Multiple Choice Practice for Long-Run Consequences of Stabilization Policies

Welcome to Unit 5 AP Macroeconomics Multiple Choice Questions! Grab some paper and a pencil 📄 to record your answers as you go. You can see how you did on the Unit 5 Practice Questions Answers and Review sheet once you're done. Don't worry, we have tons of resources available if you get stumped 😕 on a question. And if solo study is not your thing, join a group in Hours!

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Facts about the test: The AP Macroeconomics exam has 70 multiple choice questions and you will be given 1 hour to complete the section. That means it should take you around 8 minutes to complete 10 questions.

*The following questions were not written by College Board and, although they cover information outlined in the AP Macroeconomics Course and Exam Description, the formatting on the exam may be different.

1. If a government wanted to achieve a reduction in inflation, it should:

A. decrease taxes and sell government bonds

B. increase taxes and buy government bonds

C. increase taxes and sell government bonds

D. decrease taxes and buy government bonds

2. During a severe recession, which combination of government policies would be most effective in correcting economic problems?

A. increase taxes and increase the money supply

B. decrease taxes and decrease the money supply

C. increase taxes and decrease the money supply

D. decrease taxes and increase the money supply

3.  If aggregate demand increased, which of the following would occur?

A. movement along the short-run Phillips curve

B. movement along the long-run Phillips curve

C. a leftward shift of the long-run Phillips curve

D. a rightward shift of the long-run Phillips curve

4. The long-run Phillips curve . . .

A. is shifted left only when capital stock increases

B. is horizontal at full employment

C. is vertical at full employment

D. has an inverse relationship with the aggregate demand curve

5. The short-run Phillips curve tells us that lower inflation rates are associated with . . .

A. the natural rate of unemployment

B. lower unemployment rates

C. frictional unemployment

D. higher unemployment rates

6. Hyperinflation can be caused by:

A. expanding aggregate demand

B. exponential growth of the money supply

C. increased investment

D. sustainable economic growth

7. If an expansion of the money supply creates an increase in aggregate demand, in the long run the economy would see:

A. a decrease in nominal output and price level

B. an increase in nominal output and a decrease in price level

C. an increase in nominal output and price level

D. a decrease in nominal output and an increase in price level

8. The quantity theory of money tells us that if the economy is operating at full employment output, and there is a substantial increase in the money supply, there would also be an increase in:

A. price level

B. nominal interest rates

C. unemployment

D. investment

9. A budget deficit exists when . . .

A. government spending ceases to occur

B. tax revenue exceeds government spending

C. tax revenue is magnified by the spending multiplier

D. government spending exceeds tax revenue

10. We can think of the US national debt as:

A. money the US government keeps in required reserves

B. money the US government spends on healthcare and city planning

C. money the US government pays to recipients of transfer payments

D. money the US government owed to holders of US securities

11. Crowding out is when:

A. unemployment of older workers decreases because they are replaced by younger workers

B. there is a decrease in consumption and/or private investment due to an increase in government spending

C. the money supply is pushed to its maximum supply levels

D. businesses refuse to pay for transfer payments

12. Which of the following would have to increase to result in an increase in a country's long-run growth rate of real per-capita income?

A. income taxes

B. citizens' education level

C. population

D. deficit spending

13. The crowding-out scenario would usually occur with:

A. an increase in per-capita income

B. stagflation

C. a decrease in the availability of substitutes

D. government deficit spending

14. Reducing demand-pull inflation in the short run will likely result in:

A. inflation

B. GDP per-capita

C. investment spending

D. unemployment

15. An increase in which of the following would most likely cause an increase in worker productivity in the long run?

A. unemployment

B. capital stock

C. interest rate

D. deficit spending

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