target in the face of an expansionary fiscal policy, the Federal Reserve can do which of the following?
(A) Increase the prime rate
(B) Increase the discount rate
(C) Increase the federal funds rate

(D) Decrease its administered interest rates

(E) Decrease income tax rates

39. Which of the following will occur if the federal government runs a budget deficit?
(A) The expenditure multiplier will increase.
(B) The size of the national debt will increase.
(C) The economy's output will decrease.
(D) State governments will run a budget surplus to offset the federal deficit.
(E) Interest rates will tend to decline.

40. Federal budget deficits occur when

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(A) more money is being spent on entitlement programs than has been allocated
(B) the Internal Revenue Service spends more than it collects in taxes in a given year
(C) the federal government spends more than it collects in taxes in a given year
(D) high levels of unemployment use up tax collections
(E) interest payments on the national debt increase from one year to the next

41. When the United States government engages in deficit spending, that spending is primarily financed by
(A) increasing the required reserve ratio
(B) borrowing from the World Bank
(C) issuing new bonds
(D) appreciating the value of the dollar
(E) depreciating the value of the dollar

42. An increase in which of the following is most likely to cause an improvement in the standard of living over time?
(A) Size of the population
(B) Size of the labor force
(C) Number of banks
(D) Level of taxation
(E) Productivity of labor

43. Which of the following could cause simultaneous increases in inflation and unemployment?
(A) A decrease in government spending
(B) A decrease in the money supply
(C) A decrease in the velocity of money
(D) An increase in inflationary expectations
(E) An increase in the overall level of productivity

44. An increase in which of the following will lead to lower inflation and lower unemployment?
(A) Exports
(B) Aggregate demand
(C) Labor productivity
(D) Government spending
(E) The international value of domestic currency

45. Which of the following relationships is illustrated by a short-run Phillips curve?

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(A) A decrease in the rate of inflation is accompanied by an increase in the rate of economic growth.
(B) A decrease in the rate of inflation is accompanied by an increase in the rate of unemployment.
(C) An increase in the rate of inflation is accompanied by a decrease in the rate of economic growth.
(D) An increase in the rate of inflation is accompanied by an increase in the rate of unemployment.
(E) A decrease in the rate of economic growth is accompanied by a decrease in the rate of unemployment.

46. A leftward shift of the long-run aggregate supply curve is most likely consistent with an improvement in a country’s
standard of living if
(A) prices fall
(B) depreciation increases
(C) population decreases
(D) taxes decrease
(E) imports decline

47. Which of the following is true of the long-run Phillips curve?

(A) It shows there is a trade-off between unemployment and inflation.
(B) It is positively sloped when the inflation rate exceeds the unemployment rate.
(C) It is vertical at the natural rate of unemployment.
(D) It shifts to the right if aggregate demand increases.
(E) It is created by an adverse supply shock.

48. According to the long-run Phillips curve, which of the following is true?
(A) Unemployment increases with an increase in inflation.
(B) Unemployment decreases with an increase in inflation.
(C) Increased automation will lead to lower levels of structural unemployment in the long run.
(D) Changes in the composition of the overall demand for labor tend to be deflationary in the long run.
The natural rate of unemployment is independent of monetary and fiscal policy changes that affect
(E)
aggregate demand.

49. If the money stock decreases but nominal gross domestic product remains constant, which of the following has
occurred?

(A) Income velocity of money has increased.

(B) Income velocity of money has decreased.
(C) Price level has increased.
(D) Price level has decreased.
(E) Real output has decreased.

50. Which of the following is true when the velocity of money falls?

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(A) An increase in the money supply will have less effect on nominal gross national product.
(B) A change in the money supply will affect output only.
(C) The Federal Reserve will decrease the money supply.
(D) Output will be greater for a given money supply.
(E) The public will increase its holdings of assets other than money.

51. Which of the following would best explain a decline in potential gross domestic product?

(A) Negative net investment

(B) The discovery of vast new oil deposits
(C) A lower price level
(D) A decrease in the infant mortality rate
(E) A decrease in wages and profits

52. An increase in which of the following is consistent with an outward shift of the production possibilities curve?
(A) Transfer payments
(B) Aggregate demand
(C) Long-run aggregate supply
(D) Income tax rates
(E) Exports

53. Policymakers concerned about fostering long-run growth in an economy that is currently in a recession would most
likely recommend which of the following combinations of monetary and fiscal policy actions?

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Monetary Policy Fiscal Policy

(A)

Increase administered interest rates Reduce taxes

Monetary Policy Fiscal Policy

(B)

Increase administered interest rates Raise taxes

Monetary Policy Fiscal Policy

(C)

No change Raise taxes

Monetary Policy Fiscal Policy

(D)

Decrease administered interest rates Reduce spending

Monetary Policy Fiscal Policy

(E)

Decrease administered interest rates No change

54. Which of the following policy combinations is most likely to cure a severe recession?

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Monetary Policy Action Taxes Government Spending

(A)

Decrease interest on reserves Increase Decrease

Monetary Policy Action Taxes Government Spending

(B)

Decrease interest on reserves Decrease Increase

Monetary Policy Action Taxes Government Spending

(C)

Decrease interest on reserves Decrease Decrease

Monetary Policy Action Taxes Government Spending

(D)

Increase interest on reserves Decrease Decrease

Monetary Policy Action Taxes Government Spending

(E)

Increase interest on reserves Increase Increase

55. To stimulate investment in new plant and equipment without increasing the level of real output, the best policy mix
is to
(A) increase administered interest rates and increase government spending

(B) decrease administered interest rates and decrease government spending

(C) increase administered interest rates and increase income taxes

(D) decrease administered interest rates and decrease income taxes
(E) decrease income taxes and increase government spending

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56. If an economy experiences an improvement in technology, what will happen to its production possibilities curve
and its long-run aggregate supply curve?
(A) Both curves shift inward.
(B) Both curves shift outward.
(C) The shifts inward, and the curve stays the same.
(D) The shifts outward, and the curve shifts inward.
(E) The stays the same, and the curve shifts outward.

