AP Macroeconomics Study Guide 75 Questions with Correct Answers

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AP Macroeconomics Study Guide 75 Questions with Correct Answers Which of the following best describes the aggregate demand curve? -Answer- It is a curve that shows the level of spending by consumer... s, businesses, the government, and the foreign sector at different price levels. Which of the following explains the relationship between the price level and real output along the aggregate demand curve? -Answer- At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods. The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand in Euroland? -Answer- There will be a rightward shift in the AD curve. Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion? -Answer- Real output will increase by a maximum of $400 billion. According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following? -Answer- A greater-than-one-dollar increase in aggregate demand for goods and services Using the disposable income and consumption data in the table above, calculate the value of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). -Answer- MPC=0.60 , MPS=0.40 In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level? -Answer- There will be an upward movement along the short-run aggregate supply curve and real output will increase. The imposition by the United States of a tariff on imported steel from the European Union will likely have what impact on the short-run aggregate supply (SRAS) curve in the United States? -Answer- It will cause the (SRAS) curve to shift leftward. If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping? -Answer- An increase in the price level will increase profits and production. Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)? -Answer- The maximum sustainable capacity Suppose a nation opened its borders to the free flow of workers from other nations. How would this event likely affect the long-run aggregate supply (LRAS) curve and the production possibilities curve of the nation? -Answer- Both curves would shift to the right. Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run? -Answer- The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run. Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run? -Answer- Equilibrium real output can be above, equal to, or below full employment. Which of the following accurately describes the state of the macro-economy if it is operating at the intersection of the AD1 and SRAS2 curves? -Answer- It is operating below full employment and is in a short-run but not at long-run equilibrium. Which of the following is true when an economy is operating at the intersection of the AD2 and SRAS2 curves? -Answer- The economy is in short-run and long-run equilibrium. [Show More]

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