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AP Macro Review Unit 5 Inflation, Unemployment, and Stabilization Policies.

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Presentation on theme: "AP Macro Review Unit 5 Inflation, Unemployment, and Stabilization Policies."— Presentation transcript:

1 AP Macro Review Unit 5 Inflation, Unemployment, and Stabilization Policies

2 1. Which of the following illustrates a contractionary fiscal policy? a)An increase in taxation and a decrease in government spending b)An increase in taxation and an increase in government spending c)A decrease in taxation and a decrease in government spending d)No change in taxation and an increase in government spending e)An increase in taxation and no change in government spending

3 2. If the U.S. government wanted to increase aggregate demand by $50 billion and the MPS is 0.4, then it should: a)Increase government spending by $20 billion b)Increase government spending by $10 billion c)Decrease government spending by $20 billion d)Decrease government spending by $10 billion e)Increase taxes by $20 billion

4 3. If the United States is experiencing a deficit, and a course of action is to issue new money, a)The crowding out effect may be avoided b)The crowding out effect is unavoidable c)Interest rates will increase d)Interest rates will decrease e)None of the above

5 4. As a result of a progressive tax system, as income increases, the average tax rate will: a)Increase b)Decrease c)Increase at first and then gradually level off d)Decrease at first and then gradually level off e)Remain the same

6 5. Suppose the U.S. economy is at a potential GDP. If there is an increase in the money supply: a)Hyperinflation will result b)Stagflation will result c)Depreciation will result d)Demand-pull inflation will result e)Cost-push inflation will result

7 6. One advantage of monetary policy over fiscal policy is: a)The speed at which it can be implemented b)The regulation of taxes and government spending c)The slow, methodical, and thoughtful pace at which it can be implemented d)Its effectiveness on aggregate supply over aggregate demand e)A and B

8 7. Imagine the economy is experiencing high unemployment and a low rate of economic growth. What policy should the Federal Reserve follow? a)Pursue an easy money policy and sell government securities b)Pursue a tight money policy and sell government securities c)Pursue a tight money policy and buy government securities d)Pursue an easy money policy and raise the reserve ratio e)Pursue an easy money policy and buy government securities

9 8. Suppose you read a Wall Street Journal article that states the Federal Reserve will lower the discount rate for the third time this year. According to this article, the Federal Reserve is trying to: a)Reduce inflation b)Increase inflation c)Stimulate the economy d)Aid the U.S. Treasury e)Increase checkable deposits

10 9. Cost-push inflation refers to: a)An increase in the price level from an increase in the cost of production b)Aggregate demand moving at a quicker pace than aggregate supply, thus an increase in price c)Aggregate demand moving at a slower pace than aggregate supply, thus an increase in price d)An increase in prices brought on by a discovery of a new resource or new technology e)The increase in the price level due to hyperinflation

11 10. The main purpose of a built-in stabilizer is to: a)Increase the government surplus during a recession without changing policy b)Increase or decrease the government surplus without changing policy c)Decrease the government surplus during inflation without changing policy d)Increase or decrease the government surplus with a fast-pace change in policy e)Bring the economy to full employment without changing policy

12 11. Suppose there is a leftward shift in aggregate demand due to an increase in interest rates as a result of expansionary fiscal policy. This is known as: a)The crowding out effect b)An inflationary gap c)A recessionary gap d)Cost-push inflation e)Demand-pull inflation

13 12. The average number of times per year a dollar is spent is known as: a)The quantity theory of money b)Cost-push inflation c)The velocity of money d)The capital account e)The rate of inflation

14 13. The Phillips curve examines the relationship between: a)Aggregate demand and aggregate supply b)Fiscal policy and monetary policy c)Inflation and unemployment d)Inflation and cyclical unemployment e)Recessionary gaps and inflationary gaps

15 Answer Key 1)A 2)A 3)A 4)A 5)D 6)A 7)E 8)C 9)A 10)B 11)A 12)C 13)C


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