AP Macroeconomics Study Guide Questions with Complete Solutions
Which of the following typically occurs during an
expansionary phase of a business cycle?
(A) Nominal interest rates decrease.
(B) Income taxes decre
...
AP Macroeconomics Study Guide Questions with Complete Solutions
Which of the following typically occurs during an
expansionary phase of a business cycle?
(A) Nominal interest rates decrease.
(B) Income taxes decrease.
(C) The price level decreases.
(D) Government transfer payments increase.
(E) Employment increases. -Answer- (E) Employment increases.
Economic growth refers to an increase in which of
the following?
(A) Government spending
(B) Consumption spending
(C) Nominal gross domestic product
(D) Potential real gross domestic product
(E) Household wealth -Answer- (D) Potential real gross domestic product
If both the nominal interest rate and the expected
inflation rate increase, what will happen to the
real interest rate?
(A) It will increase because the expected inflation
rate has increased.
(B) It will increase because the nominal interest
rate has increased.
(C) It will increase if the expected inflation
rate increases by more than the nominal
interest rate.
(D) It will decrease because the nominal interest
rate has increased.
(E) It will decrease if the expected inflation
rate increases by more than the nominal
interest rate. -Answer- (E) It will decrease if the expected inflation
rate increases by more than the nominal
interest rate.
Which of the following statements is true about an
expansionary fiscal policy?
(A) It decreases demand for loanable funds.
(B) It decreases the equilibrium price level.
(C) It decreases the equilibrium real interest rate.
(D) It increases aggregate demand.
(E) It increases the money supply. -Answer- (D) It increases aggregate demand.
Which of the following will most likely result
from deflation?
(A) Increased nominal interest rates
(B) Increased business profits
(C) Increased real value of fixed incomes
(D) Decreased purchasing power of cash
(E) Decreased real wealth -Answer- (C) Increased real value of fixed incomes
Which of the following is a defining characteristic
of a fractional reserve banking system?
(A) The existence of a central bank with
a monopoly on money creation
(B) The use of paper money backed by
a commodity such as gold or silver
(C) The fact that banks retain an amount of bank
reserves that is less than the amount of
customer demand deposits
(D) The requirement that banks maintain a certain
percentage of their reserves as a deposit in
an account at the central bank
(E) The regulations that separate investment
banking from commercial banking -Answer- (C) The fact that banks retain an amount of bank
reserves that is less than the amount of
customer demand deposits
A negative aggregate supply shock will result in
which of the following in the short run?
(A) An increase in the price level and a decrease
in the unemployment rate
(B) A decrease in the price level and an increase
in the unemployment rate
(C) A decrease in both the price level and real
output
(D) An increase in both the price level and real
output
(E) An increase in both the price level and the
unemployment rate -Answer- (E) An increase in both the price level and the
unemployment rate
Which of the following combinations of fiscal
and monetary policies will correct a severe
recession?
(A) Increasing income tax rates and decreasing
the money supply
(B) Increasing both the income tax rates and the
money supply
(C) Decreasing both the income tax rates and the
money supply
(D) Decreasing income tax rates and increasing
the money supply
(E) Decreasing income tax rates and increasing
the federal funds rate -Answer- (D) Decreasing income tax rates and increasing
the money supply
Which of the following would decrease the
United States net exports to South Korea?
(A) South Korean computer companies sell more
computers to the United States.
(B) South Korean insurance companies provide
fewer services to the United States.
(C) South Koreans spend more vacations in the
United States.
(D) United States banks provide more banking
services to South Korea.
(E) United States smartphone companies sell
more smartphones to South Korea. -Answer- (A) South Korean computer companies sell more
computers to the United States
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