AP Macroeconomics | Unit 8 | 8.1 Final Exam Questions

Graded Assignment

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HST520: AP Macroeconomics | Unit 8 | 8.1 Final !am

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Graded Assignment Final Exam Directions •

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Mar$ %o&r ans'ers to t(e m<i)le*c(oice +&estions on t(e ans'er s(eet at t(e end o, t(e m<i)le*c(oice m<i)le*c(oice section. Use a -lac$ or -l&e )en. emem-er to com)lete t(e s&-mission in,ormation on every )age %o& t&rn in.

Multiple-Choice Questions 1. How do gross domest domestic ic product product and and gross national national product product dier dier! ! ". #. C. D. E.

Gross national )rod&ct does not incl&de de)reciation. Gross domestic )rod&ct does not incl&de intermediate goods. Gross national )rod&ct does not incl&de goods )rod&ced domesticall% -% ,oreign com)anies. Gross domestic )rod&ct is s)eci,ied in real terms/ gross national )rod&ct is s)eci,ied in nominal terms. Gross national )rod&ct incl&des onl% ,inal goods and serices.

$. %hich o o the ollowi ollowing ng is &are' &are' true or or the period period descri(e descri(ed d in the ta(le ta(le (elow! (elow!

ear ear 1330 1331 1332 1334 ). )). ))). ". #. C. D. E.

Price eel 100 110 120 140 )nlation is increasing. *he pr price le level is is in increasing. )nlation is decreasing.

ot( 66 and 666. ot( 6 and 66. 66 and eit(er 6 or 666. 66 onl%. 666 onl%.

+. ) real ,D ,D rises rises and nominal nominal , , alls/ alls/ which which o the ollowi ollowing ng must (e (e true! ". T(e )rice leel (as decreased. #. Prod&ction in t(e co&ntr% -% ,oreign ,irms (as gro'n ,aster t(an (as )rod&ction o&tside o, t(e co&ntr% -% domestic ,irms. C. it(er A or 7 -&t )ossi-l% -ot( A and . D. ot( A and . E. it(er A or 7 -&t not -ot(.

 2003 912 6nc. All rig(ts resered. o)%ing or distri-&ting 'it(o&t 912;s 'ritten consent is )ro(i-ited.

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Graded Assignment


0. ) the price level level rises rises (y 12/ which which o o the ollow ollowing ing must must (e true! true! ". #. C. D. E.

All cons&mers 'ill 'ill increase t(eir t(eir s)ending -% 10< i,i, t(e% are to -&% t(e same t(ings t(e% t(e% &sed to -&%. -&%. All )rices (ae risen risen -% 10<. T(e )rices o, eac( o, t(e goods incl&ded in t(e releant -as$et o, goods (ae risen -% 10<. All real incomes incomes (ae ,allen -% 10<. 10<. "one o, t(ese m&st -e tr&e.

3. 4ver the the course o the (usiness (usiness cycle/ cycle/ which which o the ollo ollowing wing is most most oten oten true! true! ". #. C. D. E.

=(en &nem)lo%ment is (ig(7 in,lation 'ill -e (ig(. =(en &nem)lo%ment is lo'7 interest rates 'ill -e lo'. =(en t(e econom% is in a tro&g(7 &nem)lo%ment 'ill -e lo'. =(en in,lation is lo'7 economic gro't( rates are (ig(. =(en &nem)lo%ment is (ig(7 economic gro't( rates are lo'.

5. %hich o the the ollowing ollowing must must (e true in an economy economy with a governmen governmentt (ut with no oreign oreign trade! trade! ". Ho&se(old saing 'ill -e e+&al to inestment. #. T(e s&m o, cons&m)tion and saing 'ill -e e+&al to t(e s&m o, income and ta!es. C. T(e s&m o, (o&se(old income and -&siness )ro,its m&st -e e+&al to t(e s&m o, cons&m)tion7 goernment s)ending7 and inestment. D. An increase in t(e goernment de,icit 'ill ,orce an increase in inestment. inestment. E. 6, t(e goernment (as a -alanced -&dget7 (o&se(old cons&m)tion 'ill e+&al t(e di,,erence -et'een income and saing.

