Practice Test 9 - AP Macroeconomics

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

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1. The government increases spending and finances it with new borrowing, increasing the deficit. In the short run, assume saving behavior and foreign capital flows are unchanged. Following the increase in government spending, which change is most likely in the loanable funds market, leading to partial crowding out?
2. A consumer keeps wealth in several forms: $200 in currency, $600 in checking deposits, $3,000 in savings deposits, and $5,000 in long-term municipal bonds. Based on the assets described, which asset is excluded from both M1 and M2?
3. Based on the loanable funds market shown in the table below, an increase in household thrift raises national saving by $100$ (billions of dollars) at each real interest rate. What happens to the equilibrium real interest rate and to private investment (quantity of loanable funds demanded by firms) in equilibrium?
4. Based on the AD–AS model shown, a sudden increase in oil prices raises firms' production costs, shifting short-run aggregate supply in the short run. Compared with the initial equilibrium $E_1$, what happens to the price level and real GDP at the new short-run equilibrium?
5. Based on the labor market information shown for Nation T, which statement best identifies the primary unemployment type emphasized by the scenario? Real GDP falls for two consecutive quarters, firms reduce hours and lay off workers across many industries, and the number of job openings declines broadly. The labor force participation rate is roughly unchanged.
6. Two countries have the following real risk-free interest rates: Home: $r_H=2\%$ and Foreign: $r_F=5\%$. Based on the real interest rates shown, which exchange-rate pressure is most likely in the short run, holding risk and expected future exchange rates constant?
7. Given the economy-wide constraints described, the national labor force is fixed at 50 million workers this year due to demographics and participation limits, and the country cannot expand immigration in the short run. The government plans to staff an additional 2 million workers in public healthcare to meet minimum service standards and an additional 2 million workers in public education to reduce class sizes, while also maintaining 48 million workers in all other sectors to keep current output levels. These staffing targets sum to 52 million workers, exceeding the available labor force. Based on the limited resources facing the economy, which concept best explains the limitation described?
8. Based on the exchange rate shown (quoted as Brazilian reais per 1 U.S. dollar), which statement correctly describes what happened to the U.S. dollar and the purchasing power of U.S. tourists in Brazil? Exchange Rate: BRL per $1 (USD) - Before: 4 BRL per $1 - After: 5 BRL per $1
9. Based on the short-run aggregate supply curve shown, suppose economy-wide nominal wages decline due to renegotiated contracts, lowering firms' per-unit labor costs while many other prices adjust slowly in the short run. Which of the following best describes the shift from $SRAS_1$ to $SRAS_2$ and the short-run effects on the price level and real GDP?
10. Assume the government increases its spending on goods and services and also increases taxes by the exact same amount. What will be the effect on aggregate demand?
11. Which of the following fiscal policy actions would cause a leftward shift in the aggregate demand curve?
12. In Country I, real GDP rises by 3% as technology firms expand. At the same time, the share of total income going to the bottom 40% falls, and measures of housing insecurity increase. Despite the change in GDP, which limitation of GDP is most directly illustrated?
13. Based on the loanable funds market data below, the equilibrium initially occurs at $r=3\%$ and $Q=700$ (billions). If the central bank increases the money supply, which statement best describes the effect on the loanable funds market in the long run (holding saving and investment fundamentals constant)?
14. If a decrease in consumer income causes the demand for canned vegetables to increase, then canned vegetables are considered
15. A country's currency appreciates, and firms report that foreign buyers are switching toward cheaper substitutes produced abroad, while domestic consumers are increasing purchases of imported goods. Exports decline from $1{,}200$ to $1{,}140$ (billions) and imports rise from $1{,}150$ to $1{,}210$ (billions) after a short-run lag. Following the change in the exchange rate, which statement best explains why net exports change?
16. In Country C, firms adopt advanced robotics and AI-based scheduling across multiple industries over a 15-year period. Output per worker rises steadily, and real GDP per capita increases even though the unemployment rate remains near its natural rate. Based on the information shown, which change best describes the long-run macroeconomic effect of these developments?
17. A new pest infests cotton crops across the country, significantly reducing the yield. Since cotton is a primary input for T-shirts, what will be the immediate impact on the market for cotton T-shirts?
18. Based on the money market shown, the Federal Reserve increases the money supply from $MS_1$ to $MS_2$ while money demand remains $MD$. Which statement best describes the change in the equilibrium nominal interest rate in the money market (not the loanable funds market)?
19. Based on the money supply growth shown, assume real GDP growth stays at 3% and velocity is stable in the long run. Which statement correctly distinguishes nominal from real outcomes in the long run? Table: Long-Run Growth Rates (Economy E)

    Variable	Growth rate
    Money supply	9%
    Real GDP	3%

20. In the market for smartphones, if consumer preferences shift strongly in favor of the latest model due to a successful advertising campaign, which of the following will occur in the short run?

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