What should happen in the short run if there's a huge increase in demand for doughnuts?

Higher prices, then opening of many new doughnut shops

GDP = C + I + G + Xn. What does I represent?

Money that businesses have invested in capital and inventory

Apple has a PPC that looks like this. How could they get from point B to point C?

If workers became smarter and more productive

If GDP in Mexico falls, how will that affect GDP in the USA?

Our GDP will fall- Mexico can't buy as many of our goods!

Which of these could cause "crowding out"?

Big increases in government deficit spending, Lowering the discount rate

Which of these would probably do the most to make a poor country richer?

Investing heavily in new technology

Who keeps track of inflation through the CPI (Consumer Price Index)?

The BLS (Bureau of Labor Statistics)

What will happen of the government of Spain offers large subsidies to local olive growers?

Supply of olives will shift right

Which of these things increases the National Debt?

Deficit spending by the US government

Why might China want to PREVENT its currency from becoming too strong and valuable?

That would cause their exports to fall

Judy just got out of law school and is starting to interview for jobs. She is experiencing...

Seasonal unemployment, Frictional unemployment

If the Fed lowers the reserve requirement and the discount rate...

Businesses will increase their investment

What will probably happen if the price of wool goes way up?

Sweaters will cost more, and people will buy fewer of them

What happens if a bank has loaned out the maximum amount & reserve requirements are doubled?

All of those are viable solutions

Why would the Fed start SELLING bonds on the open market?

To reduce the money supply, and drive down inflation.

What happens when the Fed BUYS bonds on the open market?

Money supply rises, interest rates fall, GDP rises

What will happen if the Fed increases the banks required reserves from 10% to 20%

Banks won't "create" as much money with their lending

If the US economy is at "full employment," which of these is definitely true?

There will still be some frictional unemployment

When there is a monopsony for a good or service, what does the Demand Curve look like?

It's steep, maybe even vertical

If eqilibrium rent for apartments $1500 a month, & the city sets a rent cap of $750 a month...

There will be a major shortage of apartments

Jim looked for a job for a year, but gave up & now stays home watching TV. Is he "unemployed"?

No- discouraged workers aren't counted

Unemployment is 2.4%, inflation is 8.9%, and GDP has risen for 36 months. What will happen?

The Fed will start selling bonds

Oz can make 6 cars or 2 ships. Narnia can make 9 cars or 3 ships. Can they specialize & trade?

No- their opportunity costs are exactly the same

What does the Long Run Phillips curve look like?

It's vertical, because you can't reduce unemployment forever

When should a landscaping business stop hiring more workers?

When marginal productivity = marginal wages

Italy & Brazil have about the same GDP. Why are most Italians better off than most Brazilians?

Italy has a much lower population

What are a bank's main assets, and what are its main liabilities?

$ they loan out = assets. $ people deposit = liabilities

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Pre-AP Macroeconomics Test Review (May 2017)