6. For an economy economy operati operating ng at ull ull employment/ employment/ which which o the the ollowing ollowing is is true! ". T(ere is no ,rictional &nem)lo%ment. #. !)ansionar% ,iscal )olic% 'ill res< onl% in (ig(er )rice leels and 'ill (ae no e,,ect on o&t)&t. C. T(e classical model 'ill acc&ratel% )redict t(e e,,ects o, monetar% and ,iscal )olicies7 -ot( in t(e s(ort r&n and in t(e long r&n. D. T(e calc&lated &nem)lo%ment rate is >ero. E. T(e 9e%nesian model 'ill oer*estimate t(e e,,ect o, a c(ange in e!)endit&res on G#P.

7. %hich o o the ollowi ollowing ng will lead to the the greatest greatest decrease decrease in a country country 8s 8s net exports! exports! ". #. C. D. E.

An increase in (o&se(old (o&se(old cons&m)tion ontractionar% ,iscal )olic% 6n,lation in ,oreign co&ntries 'it( no c(ange in t(e e!c(ange rate A large large )&rc(ase o, ,oreign ,oreign c&rrenc% -% t(e co&ntr%;s co&ntr%;s central -an$ A large large increase in interest interest rates in t(e t(e co&ntr%









Graded Assignment


9. "ssume "ssume an economy with with lump sum sum taxes and no internat international ional trade. trade. ) there there is ull employ employment ment and a marginal propensity to consume o .7/ what will (e the eect o an :7 increase in autonomous expenditures! ". #. C. D. E.

An increase o, less t(an ?@7000 in real real o&t)&t An increase in real real o&t)&t o, ?@7000 An increase in real real o&t)&t o, at least least ?@7000 An increase in t(e )rice leel and in in increase in o&t)&t o&t)&t o, a))ro!imatel% a))ro!imatel% ?@7000 T(e ans'er de)ends criticall% on '(et(er t(e econom% is in t(e 9e%nesian region o, t(e aggregate s&))l% c&re7 and t(e ans'er cannot -e )redicted 'it(o&t $no'ing t(is.

1. "ccording to the ;eynesian ;eynesian model/ e
6ncreases in t(e )rice leel accom)anied -% increases in o&t)&t 6ncreased im)orts d&e to t(e e,,ects o, interest rate c(anges on e!c(ange rates #ecreased im)orts d&e to t(e e,,ects o, ta! c(anges on e!c(ange rates "o c(ange in t(e )rice leel and a decrease in o&t)&t An increase in o&t)&t o&t)&t and no c(ange in t(e t(e )rice leel

11. *o reduce reduce the possi(ility o inlation in the the =.>. economy/ economy/ the Fed should? ". #. C. D. E.

lo'er t(e resere re+&irement and -&% sec&rities on t(e o)en mar$et. raise t(e disco&nt rate and -&% sec&rities on t(e o)en mar$et. lo'er t(e disco&nt rate and sell sec&rities on t(e o)en mar$et. raise t(e resere re+&irement and sell sec&rities on t(e o)en mar$et. raise t(e resere re+&irement and lo'er t(e disco&nt rate.

1$. *he classical model may have contri(uted to the the severity o the ,reat ,reat Depression o the the 19+s (ecause? ". #. C. D. E.

it )rescri-ed no ,iscal res)onse -% t(e goernment. it s&ggested t(at t(e Fed s(o&ld increase ta!es to aoid a de,icit. it ,ailed to recogni>e t(e seerit% o, t(e decrease in t(e mone% s&))l% res<ing ,rom -an$ ,ail&re. it ,ailed to recogni>e t(at )rice leels can c(ange '(en aggregate demand s(i,ts. it s&ggested t(at a contractionar% ,iscal )olic% co&ld red&ce goernment -&dget )ro-lems.

1+. Expansionary iscal policy policy conducted in an economy at ull employment will have which com(ination com(ination o eects in the short run! ". #. C. D. E.

An increase in real real o&t)&t and a smaller smaller increase in nominal nominal o&t)&t An increase in real real o&t)&t7 -&t a decrease in nominal o&t)&t o&t)&t A decrease decrease in real o&t)&t7 -&t an increase in in nominal o&t)&t An increase in real real o&t)&t and a larger larger increase in nominal nominal o&t)&t An increase in o&t)&t7 o&t)&t7 -&t no decrease in &nem)lo%ment









Graded Assignment


10. ) the =.>. government government conducts contractionary iscal iscal policy at the same time the Fed conducts conducts expansionary monetary policy/ what will (e the most li@ely eects! ". #. C. D. E.

