Test Booklet

AP MACROECONOMICS

Unit 5 Retake

1. Which of the following is a cause of hyperinflation?

(A) Rapid growth of real gross domestic product
(B) Rapid growth of the money supply
(C) Unanticipated decrease in aggregate demand
(D) Unanticipated increase in aggregate supply
(E) Unanticipated rise in real interest rates

2. Which of the following is true about the Phillips curve?

(A) A change in aggregate demand does not shift the long-run Phillips curve (LRPC).
(B) A change in aggregate demand does not cause a movement along the short-run Phillips curve (SRPC).
(C) The LRPC shows the trade-off between unemployment and inflation but the SRPC does not.
(D) Changes in expected inflation affect the LRPC only.

(E) (E) Negative supply shocks affect the LRPC only.

3. 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

4. Which of the following statements about the fiscal budget deficit and government debt is correct?
(A) The deficit is the accumulation of the debt over a given period.
(B) The debt is the accumulated value of government deficits and surpluses in the past.
(C) The deficit is measured at a point in time, while the debt is measured over an interval of time.
(D) A country with a large debt must also currently have a large deficit.
(E) The debt measures the difference between expenditures and receipts of the government over a year.

5. Which of the following will happen if a country’s government reduces business taxes?
(A) The short-run Phillips curve will shift to the right.
(B) The short-run aggregate supply curve will shift to the right.
(C) The long-run aggregate supply curve will shift to the left.
(D) The aggregate demand curve will shift to the left.
(E) The demand curve for loanable funds will shift to the left.

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Unit 5 Retake

6. Which of the following could cause a movement along a country’s short-run Phillips curve toward higher
unemployment and lower inflation?
(A) A significant reduction in energy prices
(B) A recession in the economies of the nation’s major trading partners
(C) A decrease in savings by the country’s consumers
(D) A movement of the economy from the recovery phase to the expansionary phase of the business cycle

( E )An improvement in technology

7. 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.

8. If an increase in government spending, financed by borrowing, crowded out an equal amount of private spending,
which of the following would result?
(A) Interest rates would decrease.
(B) Aggregate demand would remain unchanged.
(C) The price level would increase.
(D) Unemployment would increase.
(E) Unemployment would decrease.

9. 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.

10. A country’s government runs a budget deficit when which of the following occurs in a given year?
(A) The amount of new loans to developing nations exceeds the amount of loans paid off by developing nations.
(B) Government spending exceeds tax revenues.
(C) The debt owed to foreigners exceeds the debt owed to the country’s citizens.
(D) The amount borrowed exceeds the interest payment on the national debt.
(E) Interest payments on the national debt exceed spending on goods and services.

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Unit 5 Retake

11. Crowding out is most likely to occur with which of the following changes?
(A)Decrease in government spending
(B)Increase in budget surplus
(C) Increase in budget deficit
(D) Decrease in the real interest rate
(E) Decrease in trade deficit

12. In the long run, a decrease in the money supply will affect the price level and the level of output in which of the
following ways?

Price Level Output

(A)
Increase Increase

Price Level Output

(B)
Increase No change

Price Level Output

(C)
Decrease Increase

Price Level Output

(D)

Decrease Decrease

Price Level Output

(E)
Decrease No change

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Unit 5 Retake

13. 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

14. 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

15. 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.

16. According to the short-run Phillips curve, a contractionary fiscal policy will result in
(A) a decrease in both unemployment and prices
(B) a decrease in inflation and an increase in unemployment
(C) a decrease in both wage rates and unemployment
(D) an increase in both wage rates and unemployment
(E) an increase in unemployment due to crowding out

17. An increase in aggregate demand will cause which of the following?

(A) A movement along a given short-run Phillips curve
(B) The long-run Phillips curve to become horizontal
(C) The short-run Phillips curve to shift to the left
(D) The long-run Phillips curve to shift to the right
(E) The long-run Phillips curve to shift to the left

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Unit 5 Retake

18.

Which of the following would cause a movement from point S to point R on the short-run Phillips curve above?
(A) An unanticipated increase in government spending
(B) An unanticipated adverse supply shock
(C) A decrease in net investment
(D) An increase in real interest rates
(E) An increase in the labor-force participation rate

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

(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.

20. 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.

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Unit 5 Retake

(E) It is created by an adverse supply shock.

21.

Using the graphtoprovided of the long-run Phillips curve (LRPC), which of the following could cause the change
from ?
(A) An increase in the price of natural resources
(B) An increase in government spending
(C) An increase in the central bank’s administered interest rates
(D) A decrease in unemployment insurance benefits
(E) A decrease in net exports

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