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Questions 73

Answers

1
Which of these is not a component of Gross Domestic Product?
Government transfer payments
Investment by private business
Consumer spending
Net Exports
2
What should happen in the short run if there's a huge increase in demand for doughnuts?
Higher prices, then opening of many new doughnut shops
Lower prices, making even more people start eating doughnuts
Lower prices, followed by closure of many doughnut shops
Higher prices, leading most people to stop eating doughnuts
3
EVERYTHING Ewoks use is made of wood. If fires killed 1/2 the trees on Endor...
The money supply would plummet
Interest rates would skyrocket
You'd get stagflation
Aggregate demand would rise sharply
4
GDP = C + I + G + Xn. What does I represent?
Interest that people have received from banks accounts
Inflations
Money that businesses have invested in capital and inventory
Money people have invested in stocks and bonds
5
If there is high inflation in the US, but none in England, what will probably happen?
We'll export more goods the UK
We'll import more goods from the UK
6
Apple has a PPC that looks like this. How could they get from point B to point C?
If taxes went up
If they started paying workers more
If workers became smarter and more productive
If the government added more regulations
7
Raising taxes and cutting spending are examples of:
Contractionary fiscal policy
Contractionary monetary policy
Expansionary monetary policy
Expansionary fiscal policy
8
If GDP in Mexico falls, how will that affect GDP in the USA?
Our GDP will rise, because we'll sell more goods to Mexico.
That shouldn't affect our GDP at all
Our GDP will rise- anything bad for Mexico is good for us!
Our GDP will fall- Mexico can't buy as many of our goods!
9
A tax cut will have more impact in a nation with a lower ____.
Marginal propensity to save
Unemployment rate
Reserve requirement
Discount rate
10
What could cause the Long Run Aggregate Supply Curve to shift to the right?
New technology
Higher taxes
Higher energy costs
Higher government spending
11
If there is a large inflationary gap, which of these would be a logical government response?
Spending increases
Buying bonds on the Open Market
Cutting the discount rate
Tax increases
12
Which of these could cause "crowding out"?
The Fed buying bonds on the open market
Big increases in government deficit spending
Lowering the discount rate
Heavy tax increases
13
Which of these would probably do the most to make a poor country richer?
Raising taxes, to balance the budget
Investing heavily in new technology
Increasing the population
High tariffs, to protect local businesses
14
Who keeps track of inflation through the CPI (Consumer Price Index)?
The SEC (Securities Exchange Commission)
The Fed
The Treasury Secretary
The BLS (Bureau of Labor Statistics)
15
Each worker costs $100 a day & I charge $20 for each lawn. How many workers should I hire?
4
2
1
5
16
What will happen of the government of Spain offers large subsidies to local olive growers?
Demand for olives will shift right
Supply of olives will shift left
Supply of olives will shift right
Demand for olives will shift left
17
Which of these things increases the National Debt?
Shoppers putting too much $ on their Mastercards and Visas
Deficit spending by the US government
Americans buying Japanese cars instead of American cars
American tourists buying gifts in other countries
18
Why might China want to PREVENT its currency from becoming too strong and valuable?
That would cause their exports to fall
That would make interest rates in China too low
That would lead to overexpansion of the Chinese economy
That would cause inflation in China
19
Judy just got out of law school and is starting to interview for jobs. She is experiencing...
Structural unemployment
Seasonal unemployment
Cyclical unemployment
Frictional unemployment
20
Why are utilities, like electric companies, so often monopolies?
High taxes
High startup costs
Low profits
Low barriers to entry
21
If the Fed lowers the reserve requirement and the discount rate...
We're likely to get stagflation
Businesses will increase their investment
Interest rates will increase
Inflation will decrease
22
What will probably happen if the price of wool goes way up?
Sweaters will cost more and people will buy more of them
Sweaters will cost less, and people will buy fewer of them
Sweaters will cost more, and people will buy fewer of them
Sweaters will cost less, and people will buy more of them
23
What happens if a bank has loaned out the maximum amount & reserve requirements are doubled?
All of those are viable solutions
They borrow from the Fed at the discount rate
They can borrow from other banks at the federal funds rate
They can start calling in loans
24
Why would the Fed start SELLING bonds on the open market?
To reduce the money supply, and drive down inflation.
To increase the money supply and increase aggregate demand
