Practice Test 1 - AP Macroeconomics

20 questions. Answer them in any order, then submit to see your score and every explanation.

Based on the government budget information shown, the government considers whether a short-run deficit used for stabilization could contribute to long-run debt concerns through higher interest payments. In 2035: Spending is $1{,}300$ billion, tax revenue is $1{,}250$ billion, and interest payments are $150$ billion (included in spending). The national debt at the end of 2034 is $8{,}400$ billion. Which statement correctly identifies the 2035 deficit and the end-of-2035 national debt, distinguishing deficit from debt?
Based on the labor market information shown for Riverland, which statement best explains why the unemployment rate fell from Q1 to Q2? Riverland Labor Market (thousands of people) Q1: Employed = 900, Unemployed = 100, Not in labor force = 200 Q2: Employed = 910, Unemployed = 70, Not in labor force = 220 Assume the working-age population is unchanged from Q1 to Q2.
A point lying inside a nation's production possibilities curve (PPC) represents a combination of goods that is...
In an economy experiencing inflation, the price level increases at 3% per year for several years. A firm responds by devoting staff time to monitoring competitors' prices and updating its own price lists more often, even though its output and technology are unchanged. Which combination of inflation costs is most directly involved in this scenario?
In Country D, a major hurricane destroys homes and roads. In the following year, real GDP increases by 6% due to higher construction and materials spending, but many households report lower housing quality and disrupted services compared with before the storm. Despite the change in GDP, which interpretation best explains the tension between GDP and well-being?
A central bank conducts an open market purchase as part of an expansionary policy focused on short-run stabilization. At the same time, households increase their desire to hold money, increasing liquidity preference (money demand). Assume the central bank's action increases the money supply, and the higher liquidity preference shifts money demand right. Based on the monetary policy action shown, which statement best describes the short-run effect on the nominal interest rate?
Based on the labor market information shown for Province P, which statement best explains why the unemployment rate could increase even when the economy is improving? After several months of job growth, higher wages attract people who were previously not in the labor force to begin searching for work. Employment rises, but the number of unemployed also rises temporarily as new entrants search for jobs.
Based on the production data shown, which specialization pattern is efficient (maximizes total world output) if the two countries can trade? Assume each country can devote all resources to producing only one good per day. Production Possibilities (maximum units per day) - Country R: Rice 10, Computers 5 - Country S: Rice 6, Computers 6
Based on the government budget information shown, the federal government in 2025 has outlays of $5.2 trillion and tax revenue of $4.7 trillion, and the national debt at the start of 2025 is $30.0 trillion. Which statement best describes the 2025 budget balance and the relationship between the annual deficit and the national debt, assuming no other changes? Government Budget Snapshot (Trillions of dollars) - 2025 Outlays: 5.2 - 2025 Tax revenue: 4.7 - National debt at start of 2025: 30.0
Based on the government budget information shown, the government reports a $0.2$ trillion budget surplus for 2025 (tax revenue exceeds spending by $0.2$ trillion). The national debt at the start of 2025 is $30.0$ trillion, and interest payments on existing debt in 2025 are $0.6$ trillion (already included in total spending). If the surplus is used to pay down debt, which statement best describes what happens in 2025?
Based on the real interest rates shown in the table (assume equal risk and high capital mobility), which exchange rate pressure is most likely in the short run? Table 4. Real Interest Rates - Country G: $r=5\%$ - Country H: $r=2\%$
Based on the information shown in the table, which change is the most likely primary driver of the long-run increase in potential output? The country implemented a patent system and expanded broadband infrastructure in the 2000s, while also increasing worker training programs. Table 2. Real GDP per capita (2012 dollars) - 1980: $18,000 - 1990: $22,000 - 2000: $27,000 - 2010: $34,000 - 2020: $41,000
Based on the exchange rate shown, assume Mexico is the domestic economy and the exchange rate is quoted as pesos per $1. The exchange rate changes from $1 = 10 pesos in Year 1 to $1 = 20 pesos in Year 2. Which statement correctly identifies the change in the peso and the likely effect on the peso price of U.S. imports into Mexico (priced in dollars), holding other factors constant?
Based on the production data shown, which country has a comparative advantage in oil? Assume each country can devote all resources to producing only one good per day. Production Possibilities (maximum units per day) - Country K: Oil 16, Microchips 4 - Country L: Oil 12, Microchips 6
Based on the production possibilities data provided, what is the opportunity cost of increasing steel production from 2 units to 3 units?
Country F's currency depreciates from $1.00 = \text{F}\$3.00$ to $1.00 = \text{F}\$3.60$ . Before the depreciation, exports were $\text{F}\$150$ billion and imports were $\text{F}\$165$ billion. After the depreciation, exports rise to $\text{F}\$158$ billion and imports fall to $\text{F}\$160$ billion as domestic firms become more price competitive. Following the change in the exchange rate, which conclusion about net exports is most consistent with the data?
A government permanently lowers the corporate tax rate on new factory equipment (a targeted investment incentive), while keeping the overall budget balanced by raising lump-sum taxes on households. The policy is designed to increase the private capital stock over time. Based on the policy described, which long-run outcome is most likely?
An investor holds: (1) $900 in currency, (2) a $5,000 corporate bond, (3) shares of stock in a retail company, and (4) a machine used in a small business. Based on the assets described, which pair consists of financial assets that are claims on future income rather than productive resources themselves?
Starting from equilibrium $E_1$ in the AD–AS model shown, government increases purchases of goods and services, shifting aggregate demand in the short run. Which statement correctly identifies the type of change and its effects?
As the economy enters a recession, the government does not pass any new spending or tax legislation. Existing programs cause transfer payments to rise and tax revenue to fall. Which statement best describes the effect of these automatic stabilizers on the business cycle?

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