AP Macroeconomics: Unit V Test (Chapters 17-20)



AP Macroeconomics: Unit VI & VII Test (Economic Growth & Global Economics)

[Chapter 17 , 25, 34 & 35]

Instructor: Mr. Attaway, Room 258

For this test, you will need to fill in your answers on a Scantron sheet. You MUST use a #2 pencil for the test. You will need to turn in this booklet and the Scantron sheet to receive credit for this test. Good luck!

Directions: Each of the questions or incomplete statements below is followed by five suggested answers Select the one that is best in each case and then fill in the corresponding oval on the answer sheet. Three (3) points each.

[Use the following scenario to answer questions 1 and 2.]

Scenario: Suppose that the current RGDP per capita of the U.S. is $32,000, and its growth rate is two percent per year. Assume that the RGDP per capita of China is $4,000, and its annual growth rate is seven percent.

1. How long will it take for the RGDP per capita of the U.S. to double?

a. 35 years. c. 2.25 years. e. 50 years.

b. 10 years. d. 14 years.

2. How long will it take for the RGDP per capita of China to double?

a. 35 years. c. 2.25 years. e. 50 years.

b. 10 years. d. 14 years.

3. Long-run economic growth depends almost entirely on

a. labor productivity growth.

b. population growth.

c. agricultural production growth.

d. number of hours worked.

e. none of the above.

4. Human capital is

a. the improvement in labor created by education and knowledge that is embodied in the work force.

b. the machinery and tools that each individual worker owns.

c. robots that can perform tasks that only humans could do in the past.

d. all of the above.

e. none of the above.

5. A relatively low saving rate affects productivity growth by

a. deriving investment spending of the funds needed to increase the physical capital.

b. promoting consumption spending and depriving investment in human capital of the funds needed for tuition.

c. reducing the tax base and preventing the government from providing public goods.

d. stimulating imports and increasing the trade deficit.

e. none of the above.

6. The convergence hypothesis says that international differences in GDP per capita tend to

a. narrow over time.

b. expand over time.

c. remain steady over time.

d. tend to narrow and then expand over time.

e. none of the above.

7. According to the classical model

a. the aggregate supply curve is horizontal.

b. increases in the money supply lead to proportional increases in the price level, but no change in real output.

c. increases in the money supply lead to proportional increases in output, but no change in the price level.

d. we are all dead in the long run.

e. none of the above.

8. There may NOT have been business cycles in the United States before the year 1854 because

a. the country was growing too rapidly to have a recession.

b. the banking system established by the Alexander Hamilton prevented business cycles.

c. monetary policy conducted by the Fed was very successful.

d. the economy was a rural, agricultural economy.

e. none of the above.

9. At the time of the Great Depression, there was

a. general agreement that monetary policy could help in the short run.

b. no widely accepted theory on why depressions happened.

c. general agreement that fiscal policy could help in the short run.

d. a consensus about what economic policies to adopt.

e. none of the above.

10. Because Keynes’ theory mostly stressed the short run, it

a. perceived the economy as being mostly self-adjusting.

b. favored the use of monetary policy over fiscal policy.

c. considered technological progress the answer to any economic slump.

d. favored the use of fiscal policy over monetary policy.

e. none of the above.

11. Rational expectations suggests people and firms

a. base their expectations on the recent past.

b. base their expectations on government announcements.

c. base their expectations on “animal spirits.”

d. take all available information into account when forming their expectations.

e. all of the above.

12. According to supply-side economics, tax cuts

a. cause dangerous budget deficits.

b. unfairly sacrifice equity in favor of efficiency.

c. increase incentives to work and save and cause increases in potential output.

d. increase output by directly increasing aggregate demand.

e. none of the above.

13. Which of the following was a proponent of supply-side economics?

a. Ronald Reagan. c. Friederick von Hayek. e. All of them.

b. Margaret Thatcher. d. Milton Friedman.

14. France and England both produce wine and cloth under conditions of constant opportunity costs. France can produce 150 units of wine if it produces no cloth, and 100 units of cloth if it produces no wine. England can produce 50 units of wine if it produces no cloth, and 100 units of cloth if it produces no wine. Using this information, one can conclude that

a. France has a comparative advantage in cloth production.

b. England has a comparative advantage in cloth production.

c. France has a comparative advantage in both goods.

d. mutually beneficial international trade is not possible.

e. none of the above.

15. If Japan levies tariffs on American goods entering Japan, this will tend to

a. benefit both Japanese and American producers.

b. damage American producers and benefit Japanese producers.

c. benefit American producers and damage Japanese producers.

d. damage both American and Japanese producers.

e. none of the above.

16. An example of an import quota is a

a. limit on the total number of Honda automobiles imported from Japan.

b. regulation specifying that each imported Honda automobile must meet certain emission exhaust guidelines.

c. tax of $500 in each Honda automobile produced in the United States.

d. tax of ten percent of the value of each Honda automobile imported from Japan.

e. all of the above.

