1. 05.09 LongRun Consequences of Stabilization Policies Exam

AP Macroeconomics In a banking system with limited reserves, which of the following policy combinations would cause inflation in an economy that currently is in long-run equilibrium? (2 points)

	Lowering the income tax rates while the central bank increases the federal discount rate
	Decreasing government spending as the central bank sells government bonds
	Decreasing government spending while the central bank buys government bonds
	Increasing government spending and increasing the money supply
	Increasing the required reserve ratio and increasing the discount rate

2.

(05.01 HC) Use the graph to answer the question that follows. Which of the following policy actions would lead to the shift shown in the graph? (2 points)

	Increasing taxes; open market selling of bonds
	Decreasing taxes; open market purchasing of bonds
	Increasing government spending; decreasing interest rate
	Decreasing taxes; lowering reserve requirement rate
	Increasing government spending; open market purchasing of bonds

3.

(05.01 LC) A combination of a contractionary fiscal policy and a contractionary monetary policy will ________ output and ________ unemployment in an economy. (2 points)

	decrease; increase
	maintain; decrease
	increase; decrease
	increase; maintain
	decrease; decrease

4.

(05.02 MC) Why is the long-run Phillips curve (LRPC) a vertical line? (2 points)

	The LRPC is vertical because it shows the inverse relationship between prices and unemployment.
	The LRPC is vertical because prices are sticky in the long run.
	The LRPC is vertical because inflation in an economy cannot be corrected.
	The LRPC is vertical because the natural rate of unemployment is independent of inflation in the long run.
	The LRPC is vertical because in the long-run cyclical unemployment persists.

5.

(05.02 MC) Use the graph to answer the question that follows. Which point on the graph shows an inflationary gap in the economy? (2 points)

	Point L
	Point M
	Point N
	Point O
	Point P

6.

(05.02 MC) Which of the following changes will be seen because of a negative supply shock in the economy? (2 points)

	The short-run Phillips curve (SRPC) will shift to the left, inflation will increase, and unemployment will decrease.
	The short-run Phillips curve (SRPC) will shift to the right, and inflation and unemployment will increase.
	The long-run Phillips curve (LRPC) will shift to the left, inflation will increase, and unemployment will remain the same.
	The short-run Phillips curve (SRPC) will shift to the right, and both inflation and unemployment will decrease.
	The long-run Phillips curve (LRPC) will shift to the left, inflation will decrease, and unemployment will remain the same.

7.

(05.02 MC) Which of the following factors will cause the long-run Phillips curve (LRPC) to move to the right? (2 points)

	Decrease in aggregate demand
	Decrease in recessionary pressures
	Increase in frictional unemployment
	Increase in cyclical unemployment
	Increase in skill level of labor force

8.

(05.03 MC) If the money supply in an economy is $240 billion and the nominal GDP is $960 billion, then how many times is the average dollar in the economy spent? (2 points)

	The average dollar is spent four times in a year.
	The average dollar is spent 0.25 times in a year.
	The average dollar is spent three times in a year.
	The average dollar is spent 0.75 times in a year.
	The information provided is insufficient to determine the answer.

9.

(05.03 MC) The central bank increases the money supply by 3% over a long period while the country runs at full employment. In the long run, what does the quantity theory of money say will happen? (2 points)

	The natural rate of unemployment will decrease by 3%.
	The price level will decrease by 3%.
	Unemployment will increase by 3%.
	Nominal output will increase by 3%.
	Real output will increase by 3%.

10.

(05.03 MC) If the money supply in an economy is increased by 5%, the velocity of money is constant, and output is growing at 3%, then (2 points)

	the real GDP will increase by 5%
	the price level will not change
	the nominal GDP will increase by 3%
	the price level will increase by 2%
	the nominal GDP will decrease by 5%

11.

(05.04 MC) If in a financial year, a government's expenditure on goods and services amounts to $200 billion, the amount it spent on social security benefits equals $150 billion, and the revenue it collected from taxes is equal to 300 billion, then which of the following statements is true? (2 points)

	The government is running a budget surplus.
	The national debt will remain unaffected.
	The government will have to borrow money to finance its deficit.
	The government's revenue equals its expenditure.
	The government will not have to pay interest on borrowed funds.

12.

(05.04 LC) If tax revenues exceed the total of government spending and transfer payments, which of the following must be true? (2 points)

	The money multiplier will increase.
	The government budget is in surplus.
	The velocity of money will increase.
	The economy has an inflationary gap.
	The national debt will increase.