An increase in interest interest rates and a decrease in &nem)lo%ment &nem)lo%ment A decrease decrease in interest rates and an indeterminate indeterminate c(ange in o&t)&t An increase in t(e )rice leel and a decrease in interest interest rates An increase in t(e al&e o, t(e dollar dollar in ,oreign e!c(ange e!c(ange mar$ets and an increase increase in U.S. im)orts An increase in interest interest rates7 an increase increase in t(e al&e al&e o, t(e dollar7 dollar7 and an indeterminate indeterminate c(ange in &nem)lo%ment

13. %hich o the ollowing ollowing will (e an eect o unexpectedly low inlation! ". #. C. D. E.

enders 'ill -ene,it at t(e e!)ense o, -orro'ers. =or$ers 'it( long*term 'age contracts 'ill s&,,er a decrease in real income. T(e real mone% s&))l% 'ill increase7 and t(e al&e o, t(e c&rrenc% 'ill decrease. =or$er )rod&ctiit% 'ill rise. "one o, t(e a-oe

15. "ccording to the ;eynesian ;eynesian model/ expansionary iscal policy will will have what eect! eect! ". #. C. D. E.

An increase in o&t)&t o&t)&t and )rice leels leels A decrease decrease in &nem)lo%ment and in,lation An increase in o&t)&t o&t)&t and a decrease in t(e t(e )rice leel "o c(ange in t(e )rice leel and an increase in o&t)&t o &t)&t "o c(ange in o&t)&t and an increase in t(e )rice leel

16. %hich o the ollowing ollowing is an important important criticism o the consumer price index! ". 6t ,ails to recogni>e t(at cons&mers c(ange t(eir -e(aior in res)onse to c(anges in t(e relatie )rices o, goods and7 as a res<7 generates an in,lation rate t(at is too (ig(. #. 6t calc&lates t(e cost o, a -as$et o, goods )&rc(ased -% a n aerage cons&mer7 an indiid&al '(o '(o doesn ;t reall% e!ist. C. 6t ,ails to recogni>e t(at cons&mers c(ange t(eir -e(aior in res)onse to c(anges in t(e relatie )rices o, goods and7 as a res<7 generates an in,lation rate t(at is too lo'. D. eca&se it does not incl&de all goods )rod&ced in an econom%7 it 'ill res< in real interest rate calc&lations t(at are too (ig(. E. eca&se it incl&des onl% cons&mer goods7 it ,ails to ca)t&re '(at is act&all% (a))ening in t(e econom%.









Graded Assignment


17. %hich statement correctly correctly descri(es the relationship relationship (etween policy actions/ interest rates/ and (ond prices! ". 6, t(e Fed cond&cts e!)ansionar% monetar% )olic%7 )olic%7 t(e s&))l% o, -onds 'ill increase7 t(eir )rice 'ill decrease7 and interest rates 'ill decrease. #. 6, t(e goernment cond&cts contractionar% ,iscal )olic%7 t(e s&))l% o, -onds 'ill increase7 t(eir )rice 'ill decrease7 and interest rates 'ill increase. C. 6, t(e goernment cond&cts e!)ansionar% ,iscal )olic%7 t(e s&))l% o, -onds 'ill increase7 t(eir )rice 'ill decrease7 and interest rates 'ill decrease. D. 6, t(e Fed cond&cts contractionar% monetar% )olic%7 )olic%7 t(e s&))l% o, -onds 'ill increase7 t(eir )rice 'ill decrease7 and interest rates 'ill decrease. E. 6, t(e Fed cond&cts e!)ansionar% monetar% )olic%7 )olic%7 t(e demand ,or -onds 'ill increase7 t(eir )rice 'ill increase7 and interest rates 'ill decrease.

19. "n increase in autonomous autonomous expenditures will have which o the ollowing ollowing eects! ". An increase in G#P G#P7 -&t no increase in t(e t(e )rice leel i,i, t(e econom% is in t(e 9e%nesian )ortion )ortion o, t(e aggregate s&))l% c&re #. An increase in -ot( -ot( G#P and t(e t(e )rice leel regardless regardless o, t(e leel leel o, &nem)lo%ment C. A small small increase in G#P G#P and a relatiel% relatiel% large increase increase in t(e )rice )rice leel i, t(e econom% econom% is in t(e 9e%nesian )ortion o, t(e aggregate s&))l% c&re D. An increase in G#P G#P7 -&t no increase in t(e t(e )rice leel i,i, t(e ass&m)tions o, t(e classical model are correct E. An increase in &nem)lo%ment &nem)lo%ment and a decrease in in t(e )rice leel i, t(e econom% is is o)erating in a region region '(ere t(e ass&m)tions o, t(e classical model are satis,ied

