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Practice Test 12 - AP Macroeconomics

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

  1. Based on the money supply growth shown, assume real GDP growth is stable at 3% per year and velocity is stable in the long run. If the central bank raises sustained money supply growth from 5% to 9%, which long-run change is most consistent with the quantity theory intuition MV=PYMV=PY? Table: Long-Run Growth Rates (Economy B)
    VariableBeforeAfter
    Money supply growth5%9%
    Real GDP growth3%3%
  2. In the short run, planned investment rises by $20 billion due to improved business expectations. Households have MPC =0.60=0.60. Given the change in spending described, what is the most likely total change in real GDP, assuming no other changes?
  3. In Country E, a major hurricane damages homes and infrastructure. In the following year, real GDP increases by 5% as spending on construction, repairs, and replacement of vehicles rises. Many households, however, report that their housing quality and access to services are still below pre-hurricane levels. Despite the change in GDP, which interpretation best explains why GDP may not reflect changes in well-being?
  4. A country's currency depreciates from 1 DU = $1.00 to 1 DU = $0.70. Before the depreciation, exports were $150 billion and imports were $210 billion. One year later, exports are $190 billion and imports are $205 billion. Following the change in the exchange rate, what happens to net exports, and what is the most direct reason?
  5. In Country H, real GDP increased by 2% from 2024 to 2025. However, the share of total income earned by the bottom 40% fell, and the share earned by the top 5% rose, even as total output increased. Despite the change in GDP, which interpretation best explains the tension between GDP and typical household well-being?
  6. As the economy enters a recession, payroll tax collections decline automatically as employment and wages fall, and unemployment insurance benefits rise automatically. With no discretionary fiscal policy action, which outcome is most consistent with the built-in countercyclical effects of automatic stabilizers?
  7. Based on the government budget information shown in the table, which statement correctly describes how the national debt changes across the three years and why? Table 2. State of Pelion: Budget Balances and Debt (billions of dollars) - 2024: Spending =700= 700, Revenue =680= 680, Debt (end of year) =3,000= 3{,}000 - 2025: Spending =690= 690, Revenue =710= 710, Debt (end of year) =2,980= 2{,}980 - 2026: Spending =720= 720, Revenue =720= 720, Debt (end of year) =2,980= 2{,}980 Assume the only change in debt each year comes from that year's budget surplus or deficit.
  8. Based on the labor market information shown for County F, which statement best identifies the primary unemployment type affecting the laid-off workers? County F Labor Market (thousands) - Spring: Employed 240; Unemployed 10; Not in labor force 50 - Summer: Employed 232; Unemployed 18; Not in labor force 50 A local factory permanently closed after automation reduced the need for assembly-line labor, while other industries in the county were stable.
  9. Given the recessionary gap described below, which option correctly identifies an automatic stabilizer that will increase the government budget deficit (or reduce the surplus) in the short run without new legislation? Scenario: Real GDP has fallen below potential, unemployment is rising, and household incomes are declining.
  10. Based on the AD–AS model shown, the economy is initially in a recessionary gap (Y1<Y∗Y_1 < Y^*). Assume there are no policy actions and that adjustment is not instantaneous. As unemployment remains above the natural rate, wages gradually fall. Which of the following describes what happens to the price level and real GDP as the economy moves from the short run to the long run?
  11. Based on the limited resources facing the economy, Country D has a legally binding debt limit that caps total annual government outlays at $900 billion given projected tax revenue and borrowing constraints. The government plans to use the same fiscal capacity for (i) $500 billion in national defense modernization and (ii) $450 billion in universal childcare and early education, while also (iii) maintaining $200 billion in existing infrastructure maintenance. The sum of planned outlays is $1.15 trillion, which exceeds the $900 billion cap. Which fundamental economic problem is illustrated by this situation?
  12. An economy produces public goods and private goods. Based on the PPC shown, the economy moves along the frontier from point U to point V to increase private goods. What is the opportunity cost of this change?
  13. For short-run stabilization, the central bank increases the reserve requirement as part of a contractionary monetary policy. With liquidity preference unchanged, banks must hold more reserves relative to deposits, reducing their ability to create loans and decreasing the money supply. Based on the monetary policy action shown, which implication is most likely in the short run?
  14. A mortgage loan is made at an 8% nominal interest rate when inflation is expected to be 3%. If actual inflation turns out to be 1%, what was the actual real interest rate paid by the borrower?
  15. If expected inflation is 3% and lenders want to earn a real return of 2%, what nominal interest rate should they charge?
  16. Based on the labor market information shown for Country I, which statement best identifies the unemployment type most directly affecting the unemployed workers? Country I Labor Market - Current month: Employed 30 million; Unemployed 1.5 million; Not in labor force 10 million A large share of the unemployed are workers who left jobs voluntarily to relocate and are interviewing with multiple firms, while overall real GDP is steady.
  17. The domestic currency is the British pound (GBP). Investors expect the United Kingdom to experience lower future profitability, reducing expected returns on U.K. assets. Based on the foreign exchange market shown, which outcome is most consistent with the change? Assume the exchange rate is measured as USD per pound (USD/GBP)\text{USD per pound (USD/GBP)}.
  18. The domestic currency depreciates from 1.00 domestic unit per euro to 1.20 domestic units per euro. In the first quarter after the depreciation, exports remain at $120 billion and imports remain at $130 billion because many trade contracts are fixed in the short run; by the fourth quarter, exports rise to $135 billion and imports fall to $120 billion. Following the change in the exchange rate, which statement best describes the short-run versus later effect on net exports (NX)?
  19. A country experiences a deep recession in 2015 and then a strong recovery in 2016–2017. However, over 2000–2020, real GDP per capita rises steadily as businesses expand the capital stock through sustained investment, and productivity improves slightly as workers learn to use new equipment. Based on the information shown, which statement best describes the increase in real GDP per capita from 2000 to 2020?
  20. Based on the AD–AS model shown, the economy is initially in an inflationary gap. Assume no policy action. Wages and prices are flexible in the long run. Which of the following correctly describes the change in SRAS and the long-run change in real GDP and the price level?

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