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AP Macro

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Unit 3

3.11 MC Answers and Review

6 min read•december 7, 2021

AP Macroeconomics 💶

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Answers and Review for Multiple Choice Practice on National Income and Price Determination

⛔STOP ! ⛔ Before you look at the answers, make sure you gave this practice quiz a try so you can assess your understanding of the concepts covered in Unit 3. Click here for the practice questions: AP Macro Unit 3 Multiple Choice Questions.

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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. The aggregate demand curve is downward sloping because of the ____________ relationship between price level and real GDP.

A. positive

B. inverse

C. non-existent

D. double

Answer: When the price level is high, real GDP is lower, and vice versa.

📄 Study AP Macroeconomics, Unit 3.1: Aggregate Demand

2. Which of the following will result in a leftward shift of the aggregate demand curve?

A. A decrease in net exports.

B. An increase in net exports.

C. A decrease in the price of materials.

D. An increase in the price of materials.

Answer: Net exports are a component of AD.

📄 Study AP Macroeconomics, Unit 3.1: Aggregate Demand

3. Which of the following will produce movement along the AD curve?

A. an increase in household income

B. a change in price

C. a decrease in the availability of key resources

D. a change in the price level

Answer: Changes in price levels do not shift the AD curve, but only cause movement along it.

📄 Study AP Macroeconomics, Unit 3.1: Aggregate Demand

4. During a particular recessionary period, government economists calculate the recessionary gap at $800 million. If MPC is .5 and there is no crowding out, what government should:

A. decrease taxes by $900 million

B. increase spending by $400 million

C. increase taxes by $200 million

D. decrease spending by $250 million

Answer: To determine the answer, calculate the MPS and spending multiplier: MPS = .5; spending multiplier = 1/.5 = 2. Next, divide the negative output gap of $800 million by the spending multiplier 2 = $400 million increase in government spending

📄 Study AP Macroeconomics, Unit 3.2: Spending and Tax Multipliers

5. Which of the following would have the smallest expansionary effect on AD in the short run?

A. an increase in net exports

B. a decrease in government spending

C. a decrease in consumer consumption

D. A decrease in taxes

Answer: Taxes have a smaller expansionary effect on AD than spending because the tax multiplier is always one less than the spending multiplier; a change in taxes does change disposable income, but people will spend AND save some of it (as opposed to spending 100% of the amount).

📄 Study AP Macroeconomics, Unit 3.2: Spending and Tax Multipliers

6. If labor becomes more productive,

A. the short-run aggregate supply curve will shift to the left

B. the aggregate demand curve will shift to the right

C. the short-run aggregate supply curve will shift to the right

D. the aggregate demand curve will shift to the left

Answer: Productivity and technology is a shifter of short-run aggregate supply (RAP - resource availability and quality, government action, productivity, and technology)

📄 Study AP Macroeconomics, Unit 3.3: Short-Run Aggregate Supply (SRAS)

7. Which of the following is true for the long run?

A. wages and prices are flexible

B. unemployment increases

C. wages and prices are sticky

D. price levels always increase

Answer: In the long run, wages and prices adapt to changes in the price level.

📄 Study AP Macroeconomics, Unit 3.4: Long-Run Aggregate Supply (LRAS)

8. If nominal wages are adjusted immediately to changes in the price level,

A. the short-run aggregate supply curve would be vertical

B. the unemployment rate would sharply increase

C. the short-run aggregate demand curve would not exist

D. monetary policy would be rendered ineffective

Answer: The SRAS would be vertical in this case because a change in the price level would not affect a producer's short-run ability to produce more with sticky wages.

📄 Study AP Macroeconomics, Unit 3.3: Short-Run Aggregate Supply (SRAS)

9. If an economy is operating above full employment output,

A. there is no equilibrium.

B. the equilibrium of LRAS is under the AD curve.

C. the equilibrium of the SRAS and AD curves is located on the LRAS curve

D. the equilibrium of the SRAS and AD curve is to the right of the LRAS curve.

Answer: This scenario would create a positive output gap (A.K.A. inflationary gap), where the LRAS curve is to the left of the SRAS/AD equilibrium.

📄 Study AP Macroeconomics, Unit 3.5: Equilibrium in Aggregate Demand-Aggregate Supply (AD-AS) Model

10. If an economy is at full employment equilibrium, which of the following would lead to stagflation?

A. a leftward shift of the aggregate demand curve only

B. a leftward shift of the short-run aggregate supply curve only

C. a rightward shift of the short-run aggregate supply curve only

D. a rightward shift in both the short-run aggregate supply curve and the aggregate demand curve

Answer: A leftward shift of the SRAS would result in an increase in price level AND a decrease in real GDP, both of the requirements for stagflation.

📄 Study AP Macroeconomics, Unit 3.5: Equilibrium in Aggregate Demand-Aggregate Supply (AD-AS) Model

11. When the long-run aggregate supply curve shifts to the right, which of the following has occurred?

A. a rise in the price level

B. a rise in unemployment

C. economic growth

D. economic shrinkage

Answer: Investment and new technology (better productivity) due to an increase in capital stock will allow the LRAS curve to shift rightward, creating economic growth.

📄 Study AP Macroeconomics, Unit 3.4: Long-Run Aggregate Supply (LRAS)

12. If an economy is in long-run equilibrium, a shift in the AD curve will change

A. both the price level and inflation in the long run

B. only the price level in the long run

C. only the output level in the long run

D. neither the price level or the output level in the long run

Answer: Real GDP output will remain the same after the shift, but price level will increase (when in doubt, graph it out!)

📄 Study AP Macroeconomics, Unit 3.7: Long-Run Self-Adjustment

13. If the government wanted to use discretionary fiscal policy to reduce inflation in the short run, it would

A. increase taxes or decrease government spending

B. decrease taxes or increase government spending

C. increase both taxes and government spending

D. decrease both taxes and government spending

Answer: By increasing taxes, consumers and businesses would spend less because of a decrease in disposable income, reducing AD. A reduction in government spending would reduce the G component of AD.

📄 Study AP Macroeconomics, Unit 3.8: Fiscal Policy

14. Expansionary fiscal policy could include

A. an increase in exports

B. an increase in taxes

C. a decrease in consumer spending

D. a decrease in taxes

Answer: Expansionary fiscal policy aims to increase AD and shift it to the right; decreasing taxes increases disposable income, which would then increase AD.

📄 Study AP Macroeconomics, Unit 3.8: Fiscal Policy

15. An example of a transfer payment that could be used as a non-discretionary fiscal policy during a recession is

A. unemployment insurance

B. international trade relationships

C. education programs

D. bank balance sheets

Answer: Unemployment insurance is built into our economy, and kicks in whenever unemployment exists. If we were suffering from cyclical unemployment, unemployment insurance would provide citizens with money during their job search to continue paying bills and spending in the economy.

📄 Study AP Macroeconomics, Unit 3.8: Fiscal Policy

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