17. In 2002 the steel industry argued that higher tariffs on steel were necessary to help fight the war on terrorism. This is an example of

a. the infant-industry argument. c. the job creation argument. e. none of the above.

b. the national security argument. d. the predatory pricing argument.

18. According to the infant industry argument for import protection, such protection is needed because

a. foreign workers are often paid less than American workers.

b. it enables our protected industries to achieve technological efficiency, and thus become competitive with mature foreign industries.

c. the nation’s security depends on a strong industrial base.

d. it provides consumers with more and better goods in the long run.

e. none of the above.

19. The job creation argument for protection against free trade

a. is that keeping out foreign imports allows the goods and services to be produced by domestic workers.

b. is an argument against free trade frequently put forward by economists.

c. is mostly that we need full employment to better defend the security of the nation.

d. all of the above are correct.

e. none of the above are correct.

20. Which of the following watches over international trade agreements?

a. NAFTA. c. The European Union. e. none of these.

b. The World Trade Organization. d. The World Bank.

21. If the balance of payments on financial account is $25, the balance of payments on goods and services is-$20, and the statistical discrepancy in the financial account is $2, then net international transfer payments and net international factor income are

a. -$7. c. $7. e. cannot be determined.

b. -$5. d. $47.

22. Which of the following would be included in the United States’ current account?

a. A factory in Japan purchased by a firm in the United States.

b. A share of stock of a company in the United States sold to someone in Japan.

c. A dividend on a share of stock of a company in the United States paid to someone in Japan.

d. A bond issued by a firm in Japan sold to someone in the United States.

e. None of the above.

23. If a country has a current account deficit, it must have a

a. financial account surplus. c. financial account deficit. e. none of these.

b. balance of payment surplus. d. balance of payment deficit.

24. If the U.S. dollar appreciates, we expect

a. Americans will buy more foreign currency.

b. Americans will buy more goods from abroad.

c. American exports to other countries will decline.

d. All of the above.

e. None of the above.

[Use the graphs below to answer questions 25, 26, & 27]

[pic]

25. Assume that each country’s loanable funds market is such that its interest rate is four percent. Which of the following is likely to be the next logical step to reconcile the apparent disequilibrium in both markets, assuming that assets and liabilities are viewed as homogeneous?

a. There will be a capital outflow from the United States, which will lower U.S. interest rates.

b. There will be a capital outflow from Britain, which will lower interest rates in Britain.

c. There will be a capital outflow from Britain, which will raise interest rates in Britain.

d. There will be a capital inflow to the United States, which will raise interest rates in the U.S.

e. None of the above.

26. At an interest rate of four percent, the quantity of loanable funds demanded by American borrowers is ________ than the quantity of loanable funds supplied by American lenders

a. greater than. c. equal to.

b. less than. d. None of these.

27. At an interest rate of four percent, the quantity of loanable funds demanded by British borrowers is _________ than the quantity of loanable funds supplied by British lenders.

a. greater than. c. equal to.

b. less than. d. None of these.

28. Suppose that Europeans start to view the United States as a more attractive investment opportunity. Which of the following possibilities is likely to be the next series of events?

a. A depreciation of the dollar, which will raise U.S. exports.

b. An appreciation of the dollar, which will discourage Europeans from buying American goods and services.

c. A depreciation of the dollar, which will lower U.S. exports.

d. A depreciation of the dollar, which will make Europeans buy more American products.

e. None of the above.

29. If the demand for British pounds in the United States rises, then

a. the U.S. dollar appreciates.

b. the British pound price of the U.S. dollar increases.

c. the U.S. dollar price of the British pound increases.

d. all of the above will occur

e. none of the above will occur.

30. Purchasing power parity refers to

a. how many units if foreign currency a dollar will buy.

b. how many foreign assets the United States is buying.

c. how many foreign assets a foreign country is buying.

d. the nominal exchange rate for which a market basket would cost the same in each country.

e. None of the above.

Unit VI & VII Test (Chapters 17, 25, 34, & 35)

MACROECONOMICS

SECTION II (Free Response Question)

Directions: Answer the following question. You should emphasize the line of reasoning that generates your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes.

FRQ-1. Suppose the Canadian economy is in short-run macroeconomic equilibrium below full-employment output.

A. Using a complete, correctly-labeled AS/AD diagram, illustrate this economy in equilibrium. Show the following:

i. Equilibrium price level.

ii. Equilibrium output level.

iii. Full-employment output.

B. Assume that the Canadian central bank uses open market operations to eliminate the recessionary gap. Draw new diagrams needed to illustrate and explain how this use of open market operations will impact the following in the short run.

i. Money supply and money demand.

ii. Interest rates.

iii. Aggregate demand and aggregate supply.

iv. Price level and output.

C. Assume the interest rate in Japan has remained constant. Given the change in Canadian interest rates you identified in part B, illustrate and explain the impact this change will have on the

i. value of the Canadian dollar relative to the Japanese yen (¥) in the foreign exchange market.

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