25
What happens when the Fed BUYS bonds on the open market?
Money supply rises, interest rates rise, GDP falls
Money supply falls, interest rates fall, GDP rises
Money supply rises, interest rates fall, GDP rises
Money supply falls, interest rates rise, GDP falls
26
The owners of the local Chik-Fil-A pay monthly rent to the strip mall owners. That rent is...
A marginal cost
A variable cost
An opportunity cost
A fixed cost
27
What will happen if the Fed increases the banks required reserves from 10% to 20%
Interest rates will get lower
Banks won't "create" as much money with their lending
Inflation will rise
The economy will expand
28
If the US economy is at "full employment," which of these is definitely true?
There will still be some frictional unemployment
The unemployment rate is 0.0%
There is no structural or seasonal unemployment
The unemployment rate is under 5%
29
When there is a monopsony for a good or service, what does the Demand Curve look like?
It's steep, maybe even vertical
It's flat, maybe even horizontal
30
If eqilibrium rent for apartments $1500 a month, & the city sets a rent cap of $750 a month...
Most renters will get a huge bargain
There will be a major shortage of apartments
Many builders will hasten to put up new apartment buildings
There will be lots of empty, unleased apartments
31
Which of these goods would have the flattest demand curve?
Tobacco
Insulin
Gasoline
Soft drinks
32
Jim looked for a job for a year, but gave up & now stays home watching TV. Is he "unemployed"?
Yes, of course
Yes, but he's no longer eligible for unemployment insurance
No- he's just underemployed
No- discouraged workers aren't counted
33
MPS is .10 & there's a recessionary gap of $90 billion. Which of these would fix that problem?
Increase spending by $5 billion
Increase spending by $9 billion
Raise both spending and taxes by $45 billion
Cut taxes by $10 billion
34
Unemployment is 2.4%, inflation is 8.9%, and GDP has risen for 36 months. What will happen?
Congress will cut taxes
The Fed will start selling bonds
The Fed will lower the discount rate & required reserves
Congress will increase spending
35
Oz can make 6 cars or 2 ships. Narnia can make 9 cars or 3 ships. Can they specialize & trade?
No- Oz has absolute advantage in both goods
Yes- Narnia should specialize in cars
Yes- Narnia should specialize in ships
No- their opportunity costs are exactly the same
36
If a company teaches all its employees to use Windows 10, they are definitely increasing...
Fixed costs
Profits
Human capital
Marginal revenue
37
Which of these industries illustrates "monopolistic competition"?
Laptop computers
Cotton farmers
Pizza parlors
Gas & Electricity
38
Which type of expansionary policy will lead to higher interest rates?
Expansionary monetary policy
Expansionary fiscal policy
39
If the multiplier for a spending increase is 6, what would be the multiplier for a tax cut?
7
1
5
6
40
Thousands of tax accountants were laid off because everyone is using Turbo Tax. This is...
Cyclical unemployment
Frictional unemployment
Natural unemployment
Structural unemployment
41
If shoes are a normal good, what will probably happen if national income rises sharply?
People will buy fewer shoes
People will buy abiut the same number of shoes
People will buy more shoes
42
What does the Long Run Phillips curve look like?
It's downward sloping, and shaped like a C
It's horizontal, because there's a maximum inflation level
It's vertical, because you can't reduce unemployment forever
43
When should a landscaping business stop hiring more workers?
When total wages = total revenues
When marginal productivity = marginal wages
When marginal profit is no longer increasing
44
This is Gillette's PPC. What's the opportunity cost if they produce ten more units of razors?
100 units of shave cream
2 units of razors
5 units of shave cream
50 units of shave cream
45
People make economic choices & decisions based on what they think will happen. This is called:
The velocity of money
The income effect
Rational expectations
Educated guessing
46
Italy & Brazil have about the same GDP. Why are most Italians better off than most Brazilians?
Brazil has a rigid, inefficient command economy
Italy has a higher Marginal Propensity to Save
Brazil has a more diversified economy
Italy has a much lower population
47
Who can "create" money?
The US Mint, by printing bills
Banks, by lending out money
Consumers, by spending money
The Fed, by selling bonds
48
How long do people serve as governors of the Federal Reserve Board?
4 years
7 years
14 years
Until they die or resign
49
If the multiplier for a deficit spending increase is 4, what's the Balanced Budget multiplier?
3; one less than the regular multiplier.
Zero
5; one more than the regular multiplier
1. It's ALWAYS 1.
50
What are a bank's main assets, and what are its main liabilities?
$ they loan out = assets. $ people deposit = liabilities
$ they loan out = liabilities. $ people deposit = assets.
