AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
PART I: Multiple Choice
1. In the short run, a decrease in AD causes (a/an) __________ in quantity of
AS (aka RGDP or output) and (a/an) _________ in price level
A. increase, increase
B. decrease, increase
C. increase, decrease
D. decrease, decrease
E. no change, no change
2. Given the diagram below, what can be expected when the level of income
in the economy is $2,000?
(Remember in the expenditures approach, Income = RGDP)
Aggregate EXPENDITURES
45 degree line
C+I+G+X
$1,500
$2,000
RGDP
A. Inventories are accumulating and savings are falling
B. Inventories are accumulating and savings are rising
C. Inventories are dwindling and savings are falling
D. Inventories are dwindling and savings are rising
E. Inventories are constant and savings are zero
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
3. Suppose taxes are cut in an economy that is in equilibrium at full
employment. In the long run the tax cut will:
A. Raise real output and raise the price level
B. Lower real output and raise the price level
C. Raise real output and lower the price level
D. Lower real output and lower the price level
E. Raise the price level
4. If the marginal propensity to consume equals .75 and government
spending increases by $100 million, then overall GDP can be expected to
A. Decrease by $133.33 million
B. Increase by $133.33 million
C. Decrease by $400 million
D. Increase by $400 million
E. Increase by $75 million
5. Suppose you observe an economy where prices are falling and RGDP is
rising. This may have been caused by
A. Stagflation
B. An advance in technology
C. An increase in government spending
D. A decrease in government spending
E. A decrease in the money supply
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
6. Determine the dollar amount represented by the distance from A to B in
the diagram above. Assume the MPC = 0.8
Aggregate Expenditures
45 degree line
$5 Million
A
B
RGDP
A. $10 Million
B. $8 Million
C. $25 Million
D. $20 Million
E. $12.5 Million
7. If the economy is in disequilibrium where the price level is such that AD
exceeds AS, then
A. Prices will be driven upward to restore equilibrium
B. Supply will increase
C. Demand will increase
D. Supply will decrease
E. A recession is inevitable
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
8. If the economy experienced a decrease in RGDP and price level, this
could best be explained by
A. A decline in labor productivity
B. A technological advance
C. A decline in investment
D. An uptick in net exports
E. A reduction in interest rates
9. According to Keynesian analysis, the Great Depression was caused by
A. A lack of spending initiated by a decrease in AS.
B. A sharp rise in the marginal propensity to consume (MPC)
C. Too much investment
D. Too much foreign influence on the economy
E. A sharp decline in labor productivity
10. Suppose that an expansionary fiscal policy leads to a large increase in
real output and a small increase in the price level. From this it can be
inferred that
A. Inflation had already impacted the economy before the fiscal
stimulus
B. The economy initially had some unemployed resources
C. AS decreased
D. AD is steeply sloped
E. AS is steeply sloped
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
11. AD may be measured by adding
A. Consumption, investment, savings and imports
B. Savings, government spending, and business inventories
C. Consumption, investment, government spending, and net exports
D. Domestic private expenditures and government spending
E. Domestic expenditures and imports
12. Which of the following is true of a horizontal AS curve?
A. It is the usual assumption made by classical economists analyzing
the long run
B. It suggests that increases in output can occur without increases in
price levels
C. It suggests that a shift in the AD curve will lead to a change in the
price level
D. It is likely to occur only in highly industrialized economies
E. It cannot shift, therefore output remains constant
13. Which of the following statements best describes the impact of a
decrease in Japanese income on AD in the US?
A. There will be no change in AD because US AD depends only on
the income of US consumers
B. AD will decrease because the demand for US exports decreases
C. AD will decrease because the value of the US dollar decreases
relative to the Japanese yen
D. AD will increase because a decrease in income in Japan causes an
increase in income in the US
E. AD will increase because interest rates in the US decrease
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
14. Which of the following changes would cause an economy’s AD curve
to shift to the right?
A. An increase in spending on imports
B. An increase in consumption spending
C. An increase in interest rates
D. A decrease is the money supply
E. An increase in the overall price level in the economy
15. A decrease in the prices of inputs will cause which of the following to
occur in the short run?