57. If the velocity of money is stable, the quantity theory of money predicts that an increase in the money supply will
lead to a proportional

(A) increase in the nominal output

(B) decrease in the price level
(C) decrease in the nominal interest rate
(D) decrease in the real interest rate
(E) decrease in the unemployment rate

58. If the economy is operating at full employment and there is a substantial increase in the money supply, the quantity
theory of money predicts an increase in
(A) the velocity of money
(B) real output
(C) interest rates
(D) unemployment
(E) the price level

59. If an economy is currently in a recessionary gap, which of the following changes would result in an increase in real
in the short run and a decrease in the price level in the long run?
(A) The government begins running a budget surplus.
(B) There is an increase in real interest rates.
(C) The government increases income tax rates.
(D) There is an increase in the prices of the economy’s productive resources.
(E) There is an increase in the productivity of the economy’s resources.

60. The long-run aggregate supply curve is likely to shift to the right when there is

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(A) an increase in the cost of productive resources

(B) an increase in productivity
(C) an increase in the federal budget deficit
(D) a decrease in the money supply
(E) a decrease in the labor force

61. Which of the following monetary and fiscal policy combinations would most likely result in a decrease in aggregate
demand?

Central Bank’s Administered Interest Rates Income Tax Rates Government Spending
(A)

Lower Lower Increase

Central Bank’s Administered Interest Rates Income Tax Rates Government Spending
(B)

Lower Lower Decrease

Central Bank’s Administered Interest Rates Income Tax Rates Government Spending
(C)

Raise Raise Increase

Central Bank’s Administered Interest Rates Income Tax Rates Government Spending
(D)

Raise Lower Increase

Central Bank’s Administered Interest Rates Income Tax Rates Government Spending
(E)

Raise Raise Decrease

62. Suppose that, from 1985 to 1986, unemployment fell from 7.2 to 7.0 percent and inflation fell from 3.8 to 1.1
percent. An explanation of these changes might be that the

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(A) aggregate demand curve shifted to the left

(B) aggregate demand curve shifted to the right
(C) aggregate supply curve shifted to the left
(D) aggregate supply curve shifted to the right
(E) short-run Phillips curve shifted to the right

63. According to the short-run Phillips curve, a decrease in unemployment is expected to be accompanied by
(A) higher labor-force participation
(B) an increase in inflation
(C) an increase in the productivity of capital
(D) an increase in the government deficit
(E) a decrease in real gross domestic product

64.

The diagram above shows the short-run Phillips curve and the long-run Phillips curve for an
economy. If the inflation rate is currently 6 percent, which of the following is true about the current unemployment
rate?
(A) The current unemployment rate is 1%.
(B) The current unemployment rate is 2%.
(C) The current unemployment rate is 3%.
(D) The current unemployment rate is 4%.
(E) The current unemployment rate is 5%.

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65. On a short-run Phillips curve, high rates of inflation coincide with

(A) high interest rates
(B) low interest rates
(C) high unemployment rates
(D) low unemployment rates
(E) low discount rates

66. If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run?

Aggregate Supply Employment

(A)

Increase Increase

Aggregate Supply Employment

(B)

Increase Decrease

Aggregate Supply Employment

(C)

Decrease Increase

Aggregate Supply Employment

(D)

Decrease Decrease

Aggregate Supply Employment

(E)

Not change Increase

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67. If crowding out only partially offsets the effects of a tax cut, which of the following changes in interest rates and
gross domestic product are most likely to occur?

Interest Rates Gross Domestic Product

(A)

Increase Increase

Interest Rates Gross Domestic Product

(B)

Increase Remain unchanged

Interest Rates Gross Domestic Product

(C)

Increase Decrease

Interest Rates Gross Domestic Product

(D)

Remain unchanged Increase

Interest Rates Gross Domestic Product

(E)

Decrease Decrease

68. Which of the following would most likely stimulate economic growth?
(A) Decreased savings
(B) Decreased wages
(C) Increased transfer payments
(D) Increased personal income taxes
(E) Technological progress

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69. According to the short-run Phillips Curve, there is a trade-off between

(A) interest rates and inflation
(B) the growth of the money supply and interest rates
(C) unemployment and economic growth
(D) inflation and unemployment
(E) economic growth and interest rates

70. Compared to expansionary monetary policies adopted to counteract a recession, expansionary fiscal policies tend to
result in
(A) less public spending
(B) higher interest rates
(C) lower prices
(D) a high rate of economic growth
(E) decreased investment by foreign countries

71. The long-run growth rate of an economy will be increased by an increase in all of the following EXCEPT
(A) capital stock
(B) labor supply
(C) real interest rate
(D) rate of technological change
(E) spending on education and training

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