51
Camelot is in a severe recession. What should King Arthur do?
Spend money and sell bonds
Cut spending and buy bonds
Cut taxes and buy bonds
Spend money and increase taxes
52
The government of Elbonia puts high tariffs on foreign-made beers. Who benefits, who suffers?
Local & Foreign brewers benefit, consumers suffer
Local brewers benefit, local consumers suffer
Foreign brewers suffer, local consumers benefit
Local brewers and consumers both suffer
53
Boeing makes jets in the USA & sells them in Italy. Which country's GDP does that count in?
Both
Italy- it's part of their consumer spending
The USA- it's part of our net exports
Neither- that's in a special category of its own
54
What might be BAD about a law requiring the government to keep its budget balanced?
It requires discipline and self-control
It causes "crowding out"
Prevents expansionary fiscal policy during recessions
It would create big deficits
55
Scalpers can charge absurd amounts for Bruce Springsteen concert tickets because...
Supply is perfectly inelastic
Demand is very elastic
Supply is very elastic
Demand is perfectly inelastic
56
Assume that dairy farming is a "pure competition" business. Which of these cannot be true?
Farmer Jones has no control over the price of his milk
One farmer's milk is identical to every other farmer's milk
Just three dairies control 80% of the milk supply
It is fairly easy to buy cows and start producing milk
57
If the Consumer Price Index is 120, what does that tell us about the prices?
Prices are 12 times what they were in the base year
Prices for a "basket" of items have risen 1.2%
Prices for a "basket" of items have risen 20%
Prices for a "basket" of items have risen 2%
58
A builder spends $500K erecting a new house on Lake Travis. Is that part of GDP?
Yes, that's counted as part of C (Consumption)
No, but when someone buys the house, that will count in C
No, new buildings don't count.
Yes- that's part of I (investment)
59
Inflation isn't bad for everyone. Which of these people would LIKE inflation?
Mortimer Duke, a bank President
Ralph, a farmer who owes a lot of money to the bank
Sadie, a retired nurse with a fixed income
Tom, who keeps his life savings in a bank
60
Shakespeare writes 10 plays or 20 poems a year. TS Eliot writes 2 plays or 15 poems. So...
Shakespeare should write both poems and plays
Shakespeare should write plays and Eliot should write poems
Shakespeare should write poems & Eliot should write plays
Eliot should write both poems and plays
61
At which point on this PPC would Farmer Bob be operating efficiently?
Point A only
Point C
Points A and B
Point D only
62
Which statistic is most useful in judging how prosperous a nation is overall?
Gross National Product
Aggregate Supply
Net Domestic Product
GDP per capita
63
What's wrong with GDP per capita as a way of measuring a country's prosperity?
It emphasizes government spending too much
It doesn't include a large "underground" economy
It doesn't measure heath or life expectancy
In some countries, just a few people own most of the wealth
64
If Congress raises taxes and cuts spending, what would you expect?
Lower GDP and lower inflation
Lower GDP and higher inflation
Higher GDP and higher inflation
Higher GDP and lower inflation
65
What could the Fed do to increase the multiplier effect on the money supply?
Lower the discount rate
Increase reserve requirements
Lower reserve requirements
Raise the discount rate
66
If Marginal Propensity to Consume is .75, what will happen if the Fed buys $1000 of bonds?
$750 increase in money supply
$4000 decrease in money supply
No change in money supply
$4000 increase in money supply
67
What does "economic growth" mean?
Higher real GDP per capita
Longer life expectancy and better health
Lower unemployment
Higher inflation
68
Which of these activities would be part of an "Easy Money" policy by the Fed?
Raisng the discount rate
Spending increases
Tax cuts
Buying bonds from commercial banks
69
Nominal GDP grew 12% last year, but real GDP only grew 9%. What does that mean?
The government cut spending 3%
Real interest rates increased 3%
The inflation rate was 3%
Taxes increased 3%
70
The multiplier effect of a $ 2 trillion government spending increase = 1 divided by...
The Reserve Requirement Ratio
The real interest rate
The Marginal Propensity to Save
The Marginal Propensity to Consume
71
What does the short term Philips Curve suggest?
Creating jobs will cause inflation
Reduced inflation helps create jobs
Inflation and unemployment rise or fall together
Creating jobs will reduce inflation
72
Opportunity cost is...
The money price you paid for whatever you bought or produced
Whatever you COULD have had, instead of what you chose
What you SHOULD have chosen, instead of what you chose
73
Which of these shows us the relative values of two countries' currencies?
Purchasing power
Terms of trade
Exchange rate

Pre-AP Macroeconomics Test Review (May 2017) Flashcards | StudBud