$. %hy is staglation staglation inconsistent with the idea o a hillips hillips curve! ". Along a P(illi)s P(illi)s c&re7 gro't( gro't( is (ig(est '(en in,lation in,lation is lo'. lo'. #. T(e P(illi)s c&re s&ggests a tradeo,, -et'een in,lation and &nem)lo%ment. C. Stag,lation ,orces economists to acce)t t(e ,act t(at t(e P(illi)s c&re is &)'ard rat(er t(an do'n'ard slo)ing. D. Stag,lation is a res< o, demand s(oc$s rat(er t(an s&))l% s(oc$s. E. Stag,lation is inconsistent 'it( t(e classical model o, t(e econom%.

$1. "ccording to the ;eynesian ;eynesian model/ under which conditions will an open mar@et operation (y the Fed have the greatest eect on national income! ". #. C. D. E.

=(en t(e marginal )ro)ensit% to sae is (ig( =(en t(e marginal )ro)ensit% to cons&me is (ig( =(en -ot( t(e marginal )ro)ensit% to cons&me and t(e marginal )ro)ensit% to sae are (ig( =(en t(e econom% is at ,&ll em)lo%ment =(en t(e inestment demand c&re is relatiel% stee)









Graded Assignment

". #. C. D. E.


rational e!)ectations models &se more in,ormation. monetar% )olic% is not e,,ectie &nder ada)tie e!)ectations. ,iscal )olic% 'on;t lead to c(anges in t(e )rice leel &nder ada)tie e!)ectations. rational e!)ectations are ,ormed solel% on t(e -asis o, )ast -e(aior and eents. in,lation is im)ossi-le &nder ada)tie e!)ectations.

$+. )n an economy with no oreign trade and a marginal marginal propensity to to consume o .7/ which o the ollowing will (e true! ". #. C. D. E.

6, ta!es are increased -% ?100M7 G#P 'ill decrease -% ?500M. 6, a&tonomo&s cons&m)tion increases -% ?50M7 G#P 'ill increase -% ?200M. 6, -ot( ta!es and goernment s)ending increase -% ?100M7 G#P 'ill increase -% ? 250M. 6, ta!es are decreased -% ?100M7 G#P 'ill increase -% ?@00M. 6, a&tonomo&s cons&m)tion decreases -% ?100M7 G#P 'ill decrease -% ?800M.

$0. Aoo@ing at the circular circular lows model/ how can the saving e
% loo$ing at ,lo's into and o&t o, goods mar$ets % loo$ing at ,lo's into and o&t o, ,inancial mar$ets % loo$ing at ,lo's into and o&t o, (o&se(olds % loo$ing at ,lo's into and o&t o, ,irms % loo$ing at ,lo's into and o&t o, t(e goernment

$3. %hat will (e the the short-run eect o a 12 increase in the money supply or an economy operating in the ;eynesian portion o the aggregate supply curve! ". #. C. D. E.

eal G#P 'ill increase -% 10< i, elocit% doesn;t c(ange. eal G#P and t(e )rice leel 'ill -ot( increase -% 5< i, elocit% doesn;t c(ange. eal G#P 'on;t c(ange7 -&t t(e )rice leel 'ill increase -% 10< i, elocit% doesn;t c(ange. elocit% elocit% 'ill ,all -% 5<7 t(e )rice leel 'ill increase -% 5<7 and real G#P 'on;t c(ange. According to t(e +&antit% t(eor% o, mone%7 elocit% 'ill 'ill ,all -% 10<7 and not(ing else 'ill 'ill c(ange.

$5. %hich o the ollowing ollowing will ma@e ma@e monetary policy more more eective in changing nominal ,D! ". #. C. D. E.

A ,i!ed ,i!ed elocit% o, mone% A ,lat ,lat inestment demand demand c&re A (ig( (ig( marginal )ro)ensit% to sae A mone% mone% demand c&re t(at is is er% ,lat An aggregate e!)endit&re e!)endit&re c&re t(at is er% er% ,lat











Graded Assignment

". #. C. D. E.


o'er str&ct&ral &nem)lo%ment An increase in t(e trade de,icit Aggregate demand and aggregate aggregate s&))l% 'ill 'ill intersect in a stee)er section o, t(e aggregate s&))l% c&re c&re An o&t'ard s(i,t in t(e )rod&ction )rod&ction )ossi-ilities )ossi-ilities ,rontier An in'ard s(i,t o, t(e cons&m)tion cons&m)tion )ossi-ilities ,rontier ,rontier