13.

(05.04 LC) Which of the following statements is true regarding the national debt? (2 points)

	The national debt is the total revenue earned by the government at the end of every financial year.
	The terms budget deficit and national debt are synonymous with each other.
	Interest owed on funds borrowed by the government is the only element of the national debt.
	The national debt decreases with every budget deficit that the government runs.
	The government's future spending ability is affected by an increase in national debt.

14.

(05.05 MC) The economy depicted in this data table is closed, with no international trade of any kind.

Government spending	$50 billion
Government transfer payments	$30 billion
Tax revenues	$40 billion
Capital investments	$10 billion

Based on the data, which of the following statements must be true? (2 points)

	The government doesn't have to borrow in the loanable funds market, as it is running a balanced budget.
	The government doesn't have to borrow in the loanable funds market, as it is operating with a budget surplus.
	The government has to borrow in the loanable funds market to finance its budget deficit.
	The government has to borrow in the loanable funds market to increase its future revenue.
	The government expenditure is equal to the amount of revenue collected from taxation.

15.

(05.05 HC) Use the graph to answer the question that follows. Assume that an economy is in equilibrium at point A, as shown in the graph. If the government is running a budget deficit, what will be the new equilibrium in the market of loanable funds for the private sector? (2 points)

	The supply of loanable funds will shift to S2, and the new equilibrium will be at point C.
	The supply of loanable funds will not shift from S1, so the equilibrium will remain at point A.
	The supply of loanable funds will shift to S1, and the new equilibrium will be at point B.
	The supply of loanable funds will shift to S2, and the new equilibrium will be at point E.
	The supply of loanable funds will shift to S1, and the new equilibrium will be at point F.

16.

(05.05 MC) Which of the following changes will likely occur when the government borrows money to finance its deficit? (2 points)

	Public savings will increase, due to a decrease in the real interest rate.
	Private sector investment will be encouraged, due to an increase in the real interest rate.
	The income level in the economy will increase, due to a decrease in the real interest rate.
	Private sector investment will be crowded out, due to an increase in the real interest rate.
	The demand for loanable funds will increase, due to a decrease in the real interest rate.

17.

(05.06 LC) Which of the following best defines economic growth? (2 points)

	Sustained growth of real GDP per capita over a period of time
	Increase in consumption expenditure and government spending
	Increase in labor productivity
	Increase in gross capital formation from the rest of the world
	Growth of nominal GDP over a period of time

18.

(05.06 MC) The following table shows the values of Real GDP and population for two consecutive years of Country Z:

	Real GDP (million)	Population (million)
Year 1	$200	50
Year 2	$300	60

Calculate the growth rate of real GDP per capita of Country Z. (2 points)

	2.5%
	10%
	15%
	25%
	30%

19.

(05.06 LC) Which of the following will lead to an increase in labor productivity? (2 points)

	Increase in the number of laborers
	Increase in labor force participation rate
	Increase in education and skills
	Decline in innovation and technological progress
	Decrease in wage rate

20.

(05.06 MC) A rightward shift of which of the following models illustrates economic growth? (2 points)

	The short-run aggregate supply curve
	The aggregate demand curve
	The money supply curve
	The long-run Phillips curve
	The production possibilities curve

21.

(05.06 MC) Use the graph to answer the question that follows. The economy experiencing the production possibilities curve change shown in the graph must (2 points)

	have an increasing price level
	have its long-run Phillips curve shifting right
	have its long-run aggregate supply curve shifting right
	have cyclical unemployment
	have an unemployment rate of zero

22.

(05.07 MC) The policy most likely to lead to a rightward shift of the long-run aggregate supply curve is (2 points)

	increasing subsidies to capital industries
	increasing the income tax rates
	decreasing the money supply
	increasing the required reserve ratio
	increasing government deficit spending

23.

(05.07 MC) Which of the following policies would be most likely to slow real economic growth? (2 points)

	Converting business technology subsidies to retirement transfer payments
	Decreasing the personal income tax rates
	Increasing funding for public education
	Increasing public scholarships for higher education, as well as research grants
	Increasing federal spending on infrastructure

24.

(05.07 MC) Which of the following sets of variables will be affected if the government plans to decrease the corporate tax rates? (2 points)

	Aggregate demand, aggregate supply, and potential output
	Aggregate demand, exports, and consumption
	Aggregate supply, government spending, and interest rates
	Aggregate supply, total credit, and reserve requirement
	Aggregate trade, prices, and subsidies