Practice Test 4 - 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 enacts a temporary countercyclical fiscal policy in 2026. Spending rises from $4.7$ trillion to $5.1$ trillion while tax revenue stays at $4.8$ trillion. The national debt at the start of 2026 is $31.5$ trillion. Ignoring interest, which statement best interprets the short-run deficit and the long-run debt implication?
As the economy enters an expansion, real GDP increases and unemployment falls. Without any new legislation, income tax revenues rise and spending on unemployment benefits declines. Which statement best describes the countercyclical effect of these automatic stabilizers on aggregate demand (AD) in the short run?
Based on the short-run aggregate supply curve shown, SRAS shifts from SRAS1 to SRAS2 after a pandemic reduces labor availability and raises firms' costs, while wages and many input contracts adjust slowly in the short run. Which statement best describes the short-run macroeconomic effects implied by the shift?
Given the inflationary gap described below (short run), the government considers a discretionary cut in government purchases. Which short-run effect is most consistent with the AD–AS model? Assume the policy is not perfectly precise. Potential output is $Y^* = 25.0$ trillion and current real GDP is $25.8$ trillion. The price level is rising rapidly.
Based on the limited resources facing the economy, a country has 6 million hectares of irrigated farmland and a fixed water allocation that cannot be expanded in the next decade. The same land and water can be used for (1) staple grains for domestic consumption or (2) water-intensive export crops. Agricultural planners estimate that meeting domestic grain targets requires 4.5 million hectares, and meeting export targets requires 3.0 million hectares, but both targets are desired simultaneously. Given the economy-wide constraints described, which fundamental economic problem is illustrated by this situation?
Based on the circular flow model shown, GDP can be measured by summing which set of flows in this 2-sector economy (no government, no foreign sector)? DIAGRAM (2-Sector Circular Flow) - Product market: households buy final goods and services from firms; households make consumption spending. - Factor market: households sell labor to firms; firms pay wages and other income to households. Assume there is no investment, no depreciation, and no indirect business taxes in this simplified model.
Consider a short-run deficit-financed increase in government spending. The government borrows an additional $300$ billion. Following the increase in government spending, which explanation best identifies the mechanism behind crowding out rather than a multiplier effect?
Based on the AD–AS model shown, the central bank conducts an open-market purchase that increases the money supply, which shifts aggregate demand in the short run. Which statement correctly compares the initial equilibrium $E_1$ with the new short-run equilibrium?
Given the inflationary gap shown by the data below (Real GDP is above potential), which discretionary fiscal action is most appropriate to stabilize the price level in the short run? Table: Selected Macroeconomic Indicators (Quarterly) - Potential real GDP: $18.0$ trillion - Actual real GDP: $18.7$ trillion - Unemployment rate: $3.4\%$ - Inflation rate: $5.6\%$
As the economy enters a recession, real GDP falls from $20.0$ trillion to $19.0$ trillion and unemployment rises. With no new laws passed, which change is most consistent with automatic stabilizers and their built-in countercyclical effects on aggregate demand (AD) in the short run?
Based on the AD–AS model shown, the economy moves from equilibrium E1 to equilibrium E2 after short-run aggregate supply shifts from SRAS1 to SRAS2. Which of the following events is most consistent with the shift shown?
Based on the AD–AS model shown, the economy begins in a recessionary gap ( $Y_1 < Y^*$ ). Assume there are no policy actions. As the economy self-adjusts over time, which of the following changes is most consistent with wage and price flexibility restoring long-run equilibrium?
As the economy enters an expansion, real GDP rises and unemployment falls. With no discretionary policy action, which outcome is most consistent with automatic stabilizers and the resulting change in the budget balance?
Following the increase in government spending, a deficit-financed stimulus in Country A raises government borrowing. In the short run, the real interest rate increases. Which mechanism most directly links the higher real interest rate to a decline in private investment spending?
Based on the PPC shown, which change would cause the PPC to shift outward for an economy producing present consumption and future consumption?
Based on the exchange rate shown, assume Brazil is the domestic economy and the exchange rate is quoted as Brazilian reais (BRL) per $1. The exchange rate changes from $1 = 2 BRL in Semester 1 to $1 = 4 BRL in Semester 2. Which statement correctly identifies the change and the likely effect on the BRL price of U.S.-made capital equipment sold in Brazil (priced in dollars), holding other factors constant?
Based on the loanable funds market shown in the graph, the economy experiences a surge in consumer confidence that reduces household saving at each real interest rate. Holding investment demand constant, which outcome is most consistent with the model? The market starts at equilibrium $E_1$ , with a real interest rate of 4% and 350 in loanable funds.
A nation's nominal GDP increases from $200 billion to$ 210 billion, while the GDP deflator increases from 100 to 105. Which of the following is true regarding its real GDP?
A sharp increase in the price of imported microchips raises production costs for domestic electronics firms, and many prices are sticky in the short run. Based on the short-run aggregate supply curve shown, which option correctly identifies the determinant of SRAS responsible for the shift from $SRAS_1$ to $SRAS_2$ and the short-run effects on the price level and real GDP?
Based on the money market shown, households increase their demand for liquidity (money demand shifts from $M_d^1$ to $M_d^2$ ) due to greater uncertainty about future income. With the nominal money supply fixed at $M_s$ , what happens to the equilibrium nominal interest rate? Assume the interest rate is the price of holding money, so higher $i$ increases the opportunity cost of holding money.

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