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Practice Test 10 - AP Macroeconomics

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

  1. A firm keeps funds in several forms: $1{,}000 in currency in a cash register, $15{,}000 in a checking account, $50{,}000 in a savings account, and $20{,}000 in U.S. Treasury bonds. Based on the assets described, which item is excluded from both M1 and M2?
  2. Based on the real interest rates shown in the table, assume both countries have open financial accounts and investors respond to real (inflation-adjusted) returns rather than nominal returns. Which statement is most accurate in the short run? Table 8. Real Interest Rates (Annual) - Country P: 3% - Country Q: 0.5%
  3. A country implements a permanent increase in subsidies for postsecondary training in high-demand fields, raising average years of schooling for new labor market entrants. Based on the policy described, which mechanism most directly increases long-run real GDP per capita?
  4. Given a recessionary gap and no new laws passed, which change is an example of an automatic stabilizer that tends to increase aggregate demand in the short run? Table: Stabilization Context - Potential real GDP: 22.022.0 trillion - Actual real GDP: 21.321.3 trillion - Unemployment rate: 7.2%7.2\%
  5. Based on the production data shown, which country has the comparative advantage in coffee? Assume each country can devote all resources to producing either good in a day. Daily Production Possibilities (Maximum Units per Day) - Country Faron: 40 units of coffee or 20 units of bicycles - Country Gilden: 24 units of coffee or 18 units of bicycles
  6. The domestic currency is the U.S. dollar (USD). The Federal Reserve raises its target for the federal funds rate, increasing U.S. interest rates relative to interest rates abroad. Based on the foreign exchange market shown, which of the following best describes the change in the market for USD and the resulting exchange rate (measured as JPY per USD)?
  7. A person holds (i) $300 in currency, (ii) $700 in a checking account, (iii) $5,000 in a savings account, (iv) $1,500 in a money market mutual fund, and (v) $2,000 in U.S. Treasury bonds. Based on the assets described, which asset is included in M2 but not included in M1?
  8. Based on the money market shown, the Federal Reserve increases the nominal money supply from MS1MS_1 to MS2MS_2 (vertical shift right). Interpreting the nominal interest rate as the price of holding money, which statement best describes the movement along the money demand curve MD1MD_1?
  9. Based on the PPC shown for an economy producing civilian goods and military goods, which point represents an efficient outcome?
  10. Based on the loanable funds market shown, the central bank conducts an open-market purchase that increases the money supply. Holding all else constant, what is the most accurate implication for the loanable funds market in the short run? Assume the saving and investment schedules (supply and demand for loanable funds) are unchanged by the operation itself.
  11. If an economy is operating at a point inside its production possibilities curve due to a recession, what is the opportunity cost of increasing the production of one good?
  12. Based on the circular flow model shown, which choice correctly describes how GDP is measured without double counting in this 2-sector economy? DIAGRAM (2-Sector Circular Flow) - Households buy final goods and services from firms in the product market. - Firms hire labor from households in the factor market and pay wages. - Firms may also buy intermediate inputs from other firms to produce final output. Assume there is no government and no foreign sector.
  13. Based on the government budget information shown, the country of Highridge is evaluating whether a deficit is cyclical or structural. Highridge (billions of dollars): - Current year (economy below potential GDP): Spending =1,010= 1{,}010, Revenue =950= 950 - Estimated at potential GDP (holding tax rates and spending programs constant): Spending =990= 990, Revenue =980= 980 - National debt at start of current year =7,800= 7{,}800 Which statement correctly identifies the size of the current-year deficit and the structural deficit, and how the current-year deficit affects the national debt?
  14. Given the recessionary gap described below, which statement best distinguishes a discretionary fiscal action from an automatic stabilizer in the short run? Scenario: A negative demand shock has reduced real GDP below potential.
  15. Based on the AD–AS model shown, firms cut back on planned investment spending due to pessimistic profit expectations, which shifts aggregate demand in the short run. Compared with E1E_1, which outcome occurs at the new short-run equilibrium?
  16. The demand curve for a typical good is downward-sloping primarily due to
  17. Based on the labor market information shown for Tourism Island G, which statement best explains the change in the unemployment rate from Off-Season to Peak Season? Tourism Island G Labor Market (thousands) - Off-Season: Employed 60; Unemployed 6; Not in labor force 14 - Peak Season: Employed 64; Unemployed 2; Not in labor force 14 Hotels and restaurants increase hiring during Peak Season each year.
  18. Based on the production data shown, which country has comparative advantage in computers? Labor Requirements (hours per unit) - Country X: 2 hours per computer or 4 hours per bicycle - Country Y: 3 hours per computer or 3 hours per bicycle
  19. Based on the limited resources facing the economy, the government has a fixed stock of hospital facilities and medical equipment that can support at most 220,000 staffed hospital beds nationwide. During the same period, planners want to allocate capacity to (1) acute-care beds for an aging population requiring 150,000 beds and (2) expanded mental-health inpatient care requiring 90,000 beds. Both targets are desired simultaneously, but the physical capital constraint is binding. Why must the economy make tradeoffs in this scenario?
  20. A country implements a new law that significantly restricts mineral extraction to protect the environment. If these minerals are a key input for both its automotive and electronics industries, what is the immediate effect on its production possibilities curve for cars and electronics?

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