$7. %hich o the ollowing ollowing pairs o actions actions suggest that iscal policy and monetary policy policy are wor@ing in the same direction! ". Ta!es Ta!es are lo'ered7 and t(e disco&nt rate is raised. #. Goernment s)ending increases7 and t(e Fed sells -onds on t(e o)en mar$et. C. Goernment s)ending and ta!es increase -% t(e same amo&nt7 and t(e re+&ired resere ratio is increased. D. Ta!es Ta!es are increased7 and t(e Fed -&%s -onds on o n t(e o)en mar$et. E. Goernment s)ending and ta!es decrease -% t(e same amo&nt7 and t(e Fed sells -onds on t(e o)en mar$et.

$9. %hich o the the ollowing is true i cyclical unemployment unemployment is high! ". #. C. D. E.

elocit% is lo'. Monetar% )olic% (as little e,,ect on t(e )rice leel. T(e marginal )ro)ensit% to cons&me 'ill -e )artic&larl% (ig(. T(e co&ntr% ;s c&rrenc% (as a lo' al&e in ,oreign e!c(ange mar$ets. T(e Fed co&ld -ring t(e econom% -ac$ to'ard ,&ll em)lo%ment -% selling -onds on t(e o)en mar$et.

+. For the last several years/ the money supply in the ictitious ictitious nation o Mauritania Mauritania has (een rising (y 12 annually/ and inlation has (een running at 72. *he ce ntral (an@ is going to cut growth o the money supply (ac@ to +2 annually. %hich o the ollowing statements regarding the e ects o this action is true/ ceteris paribus! ". #. C. D.

According to t(e +&antit% t(eor% o, mone%7 in,lation 'ill 'ill -e 1< in t(e t(e ne!t %ear. According to t(e +&antit% t(eor% o, mone%7 economic gro't( gro't( 'ill slo' do'n. do'n. 6, t(e ass&m)tion o, rational e!)ectations (olds7 o&t)&t 'ill ,all -% 10< in t(e ne!t %ear. 6, t(e ass&m)tion o, ada)tie e!)ectations (olds7 t(ere 'ill -e no e,,ect on o&t)&t in t(e ,ollo'ing %ear.









Graded Assignment

". #. C. D. E.


An increase in aggregated aggregated demand An increase in aggregate aggregate s&))l% A decrease decrease in aggregate demand An increase in t(e marginal )ro)ensit% to sae An indeterminate c(ange in t(e cons&m)tion cons&m)tion )ossi-ilities )ossi-ilities ,rontier

++. %hich type&s' o unemployment unemployment exist in an economy at ull employment! employment! ". #. C. D. E.

Frictional Str&ct&ral %clical Frictional and str&ct&ral Frictional and c%clical

+0. >uppose the )rish economy is at ull employment. employment. >uppose in a ew months/ months/ the exchange rate o the )rish national currency/ the punt/ will decline/ giving the )rish relatively less purchasing power in oreign mar@ets. %hat will happen to the price level and real ,D in )reland! ". #. C. D. E.

T(e )rice leel 'ill ,all7 and real G#P 'ill rise. T(e )rice leel 'ill ,all7 and real G#P 'ill not c(ange. T(e )rice leel 'ill rise7 and real G#P 'ill rise. T(e )rice leel 'ill ,all7 and real G#P 'ill ,all. T(e )rice leel 'ill not c(ange7 and t(e real G#P 'ill ,all.

+3. %hich o the ollowing ollowing statements a(out an increase in aggregate demand demand is alse! ". An increase in aggregate aggregate demand can -e ca&sed -% a decrease in ot(er co&ntries; interest rates. #. An increase in aggregate aggregate demand can -e t(e res< o, anot(er co&ntr%;s central central -an$ selling large large +&antities o, t(eir goernment ;s -onds. C. An increase in aggregate aggregate demand 'ill res< in no c(ange in t(e )rice leel leel in t(e 9e%nesian 9e%nesian model. D. T(e increase in aggregate demand res<ing ,rom an o)en mar$et o)eration does not de)end on t(e slo)e o, t(e aggregate s&))l% c&re. E. An increase in aggregate aggregate demand 'ill (ae no e,,ect on G#P in in t(e classical model. model.









Graded Assignment

". #. C. D. E.


