Practice Test

AP Economics

Chapter 29

Practice Test

1.The aggregate demand curve:
A.is upsloping because a higher price level is necessary to make production profitable as production costs rise.
B.is downsloping because production costs decline as real output increases.
C.shows the amount of expenditures required to induce the production of each possible level of real output.
D.shows the amount of real output that will be purchased at each possible price level.

3.The interest-rate effect suggests that:
A.a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending.
B.an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending.
C.an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
D.an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

5.The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:
A.increase the amount of U.S. real output purchased.
B.increase U.S. imports and decrease U.S. exports.
C.increase both U.S. imports and U.S. exports.
D.decrease both U.S. imports and U.S. exports.

7.The foreign purchases effect:
A.shifts the aggregate demand curve rightward.
B.shifts the aggregate demand curve leftward.
C.shifts the aggregate supply curve rightward.
D.moves the economy along a fixed aggregate demand curve.

9.The real-balances, interest-rate, and foreign purchases effects all help explain:
A.why the aggregate demand curve is downsloping.
B.why the aggregate supply curve is upsloping.
C.shifts in the aggregate demand curve.
D.shifts in the aggregate supply curve.

12.The determinants of aggregate demand:
A.explain why the aggregate demand curve is downsloping.
B.explain shifts in the aggregate demand curve.
C.demonstrate why real output and the price level are inversely related.
D.include input prices and resource productivity.

13.Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:
A.aggregate demand curve would shift to the right.
B.aggregate supply curve would shift to the left.
C.aggregate supply curve would shift to the right.
D.aggregate demand curve would shift to the left.

14.Which one of the following would not shift the aggregate demand curve?
A.a change in the price level
B.depreciation of the international value of the dollar
C.a decline in the interest rate at each possible price level
D.an increase in personal income tax rates

18.If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:
A.leftward by $50 billion at each price level.
B.rightward by $10 billion at each price level.
C.rightward by $50 billion at each price level.
D.leftward by $40 billion at each price level.

20.An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:
A.net export effect.
B.wealth effect.
C.real-balances effect.
D.multiplier effect.

22.Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
A.A reduced amount of excess capacity.
B.Increased government spending on military equipment.
C.An appreciation of the U.S. dollar.
D.Increased consumer optimism regarding future economic conditions.

23.Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?
A.$12 billion.
B.$20 billion.
C.$33.3 billion.
D.$50 billion.

25.The immediate-short-run aggregate supply curve represents circumstances where:
A.both input and output prices are fixed.
B.both input and output prices are flexible.
C.input prices are fixed, but output prices are flexible.
D.input prices are flexible, but output prices are fixed.

32.The aggregate supply curve:
A.is explained by the interest rate, real-balances, and foreign purchases effects.
B.gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C.shows the various amounts of real output that businesses will produce at each price level.
D.is downsloping because real purchasing power increases as the price level falls.

33.The aggregate supply curve (short-run):
A.slopes downward and to the right.
B.graphs as a vertical line.
C.slopes upward and to the right.
D.graphs as a horizontal line.

36.In the above diagram, a shift from AS1 to AS3 might be caused by a(n):
A.increase in productivity.
B.increase in the prices of imported resources.
C.decrease in the prices of domestic resources.
D.decrease in business taxes.

37.In the above diagram, a shift from AS1 to AS2 might be caused by a(n):
A.stricter government regulations.
B.increase in the prices of imported resources.
C.decrease in the prices of domestic resources.
D.increase in business taxes.

40.Other things equal, an improvement in productivity will:
A.shift the aggregate demand curve to the left.
B.shift the aggregate supply curve to the left.
C.shift the aggregate supply curve to the right.
D.increase the price level.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question(s) on the basis of this information.

42.Refer to the above information. The level of productivity is:
A.20.
B.10.
C.5.
D.2.

43.The per unit cost of production in the economy described above is:
A.$.50.
B.$1.
C.$2.
D.$5.

