AP Macroeconomics Unit 3: National Income and Price Determination Practice Exam

1. (A) The economy is in long-run equilibrium. (B) The economy is experiencing an inflationary gap. (C) The economy is experiencing a recessionary gap. (D) The actual rate of unemployment is lower than the natural rate of unemployment.

2. (A) The aggregate demand curve will shift to the right as consumer confidence increases. (B) Nominal wages will fall, causing the short-run aggregate supply curve to shift to the right. (C) The long-run aggregate supply curve will shift to the left to meet the short-run equilibrium. (D) Nominal wages will rise, causing the short-run aggregate supply curve to shift to the left.

3. (A) Decreasing income taxes (B) Decreasing government spending (C) Increasing income taxes (D) Selling government bonds on the open market

4. (A) As the price level falls, the purchasing power of household wealth increases, leading to more consumption. (B) As the price level falls, firms' production costs decrease, leading them to supply more output. (C) As the price level falls, consumers substitute toward relatively cheaper goods. (D) As the price level falls, the government increases its spending to stimulate the economy.

5. (A) nominal wages are flexible and adjust quickly to changes in the price level. (B) an increase in the price level leads to higher real wealth and greater demand. (C) nominal wages are slow to adjust to changes in the price level, making production more profitable when prices rise. (D) a country's resources are fully employed in the short run.

6. (A) Spending multiplier = 4, Tax multiplier = -3 (B) Spending multiplier = 4, Tax multiplier = -4 (C) Spending multiplier = 1.33, Tax multiplier = -0.75 (D) Spending multiplier = 0.75, Tax multiplier = -0.25

7. (A) An increase of 10 billion dollars (B) An increase of 50 billion dollars (C) An increase of 250 billion dollars (D) An increase of 40 billion dollars

8. (A) Aggregate demand to the right (B) Aggregate demand to the left (C) Short-run aggregate supply to the right (D) Short-run aggregate supply to the left

9. (A) in the long run, the price level is fixed. (B) in the long run, all input prices are fully flexible and adjust to changes in the price level. (C) technological progress is constant over time. (D) the government's budget must be balanced in the long run.

10. (A) An increase in the price level (B) An increase in household wealth (C) A decrease in consumer confidence (D) A decrease in interest rates

11. (A) The price of crude oil (B) Labor productivity (C) Inflationary expectations (D) Corporate income taxes

12. (A) the tax cut will increase the national debt more than the spending increase. (B) a portion of the tax cut will be saved rather than spent. (C) government spending is a direct component of aggregate supply. (D) the tax cut only affects households, while government spending affects both households and firms.

13. (A) The Federal Reserve selling bonds to combat inflation. (B) Congress passing a new highway infrastructure bill to fight a recession. (C) As corporate profits fall during a recession, corporate tax revenues decrease. (D) The national debt decreasing during an economic expansion.

14. (A) 0.2 (B) 0.8 (C) 1.25 (D) 5.0

15. (A) Price Level: Increase; Real Output: Increase (B) Price Level: Decrease; Real Output: Decrease (C) Price Level: Increase; Real Output: Decrease (D) Price Level: Decrease; Real Output: Increase

16. (A) Nominal wages will increase, and the SRAS curve will shift to the left. (B) The AD curve will shift back to the right as the trading partner recovers. (C) Nominal wages will decrease, and the SRAS curve will shift to the right. (D) The LRAS curve will shift to the left to match the new short-run output.

17. (A) a rightward shift of the short-run aggregate supply curve. (B) a leftward shift of the short-run aggregate supply curve. (C) a rightward shift of the aggregate demand curve. (D) a leftward shift of the aggregate demand curve.

18. (A) A leftward shift of the aggregate demand curve. (B) A rightward shift of the short-run aggregate supply curve only. (C) A rightward shift of the long-run aggregate supply curve only. (D) A rightward shift of both the short-run and long-run aggregate supply curves.

19. (A) The time it takes for economists to collect and analyze data to confirm a recession has started. (B) The time it takes for Congress to debate, pass, and for the president to sign a tax cut bill. (C) The time it takes for a tax cut to affect household spending and for that spending to multiply through the economy. (D) The time it takes for automatic stabilizers to kick in after a downturn begins.

20. (A) Increase government spending by 120 billion dollars. (B) Decrease taxes by 120 billion dollars. (C) Increase government spending by 600 billion dollars. (D) Decrease taxes by 140 billion dollars.

21. (A) the short-run equilibrium output is equal to the full-employment output. (B) the short-run equilibrium output is below the full-employment output. (C) the unemployment rate is above the natural rate of unemployment. (D) the unemployment rate is below the natural rate of unemployment.

22. (A) By automatically increasing government spending on social programs. (B) By automatically increasing tax revenues, which dampens aggregate demand. (C) By automatically decreasing interest rates, which encourages investment. (D) By automatically decreasing tax rates to provide further stimulus.

23. (A) A movement up along the aggregate demand curve. (B) A shift of the aggregate demand curve to the left. (C) A shift of the aggregate demand curve to the right. (D) A shift of the short-run aggregate supply curve to the left.

24. (A) increase aggregate demand. (B) decrease aggregate demand. (C) increase short-run aggregate supply. (D) decrease short-run aggregate supply.

25. (A) tax changes affect government saving, while spending changes do not. (B) the initial change in spending from a tax change is less than the full amount of the tax change. (C) firms respond more to changes in government spending than to changes in taxes. (D) tax changes are an indirect tool, while government spending is a direct tool of aggregate supply.