6t ma% ca&se t(e Da)anese econom% to e!)erience stag,lation. 6t ma% ca&se t(e Da)anese central -an$ to -&% -onds - onds to sta-ili>e t(e al&e o, t(e %en. 6t 'ill ca&se demand*)&ll in,lation in t(e Da)anese econom%. 6t 'ill increase t(e al&e o, t(e Da)anese %en. 6t 'ill increase aggregate demand in t(e Da)anese econom%.

+7. >taglation may may result rom which o the ollowing? ". #. C. D. E.

Seeral decreases in t(e disco&nt rate oer t(e co&rse o, a ,e' mont(s. arge -ond sales -% t(e central -an$. A s(ar) s(ar) decrease in (o&se(olds; marginal )ro)ensit% to cons&me. T(e e!)ansion o, t(e cons&m)tion )ossi-ilities ,rontier d&e to t(e o)ening o, international trade. a)id deterioration o, national in,rastr&ct&re7 s&c( as roads and tele)(one ca-le.

+9. %hich o the the ollowing statements a(out staglation staglation is correct! correct! ". #. C. D. E.

6t 'ill res< in increased nominal G#P. 6t 'ill res< in decreased nominal G#P. 6t is c(aracteri>ed -% (ig( &nem)lo%ment and lo' in,lation. 6t im)lies an &)'ard s(i,t in t(e P(illi)s c&re. 6t is a )ro-lem easil% e!)lained and corrected in t(e 9e%nesian model.

0. )n early $/ the =.>. was at ull employment. employment. Despite this/ a num(er num(er o presidential candidates were proposing tax cuts and government spending increases. *he most li@ely eect o these actions under such circumstances would (e? ". an increase in t(e marginal )ro)ensit% to cons&me and a res<ing increase in t(e ,&ll*em)lo%ment leel o, G#P. #. (ig(er )rice leels and little or no c(ange in G#P. C. lo'er interest rates. D. an increase in t(e al&e o, t(e dollar and a res<ing increase in e!)orts. E. a long*r&n increase in t(e )rod&ctie ca)acit% o, t(e U.S.

01. %hich o the ollowing ollowing is a valid statement a(out the ;eynesian ;eynesian and classical models models o the









Graded Assignment


". 6, ta!es 'ere raised ?500M to ,&nd t(is )roEect7 t(e 9e%nesian model )redicts t(at t(is 'ill (ae no net e,,ect on o&t)&t in t(e econom%. #. 6, t(e goernment raised t(e mone% ,or t(is )roEect -% )rinting ?500M in -onds and selling t(em to t(e Fed7 t(e e,,ect is e!actl% t(e same as i, t(e% sold t(e -onds to (o&se(olds. C. T(e )roEect 'ill increase aggregate s&))l% -eca&se it 'ill increase t(e total +&antit% o, goods and serices s&))lied in t(e econom%. D. 6, t(e marginal )ro)ensit% to sae in t(e econom% is e+&al to 0.257 t(e 9e%nesian model )redicts t(at t(is )roEect 'ill res< in a ?2000M increase in G#P. E. Under t(e ass&m)tions o, t(e classical model7 t(e res< o, t(is )roEect 'ill -e increases in -ot( t(e )rice leel and e+&ili-ri&m G#P.

0+. " particular particular economy has consumption o :0M/ a government deicit o :1M/ taxes o :$3M/ and income o :7M. %hich o the ollowing statements must (e true! ". #. C. D. E.

6, inestment is >ero7 t(ere is no ,oreign trade im-alance. 6, t(e trade s&r)l&s is ?50M7 inestment 'ill -e e+&al to ?100M. 6, t(e ca)ital acco&nt s&r)l&s is ?50M7 inestment 'ill -e e+&al to ?100M. 6, t(e trade s&r)l&s is ?100M7 t(ere 'ill -e inestment. "one o, t(e a-oe statements is necessaril% tr&e.

00. %hich piece o inormation would (e least least useul in trying to predict the eect o a :6M increase increase in government spending on e
Marginal )ro)ensit% to sae T(e slo)e o, t(e aggregate s&))l% c&re =(et(er ta!es are raised to )a% ,or t(e s)ending increase T(e c&rrent leel o, str&ct&ral &nem)lo%ment =(et(er t(e -onds &sed to ,inance t(e s)ending 'ere sold to (o&se(olds or to t(e Fed

03. %hich o the statements statements relating ull employment and ull capacity is alse! ". At ,&ll em)lo%ment em)lo%ment t(ere is no ,rictional &nem)lo%ment/ &nem)lo%ment/ at ,&ll ca)acit% t(ere is no str&ct&ral &nem)lo%ment. #. T(e ,&ll*em)lo%ment leel o, o&t)&t is less t(an t(e ,&ll*ca)acit% leel o, o&t)&t. C. At ,&ll em)lo%ment em)lo%ment t(ere is no c%clical &nem)lo%ment/ &nem)lo%ment/ at ,&ll ca)acit% ca)acit% t(ere is no ,rictional &nem)lo%ment. &nem)lo%ment.