A. An increase in the AD and an increase in the price level
B. An decrease in the AD and an increase in the price level
C. An increase in the short-run AS and a decrease in the price level
D. An increase in the short-run AS and a increase in the price level
E. An decrease in the short-run AS and a decrease in the price level
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
16. The graph below shows the macroeconomic conditions of Yowassupia.
Assuming the natural rate of unemployment is 6%, and the current rate of
unemployment is 4.9%, in what range of RGDP is the economy currently
producing?
Price Level
Full employment output
Short-Run AS
P2
P1
Y1
Y2
RGDP
A. Less than Y1
B. At Y1
C. At Y2
D. Greater than Y1 and less than Y2
E. Greater than Y2
17. Which of the following changes will cause the smallest increase on AD
in the short run?
A. An increase in exports of $100
B. An increase in government spending of $100
C. A decrease in taxes of $100
D. An decrease in imports of $100
E. A decrease in savings of $100
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
18. A leftward shift of the long-run AS curve is most likely consistent
with an improvement in a country’s standard of living if
A. Prices fall
B. Depreciation increases
C. Population decreases
D. Taxes decrease
E. Imports decline
19. What is the most likely short-run affect on an economy in long-run
equilibrium when net exports significantly increases?
A. Vertical long-run supply curve shifts to the right.
B. Unemployment increases.
C. Price level increases.
D. Its currency depreciates.
E. Short-run supply shifts upward.
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
20. The economy of Whateveria is currently in equilibrium at point X. If the
government does nothing and wages are flexible, which of the following will
most likely occur in the long run?
Price Level
Full employment
AS
X
AD
RGDP
A. Falling wages will shift the AD curve to the right, producing full
employment
B. Rising wages will shift the AD curve to the right, producing full
employment
C. The economy will remain at point X
D. Rising wages will shift the AS curve to the right, producing full
employment
E. Falling wages will shift the AS curve to the right, producing full
employment
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
Part II Short Answer:
11. Briefly describe the effect of each on Aggregate Demand; then describe
the effect on the AD curve
P
a. An increase in wages
b. An increase in taxes
c. A decrease in real interest rate
2. Briefly describe the effect of each on Aggregate Supply; then describe
the effect on the AS curve
P
a. An increase in the price of oil
b. An increase in productivity
c. New government regulations which decrease allowable levels of
pollution from manufacturing plants
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
2. Why is the AS curve steeper as you move right along the RGDP axis?
3. The table below shows an economy’s relationship between real output and
the inputs needed to produce that output:
Input Quantity
120
100
60
Real GDP
$600
$500
$300
a. What is productivity of this economy?
b. What is the per-unit cost of production if the price of each input is $3?
c. If the input price does not change, but productivity increases by 20%,
what is the new per-unit cost of production?
d. What effect would the new per-unit cost of production (from c.) have on
the economy’s AS, and subsequently on the AS curve?
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
4a. Briefly describe the multiplier effect in the relationship between change
in RGDP and initial change in spending?
b. If the Marginal Propensity to Consume is .8, what is the Marginal
Propensity to Save?
c. Given an MPC of 0.8, fill in the given chart.
Initial Change in
Income
Initial increase of $10
$10 (Round 1)
Round 2
Round 3
Round 4
All other rounds
TOTAL
Change in
Consumption
(MPC = 0.8)
$8
AP Macroeconomics
CH (27, 28) 29 QUIZ REVIEW
Mr. Kelley
PART III: FRQ
1.
Assume that the United States economy is currently in a recession in
a short-run equilibrium. (recession implies that equilibrium is less
than at full employment)
a) Draw a correctly labeled graph of AD/AS in the recession and
show each of the following
i. The long-run equilibrium output, labeled as Yf
ii. The current equilibrium output and price levels, labeled Ye
and PLe respectively
b) To balance the federal budget, suppose the government decides to
raise income taxes while maintaining the current level of government
spending. On the same graph as in part a), show the effect of the
increase in taxes. Label the new equilibrium output and price levels
Y2 and PL2 respectively