46.Other things equal, if the U.S. dollar were to depreciate, the:
A.aggregate demand curve would remain fixed in place.
B.aggregate supply curve would shift to the left.
C.aggregate supply curve would shift to the right.
D.aggregate demand curve would shift to the left.

52.Which of the following would not shift the aggregate supply curve?
A.an increase in labor productivity
B.a decline in the price of imported oil
C.a decline in business taxes
D.an increase in the price level

54.Per-unit production cost is:
A.real output divided by inputs.
B.total input cost divided by units of output.
C.units of output divided by total input cost.
D.a determinant of aggregate demand.

56.Other things equal, appreciation of the dollar:
A.increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
B.increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources.
C.decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.
D.decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

62.The short-run aggregate supply curve represents circumstances where:
A.both input and output prices are fixed.
B.both input and output prices are flexible.
C.input prices are fixed, but output prices are flexible.
D.input prices are flexible, but output prices are fixed.

63.The economy's long-run aggregate supply curve:
A.slopes upward and to the right.
B.is vertical.
C.is horizontal.
D.slopes downward and to the right.

Answer the next question(s) on the basis of the following aggregate demand and supply schedules for a hypothetical economy:

69.Refer to the above data. The equilibrium price level will be:
A.150.
B.200.
C.250.
D.300.

73.Graphically, demand-pull inflation is shown as a:
A.rightward shift of the AD curve along an upsloping AS curve.
B.leftward shift of the AS curve along a downsloping AD curve.
C.leftward shift of AS curve along an upsloping AD curve.
D.rightward shift of the AD curve along a downsloping AS curve.

74.Graphically, cost-push inflation is shown as a:
A.leftward shift of the AD curve.
B.rightward shift of the AS curve.
C.leftward shift of AS curve.
D.rightward shift of the AD curve.

75.Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a:
A.rightward shift of the aggregate demand curve along a fixed aggregate supply curve.
B.rightward shift of the aggregate supply curve along a fixed aggregate demand curve.
C.rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve.
D.leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

76.Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by:
A.panel (A) only.
B.panel (B) only.
C.panel (C) only.
D.panels (A) and (B).

77.Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by:
A.panel (A) only.
B.panel (B) only.
C.panel (C) only.
D.panels (B) and (C).

80.Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by:
A.panel (A) only.
B.panel (B) only.
C.panel (C) only.
D.panels (B) and (C).

91.In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by:
A.a reduction in the price level.
B.the increased availability of entrepreneurial talent.
C.an increase in business taxes.
D.the real-balances, interest-rate, and foreign purchases effects.

92.In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the above diagram produce:
A.a higher price level.
B.an expansion of real output and a stable price level.
C.an expansion of real output and a higher price level.
D.a decline in real output and a stable price level.

98.If aggregate demand increases and aggregate supply decreases, the price level:
A.will decrease, but real output may increase, decrease, or remain unchanged.
B.will increase, but real output may increase, decrease, or remain unchanged.
C.and real output will both increase.
D.and real output will both decrease.

124.The size of the multiplier associated with an initial increase in spending will be:
A.the same whether or not inflation occurs.
B.diminished if inflation occurs.
C.zero if any increase in the price level occurs.
D.enhanced if inflation occurs.

127.Efficiency wages are:
A.above-market-wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.
B.wage payments necessary to compensate workers for unpleasant or risky work conditions.
C.usually less than market wages.
D.relevant to macro economics because they explain rightward shifts in aggregate demand.

129.When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:
A.reduce per unit production costs.
B.reduce worker morale and work effort, and thus lower productivity.
C.increase the firms' cost of raising financial capital.
D.reduce the demands for their products.

133.The fear of unwanted price wars may explain why many firms are reluctant to:
A.reduce wages when a decline in aggregate demand occurs.
B.reduce prices when a decline in aggregate demand occurs.
C.expand production capacity when an increase in aggregate demand occurs.
D.provide wage increases when labor productivity rises.