Graded Assignment

#. C. D. E.


t(e trade de,icit. less t(an goernment s)ending. necessaril% less t(an G#P. t(e national de-t.

07. %hich o the ollowing ollowing would (e a valid valid statement a(out a government government plan to eliminate eliminate a trade deicit! ". A decrease decrease in t(e trade de,icit de,icit 'ill 'ill decrease inestment in in t(e co&ntr%. co&ntr%. #. An e,,ectie e,,ectie strateg% 'o&ld -e to increase t(e mone% mone% s&))l% and increase t(e t(e al&e o, t(e national national c&rrenc%. C. An e,,ectie e,,ectie strateg% 'o&ld -e to increase interest interest rates and increase increase t(e al&e o, t(e t(e national c&rrenc%. c&rrenc%. D. T(is co&ld -e ac(ieed t(ro&g( dramaticall% increasing aggregate s&))l%. s&))l%. E. T(e increase in net e!)orts 'ill res< in a decrease in aggregate demand.

09. Crowding Crowding out has the the eect&s' eect&s' o? ". red&cing t(e e,,ectieness o, monetar% )olic% i, t(e cro'ding o&t occ&rs in ,inancial mar$ets. #. decreasing t(e al&e o, a nation;s c&rrenc% i, t(e cro'ding o&t occ&rs in ,inancial mar$ets. C. increasing t(e e,,ectieness o, ,iscal )olic% i, t(e cro'ding o&t occ&rs in ,inancial mar$ets and increasing t(e e,,ectieness o, monetar% )olic% i, t(e cro'ding o&t occ&rs in )rod&ct mar$ets. D. decreasing t(e e,,ectieness o, ,iscal )olic% i, t(e cro'ding o&t occ&rs in ,inancial mar$ets and decreasing t(e e,,ectieness o, -ot( ,iscal and monetar% )olic% i, t(e cro'ding o&t occ&rs in )rod&ct mar$ets. E. increasing t(e )rice o, goernment -onds i, t(e cro'ding o&t occ&rs in ,inancial mar$ets.

3. %hich o the ollowing ollowing will ma@e ma@e crowding out in credit credit mar@ets more severe! severe! ". #. C. D. E.

A stee) stee) inestment demand c&re A glo-al glo-al credit mar$et Ta! increases A stee) stee) s&))l% c&re in t(e t(e loana-le ,&nds mar$et mar$et "one o, t(e a-oe

31. *he Fed is conducting expansionary monetary monetary policy i it?











Graded Assignment

#. C. D. E.


An increase in -ond )rices )rices An increase in aggregate aggregate demand An increase in t(e mone% s&))l% ot(  and #

3+. *he Fed is under no o(ligation to coordinate its actions with with iscal policy. policy. "nd "nd in act/ the Fed may ta@e actions speciically designed to counteract some piece o iscal policy. policy. "n example o iscal and monetary policies with opposite eects is? ". #. C. D. E.

an increase in ta!es and increased sales o, -onds -% t(e Fed. a decrease in goernment s)ending and an increase in t(e d isco&nt rate. a decrease in ta!es and a decrease in t(e target ,or t(e ,ederal ,&nds rate. an increase in goernment s)ending and an increase in resere re+&irements. a decrease in ta!es and increased )&rc(ases o, -onds -% t(e Fed.

30. )n the ictitious nation o agora/ a wor@er wor@er can produce either 3 (oo@s or 1 televisions in an hour. )n neigh(oring lovdiv/ a wor@er can produce either + (oo@s or 3 televisions in an hour. %hich statement a(out this situation is true! ". #. C. D. E.

agora (as com)aratie adantage in t(e )rod&ction o, -oo$s. agora (as com)aratie adantage in t(e )rod&ction o, teleisions. =or$ers in Plodi can;t )ossi-l% com)ete against t(e s&)er*)rod&ctie 'or$ers in agora. =or$ers in agora can;t -e e!)ected to com)ete against t(e lo'*'age 'or$ers in Plodi. "one o, t(e a-oe









Graded Assignment

#. C. D. E.


