Practice Test 11 - AP Macroeconomics

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

In the short run, the economy is experiencing a recessionary gap (real GDP is below potential and unemployment is rising). The government passes a fiscal policy package that increases government purchases (G) by $50\text{ billion}$ and increases personal income taxes (T) by $20\text{ billion}$ , causing the budget deficit to increase. Following the change in government spending/taxes, which outcome is most likely in the short run?
Country E's currency appreciates from $1.00 = \text{E}\$1.50$ to $1.00 = \text{E}\$1.80$ . Before the appreciation, exports were $\text{E}\$90$ billion and imports were $\text{E}\$70$ billion. After the appreciation, exports are $\text{E}\$84$ billion and imports are $\text{E}\$78$ billion. Following the change in the exchange rate, which statement correctly interprets the change in net exports (trade balance) without treating a deficit as inherently bad?
A country's real GDP per capita grows from $20,000 to $28,000 over 30 years. During the same period, the government expands access to secondary education and job training, raising average years of schooling and measured labor productivity. Based on the information shown, which change most directly explains the long-run increase in real GDP per capita?
To support short-run stabilization, the central bank uses interest rate targeting and announces it will lower its target for the nominal federal funds rate. It then conducts open market purchases to achieve the target. Based on the monetary policy action shown, which implication is most likely in the short run?
Based on the real interest rates shown in the table, assume investors can buy bonds in either country without transaction costs and that both bonds are equally risky. Which statement best links the real-rate difference to capital flows and the exchange rate in the short run? Table 5. Real Interest Rates (Annual) - Country U: 5% - Country V: 2%
Based on the real interest rates shown in the table (assume equal risk and high capital mobility), which statement best describes capital inflows/outflows and the exchange rate? Table 5. Real Interest Rates - Country Z: $r=4\%$ - Country W: $r=-2\%$
Given the recessionary gap described below, which short-run outcome is most likely if the government enacts an expansionary discretionary fiscal policy but faces a long implementation lag? Assume prices are sticky in the short run. - Potential real GDP: $22.0$ trillion - Actual real GDP: $21.0$ trillion - Unemployment rate: $8.0\%$
Given the economy-wide constraints described, Country C has a fixed annual electricity generation capacity of 400 terawatt-hours (TWh) due to limited natural gas supply and grid constraints, and it also has limited physical capital for rapid expansion of generation. The government wants to allocate electricity to (i) electrify public transit systems to reduce fuel imports and (ii) power a large-scale expansion of data centers to increase export revenues, while also (iii) maintaining current household and industrial electricity use. Projections show that meeting current use requires 360 TWh, electrifying transit requires 80 TWh, and expanding data centers requires 90 TWh, for a total of 530 TWh demanded against 400 TWh available. Which concept best explains the limitation described?
In an economy experiencing inflation, the inflation rate is 5% per year for several years. Some prices (like gasoline) change daily while other prices (like annual subscriptions) change once per year, causing measured price changes to vary widely across goods at any point in time. Households spend more time comparing prices across stores to determine whether a price increase reflects a true relative price change. Why does inflation create inefficiency in this scenario?
If policymakers wish to use fiscal policy to increase aggregate demand, which of the following actions would be most appropriate?
Based on the production data shown, which statement about trade is correct? Production Possibilities (maximum units per day) - Country A: 36 rice or 18 bicycles - Country B: 20 rice or 16 bicycles
Based on the exchange rate shown, assume the euro area is the domestic economy and the exchange rate is quoted as U.S. dollars per €1. The exchange rate changes from €1 = $2 in Quarter 1 to €1 = $1 in Quarter 2. Which statement correctly describes the change in the euro and the effect on the dollar price of euro-area exports to the United States (priced in euros), holding other factors constant?
Based on the balance of payments information shown for Country G in 2025 (all values in billions of dollars, $$), which set of account balances is correct? Use $CA + FA = 0$ and ignore the capital account. Transactions for Country G (2025): Exports of goods and services: +$140; Imports of goods and services: −$100; Income received from abroad: +$3; Income paid to foreigners: −$13; Foreigners buy Country G corporate bonds: +$5; Country G residents buy foreign bonds: −$35.
As the economy enters a recession, household incomes fall and more workers become eligible for unemployment insurance. No discretionary fiscal policy is enacted. Which option best distinguishes an automatic stabilizer from discretionary fiscal policy in this situation?
Based on the balance of payments information shown for Country F (values in billions of dollars), what must be the value of the net financial account balance (FA) to satisfy the accounting identity $CA + FA = 0$ (ignore the capital account)?
A country's currency depreciates from 5 krona per dollar to 6 krona per dollar. Before the depreciation, exports were $90 billion and imports were $110 billion. After one year, exports are $105 billion and imports are $100 billion. Following the change in the exchange rate, which statement correctly interprets the change in net exports (NX) without treating a trade deficit as inherently bad?
In an economy experiencing inflation, the overall price level rises steadily at about 4% per year for several years, but some firms adjust prices weekly while others adjust prices only once per year due to long-term contracts. Consumers spend more time searching for bargains because posted prices across stores become less comparable. Which cost of inflation is most directly illustrated?
If bus travel is considered an inferior good, what is the likely effect of a significant decrease in average consumer income on the demand for bus travel?
Given the reserve requirement ( $rr$ ) is 20% and an initial deposit of $\$1{,}000$ is made into Bank A, assume banks hold no excess reserves and there is no currency drain (all loan proceeds are redeposited). What is the maximum total increase in the money supply (checkable deposits) that can result from this initial deposit?
The law of demand states that, ceteris paribus, which of the following relationships exists?

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