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AP Macro Review

AP Macro Review. Unit 5 Inflation, Unemployment, and Stabilization Policies. 1. Which of the following illustrates a contractionary fiscal policy?. An increase in taxation and a decrease in government spending An increase in taxation and an increase in government spending

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AP Macro Review

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  1. AP Macro Review Unit 5 Inflation, Unemployment, and Stabilization Policies

  2. 1. Which of the following illustrates a contractionary fiscal policy? • An increase in taxation and a decrease in government spending • An increase in taxation and an increase in government spending • A decrease in taxation and a decrease in government spending • No change in taxation and an increase in government spending • An increase in taxation and no change in government spending

  3. 2. If the U.S. government wanted to increase aggregate demand by $50 billion and the MPS is 0.4, then it should: • Increase government spending by $20 billion • Increase government spending by $10 billion • Decrease government spending by $20 billion • Decrease government spending by $10 billion • Increase taxes by $20 billion

  4. 3. If the United States is experiencing a deficit, and a course of action is to issue new money, • The crowding out effect may be avoided • The crowding out effect is unavoidable • Interest rates will increase • Interest rates will decrease • None of the above

  5. 4. As a result of a progressive tax system, as income increases, the average tax rate will: • Increase • Decrease • Increase at first and then gradually level off • Decrease at first and then gradually level off • Remain the same

  6. 5. Suppose the U.S. economy is at a potential GDP. If there is an increase in the money supply: • Hyperinflation will result • Stagflation will result • Depreciation will result • Demand-pull inflation will result • Cost-push inflation will result

  7. 6. One advantage of monetary policy over fiscal policy is: • The speed at which it can be implemented • The regulation of taxes and government spending • The slow, methodical, and thoughtful pace at which it can be implemented • Its effectiveness on aggregate supply over aggregate demand • A and B

  8. 7. Imagine the economy is experiencing high unemployment and a low rate of economic growth. What policy should the Federal Reserve follow? • Pursue an easy money policy and sell government securities • Pursue a tight money policy and sell government securities • Pursue a tight money policy and buy government securities • Pursue an easy money policy and raise the reserve ratio • Pursue an easy money policy and buy government securities

  9. 8. Suppose you read a Wall Street Journal article that states the Federal Reserve will lower the discount rate for the third time this year. According to this article, the Federal Reserve is trying to: • Reduce inflation • Increase inflation • Stimulate the economy • Aid the U.S. Treasury • Increase checkable deposits

  10. 9. Cost-push inflation refers to: • An increase in the price level from an increase in the cost of production • Aggregate demand moving at a quicker pace than aggregate supply, thus an increase in price • Aggregate demand moving at a slower pace than aggregate supply, thus an increase in price • An increase in prices brought on by a discovery of a new resource or new technology • The increase in the price level due to hyperinflation

  11. 10. The main purpose of a built-in stabilizer is to: • Increase the government surplus during a recession without changing policy • Increase or decrease the government surplus without changing policy • Decrease the government surplus during inflation without changing policy • Increase or decrease the government surplus with a fast-pace change in policy • Bring the economy to full employment without changing policy

  12. 11. Suppose there is a leftward shift in aggregate demand due to an increase in interest rates as a result of expansionary fiscal policy. This is known as: • The crowding out effect • An inflationary gap • A recessionary gap • Cost-push inflation • Demand-pull inflation

  13. 12. The average number of times per year a dollar is spent is known as: • The quantity theory of money • Cost-push inflation • The velocity of money • The capital account • The rate of inflation

  14. 13. The Phillips curve examines the relationship between: • Aggregate demand and aggregate supply • Fiscal policy and monetary policy • Inflation and unemployment • Inflation and cyclical unemployment • Recessionary gaps and inflationary gaps

  15. Answer Key • A • A • A • A • D • A • E • C • A • B • A • C • C

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