Practice Test 8 - AP Macroeconomics

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

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1. In the market for coffee, a popular new diet promotes drinking three cups per day. At the same time, ideal weather conditions lead to a record coffee bean harvest. Which of the following is the certain outcome in the coffee market?
2. A government increases spending and finances it by issuing bonds. In the short run, the real interest rate rises from 2% to 4%, and private investment falls from $600 billion to $560 billion. Following the increase in government spending, which statement best describes the crowding out shown by these changes?
3. Based on the balance of payments information shown for Country A in 2025 (values in billions of dollars), which statement correctly identifies the current account balance and the offsetting financial account balance, consistent with the accounting identity $CA + FA = 0$? Transactions (billions): exports of goods $+80$, imports of goods $-100$, exports of services $+30$, imports of services $-20$, income received from abroad $+10$, income paid to foreigners $-5$, net purchases of Country A bonds by foreigners $+15$, Country A residents' purchases of foreign stocks $-10$.
4. Two economies, X and Y, each increase government purchases by $20 billion in the short run. Economy X has an MPC of $0.9$, while Economy Y has an MPC of $0.6$. Given the change in spending described, which outcome is most consistent with the multiplier model when saving is the main leakage?
5. Based on the government budget information shown, the government of Northgate considers the long-run implications of debt service. Northgate (billions of dollars): - National debt at start of year $= 10{,}000$ - Average interest rate on government debt $= 3\%$ - Primary budget (excluding interest): Spending $= 1{,}500$, Revenue $= 1{,}500$ Assume the government finances any shortfall by issuing new debt. Which statement correctly identifies the overall budget balance and its effect on the national debt for the year?
6. In an economy experiencing inflation, the inflation rate is steady at 4% per year for several years. A grocery chain prints new shelf tags and updates its register system every month to keep up with rising costs and prices, paying staff overtime and temporarily closing aisles during updates. Which cost of inflation is most directly illustrated?
7. A shortage exists in a market for a good when
8. Given a reserve requirement of $rr=25\%$, a customer deposits $800 in Bank A. Bank A lends out all excess reserves, and each loan is fully redeposited into the banking system (no currency drain). Which statement best explains why the money supply can increase in this process?
9. In an economy with only households and firms, which item is excluded from GDP because it is an intermediate good rather than a final good?
10. Given the recessionary gap described below (short run), which policy is discretionary expansionary fiscal policy rather than an automatic stabilizer? Assume no monetary policy changes. Potential output is $Y^* = 3.0$ trillion and current real GDP is $2.8$ trillion. Unemployment is rising, and tax revenue is falling automatically as incomes decline.
11. In a 2-sector circular flow model (households and firms only), which item is correctly identified as a flow that counts toward GDP? Assume all goods mentioned are newly produced final goods unless stated otherwise.
12. A demographic shift resulting in a larger proportion of the population being over the age of 65 would most likely result in which of the following?
13. Consider a simple economy made up only of households and firms. Which transaction increases GDP?
14. Based on the short-run aggregate supply curve shown, suppose a pandemic reduces labor availability and disrupts supply chains, raising per-unit costs while nominal wages and many prices do not adjust quickly in the short run. Which option correctly identifies the SRAS determinant and the short-run direction of changes in the price level and real GDP?
15. Based on the production data shown, which country has the comparative advantage in corn? Assume each country can devote all of its resources to producing only one good per week. Country P can produce either 15 bushels of corn per week or 5 barrels of honey per week. Country Q can produce either 9 bushels of corn per week or 6 barrels of honey per week.
16. Country D's currency depreciates by 10% against its major trading partners. Policymakers note that, due to time lags, firms take time to find new suppliers and adjust production, so import spending does not fall immediately even though imports become more expensive. Following the change in the exchange rate, which statement best describes the short-run effect on exports, imports, and net exports using price competitiveness and time-lag awareness?
17. In the short run, the government increases spending and finances it by borrowing, increasing the deficit. Assume private saving does not change. Following the increase in government spending, which statement best describes how the role of interest rates can lead to partial crowding out rather than complete crowding out?
18. In a 2-sector economy, a firm produces and sells $100 of final goods to households. To make those goods, it buys $60 of intermediate inputs from another firm. What total amount is added to GDP from this production chain? Assume all transactions occur in the current year and there is no government or foreign sector.
19. Country F reports real GDP (in billions of chained dollars) and private investment (in billions) for selected quarters. Based on the data shown, which business cycle phase best describes 2023:Q1? Data: 2022:Q3 real GDP = 21,000; investment = 3,200. 2022:Q4 real GDP = 20,900; investment = 3,050. 2023:Q1 real GDP = 20,700; investment = 2,800. 2023:Q2 real GDP = 20,650; investment = 2,750.
20. In Country S, the exchange rate changes from 3.0 S-units per 1 U.S. dollar to 2.4 S-units per 1 U.S. dollar (an appreciation of the S-unit). Country S exports domestically produced textiles and imports foreign-produced machinery. Assume demand is responsive to relative prices, with a short-run lag in adjusting quantities. Following the change in the exchange rate, which combination is most likely for exports, imports, and net exports (NX)?

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