AP Macro Review Flashcards
Assume a country’s banking system has limited reserves. Which of the following policy actions will directly increase the money supply?
A) The central bank purchases government bonds on the open market.
B) The central bank sells government bonds on the open market.
C) The government increases taxes without changing its spending.
D) The government decreases taxes without changing its spending.
E) The government decreases taxes while simultaneously decreasing its spending.
A) The central bank purchases government bonds on the open market.
The consumer price index (CPI) does not measure the true cost of inflation because
A) improvements in the quality of goods or services are not fully reflected
B) lenders are better off when actual inflation is less than anticipated inflation
C) borrowers are better off when actual inflation is greater than anticipated inflation
D) changes in consumers’ real income are not accounted for
E) consumers may substitute toward more expensive goods without being significantly worse off
A) improvements in the quality of goods or services are not fully reflected
Assume a country’s economy is currently in long-run equilibrium. What is the long-run effect of an increase in aggregate demand?
A) A decrease in the unemployment rate
B) A decrease in the inflation rate
C) A decrease in the long-run aggregate supply
D) An increase in the price level
E) An increase in the money supply
D) An increase in the price level
An increase in the number of discouraged workers causes the unemployment rate to
A) decrease along with the labor-force participation rate
B) increase while the labor-force participation rate decreases
C) stay the same because the workers are still unemployed
D) decrease while the labor-force participation rate stays the same
E) increase along with the labor-force participation rate
A) decrease along with the labor-force participation rate
If the required reserve ratio is 10 percent, what is the maximum change in the money supply from John’s deposit of $50,000 cash into his checking account?
A) $5,000
B) $45,000
C) $55,000
D) $450,000
E) $500,000
D) $450,000
An economy is at full-employment equilibrium. If consumers and firms become more optimistic about future income and profits, which of the following will occur in the short run?
A) Aggregate demand will shift rightward, increasing real output and decreasing the price level.
B) Aggregate demand will shift rightward, decreasing real output and increasing the price level.
C) Aggregate demand will shift rightward, increasing real output and the price level.
D) Short-run aggregate supply will shift rightward, increasing real output and the price level.
E) Short-run aggregate supply will shift rightward, decreasing real output and the price level.
C) Aggregate demand will shift rightward, increasing real output and the price level.
As an indicator of an impending recession, inventories will most likely
A) decrease as a result of a decrease in consumption
B) increase as a result of a decrease in consumption
C) increase as a result of a decrease in aggregate supply
D) decrease as a result of an increase in aggregate supply
E) remain constant as a result of economic uncertainty
A decrease in taxes will necessarily result in an increase in which of the following?
A) Nominal gross domestic product
B) Unemployment
C) Exports
D) Marginal propensity to save
E) Money supply
A) Nominal gross domestic product