To )rotect )rotect t(e Eo-s o, 'or$ers in certain ind&stries To ma$e a )olitical statement regarding t(e la-or )olicies o, anot(er nation To com)ensate com)ensate ,or (ig(er ta!es )laced on domestic )rod&cers To create create a lo'er )rices ,or domestic cons&mers

37. ) the value o the =.>. dollar in in oreign exchange mar@ets rises? ". #. C. D. E.

U.S. e!)orts 'ill -ecome relatiel% less e!)ensie. ca)ital in,lo's into t(e United States 'ill increase. )eo)le in t(e U.S. 'ill )&rc(ase ,e'er , e'er im)orts. U.S. e!)orts 'ill li$el% decrease. All o, t(e a-oe a-oe

39. >aying that lea@ages e
T + S + X = G + I + M Y = C + S + T Y = C + I + G + X - M T + S + M = C + G + I + X T + S + M = G + I + X

5. "n economy producing at a level (etween ull ull employment and ull ull capacity is li@ely li@ely to experience? ". >ero &nem)lo%ment. #. demand*)&ll in,lation.









Graded Assignment


"ame:

#ate:

1.

+1.

$.

+$.

+.

++.

0.

+0.

3.

+3.

5.

+5.

6.

+6.

7.

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+9.

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Graded Assignment

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Directions • • •

"eatl% 'rite %o&r res)onses in t(e s)aces )roided. Use a -l&e or -lac$ )en. #on;t 'rite in t(e margins. emem-er to com)lete t(e s&-mission in,ormation on every )age %o& t&rn in. o& (ae B0 min&tes to do t(is )ortion o, t(e Final. T(e ,irst ten min&tes are a mandator% reading )eriod. o& ma% )lan or o&tline %o&r ans'er7 -&t %o& ma% not start 'riting it. S)end t(e ne!t 25 min&tes on t(e ,irst +&estion and t(e ,inal 25 min&tes on t(e ot(er t'o +&estions.

Free-esponse Questions 1. Macroeconomics can -e a di,,ic&l d i,,ic<t to)ic to de,ine. For t(e most )art7 it can -e de,ined -% t(e s)eci,ic to)ics 'it( '(ic( it is concerned. Among t(ese are o&t)&t7 in,lation7 &nem)lo%ment7 interest rates7 and international trade. At ,irst t(ese to)ics ma% seem &nrelated7 -&t some t(o&g(t s(o's t(at t(e% are intimatel% related. ". T(e AD/AS model descri-es c(anges in t(e econom% -% relating real G#P o&t)&t and t(e )rice leel. ).

Com ompa parre and and cont contrrast ast the the ;eyne eynesi sian an port portio ion n o o the the AD G AS model with the classical portion o AS model the AD G AS model/ and explain how the level o production is determined in each situation. =se AS model/ graphs to explain your answer. 12 )oints









Graded Assignment

"ame:


#ate:

)). Compare Compare and contrast contrast changes changes in aggreg aggregate ate demand demand and changes changes in aggregat aggregate e supply in in the model. =se graphs to explain your answer. 12 )oints AD G AS AS model.











Graded Assignment

"ame:


#ate:

)). )n the late 199s/ 199s/ the =.>. =.>. economy economy experienced experienced a period period o extremely extremely low low inlation inlation and extremely extremely low unemployment. =se the AD G AS model to explain what sort o change in the economy would AS model cause this. )nclude a graphical analysis in your answer/ and provide two examples o what might (ring a(out this event. 12 )oints









Graded Assignment

"ame:


#ate:

$. T(e U.S. econom% e!)erienced large trade de,icits in t(e 1380s and 1330s and tremendo&s economic gro't( in t(e mid* and late*1330s. ". *rade deicits have have an eect eect on inlation. inlation. Explain Explain the relationship (etween (etween trade deicits and investment ver(ally and mathematically using the concept o the (alance o payments. 10 )oints









Graded Assignment

"ame:


#ate:

+. 6n o&ntr% I7 G#P is ?@00 -elo' t(e ,&ll*em)lo%ment leel o, o&t)&t. Goernment o,,icials (ae meas&red t(e marginal )ro)ensit% to cons&me at 0.C5. ". T(e goernment 'ants to &se ,iscal )olic% to -ring t(e econom% -ac$ to ,&ll em)lo%ment. ).

) the gover government nment wants wants to achieve achieve this through through a change in spending/ spending/ what change change would would (e necessary! 8 )oints

AP Macroeconomics | Unit 8 | 8.1 Final Exam Questions

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