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AP Macroeconomics Multiple Choice Questions

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Home AP Practice Tests AP Macroeconomics Practice Tests Part A: Multiple Choice Questions

AP Macro Practice Tests

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Part A: Multiple Choice

AP Macroeconomics Multiple Choice Questions

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Question 1 of 60

1. Question

Scarcity means that\(\)

there is a shortage of a particular good.
Correct Incorrect Correct answer

the price level must increase.
Correct Incorrect Correct answer

society does not face any trade-offs.
Correct Incorrect Correct answer

the government must control production and allocation.
Correct Incorrect Correct answer

people have unlimited wants but limited resources.
Correct Incorrect Correct answer

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Question 2 of 60

2. Question

The production possibilities curve (PPC) is bowed outward because

opportunity cost is constant
Correct Incorrect Correct answer

resources are homogeneous
Correct Incorrect Correct answer

constant returns to scale exist
Correct Incorrect Correct answer

resources are not perfectly adaptable for producing both goods
Correct Incorrect Correct answer

technological progress is assumed
Correct Incorrect Correct answer

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Question 3 of 60

3. Question

If a point lies inside a production possibilities curve, it implies

the economy is operating at full efficiency.
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the economy is at its maximum output.
Correct Incorrect Correct answer

an unattainable level of production.
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the economy has experienced economic growth.
Correct Incorrect Correct answer

unemployment or underutilized resources.
Correct Incorrect Correct answer

Correct

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Question 4 of 60

4. Question

Comparative advantage is based on

lower opportunity costs in relation to another nation.
Correct Incorrect Correct answer

absolute advantage.
Correct Incorrect Correct answer

government subsidies.
Correct Incorrect Correct answer

higher wages.
Correct Incorrect Correct answer

lower price level.
Correct Incorrect Correct answer

Correct

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Question 5 of 60

5. Question

If Country A can produce 10 apples per hour and Country B can produce 8 apples per hour, but Country B gives up fewer pears to produce apples, then Country B has

an absolute advantage in apple production
Correct Incorrect Correct answer

both an absolute and a comparative advantage
Correct Incorrect Correct answer

no comparative advantage
Correct Incorrect Correct answer

comparative advantage in pear production
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a comparative advantage in apple production
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Correct

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Question 6 of 60

6. Question

In a free market, price and quantity are determined by

government quotas
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demand only
Correct Incorrect Correct answer

supply only
Correct Incorrect Correct answer

intersection of demand and supply
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the average cost of production
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Incorrect
Question 7 of 60

7. Question

A price ceiling is most likely to cause

a surplus of the good
Correct Incorrect Correct answer

a shortage of the good
Correct Incorrect Correct answer

a higher equilibrium price level
Correct Incorrect Correct answer

excess supply
Correct Incorrect Correct answer

more producers to enter the industry
Correct Incorrect Correct answer

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Incorrect
Question 8 of 60

8. Question

In a perfectly competitive market, if demand decreases, then

the equilibrium price increases.
Correct Incorrect Correct answer

the equilibrium price decreases.
Correct Incorrect Correct answer

the equilibrium price stays constant.
Correct Incorrect Correct answer

the supply of the good will decrease.
Correct Incorrect Correct answer

the equilibrium quantity increases.
Correct Incorrect Correct answer

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Question 9 of 60

9. Question

An increase in supply is caused by

a change in price of the good
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a change in tastes and preferences
Correct Incorrect Correct answer

a change in the income of consumers
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a decrease in resource prices
Correct Incorrect Correct answer

a change in quantity demanded
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Question 10 of 60

10. Question

Which of the following is not a factor that shifts demand?

consumer income
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consumer tastes and preferences
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the price of related goods
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the price of the good itself
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consumer expectations
Correct Incorrect Correct answer

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Question 11 of 60

11. Question

Gross domestic product measures

the total value of final goods and services produced within a country in a year
Correct Incorrect Correct answer

the total income earned by a country’s citizens whether domestic or abroad
Correct Incorrect Correct answer

unemployment rate
Correct Incorrect Correct answer

changes in price level
Correct Incorrect Correct answer

the money supply
Correct Incorrect Correct answer

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Question 12 of 60

12. Question

Real gross domestic product is adjusted for

interest rates
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population size
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exchange rates
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depreciation
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changes in the price level
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Question 13 of 60

13. Question

The GDP deflator is

the consumer price index
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a price index comparing nominal GDP to real GDP
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the producer price index
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a measure of unemployment
Correct Incorrect Correct answer

calculated using a fixed marked basket of goods
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Question 14 of 60

14. Question

The unemployment rate underestimates the employment problem by the number of

discouraged workers
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frictionally unemployed
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structurally unemployed
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cyclically unemployed
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part-time workers
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Question 15 of 60

15. Question

If the economy is in a recessionary or negative GDP gap, which of the following would be most likely true?

inflation above the central bank target
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actual output above potential output
Correct Incorrect Correct answer

unemployment larger than the natural rate
Correct Incorrect Correct answer

unemployment would be expected to decrease immediately
Correct Incorrect Correct answer

aggregate demand to exceed aggregate supply
Correct Incorrect Correct answer

Correct

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Question 16 of 60

16. Question

During the expansion phase of the business cycle, which of the following is true?

Unemployment rises
Correct Incorrect Correct answer

Inflation falls
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Real GDP declines
Correct Incorrect Correct answer

Production increases
Correct Incorrect Correct answer

Output falls
Correct Incorrect Correct answer

Correct

Incorrect
Question 17 of 60

17. Question

The natural rate of unemployment includes

cyclical unemployment
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structural plus frictional unemployment
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only frictional unemployment
Correct Incorrect Correct answer

only structural unemployment
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all unemployed people
Correct Incorrect Correct answer

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Question 18 of 60

18. Question

Structural unemployment arises when

workers are searching for jobs
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wages are sticky or downwardly inflexible
Correct Incorrect Correct answer

people retire and leave the labor force
Correct Incorrect Correct answer

business cycle fluctuates
Correct Incorrect Correct answer

there is mismatch in skills of workers to available jobs
Correct Incorrect Correct answer

Correct

Incorrect
Question 19 of 60

19. Question

Assume the nominal GDP is $5,000 and the GDP deflator is 125 in that same year, then real GDP is

$4,125
Correct Incorrect Correct answer

$6,250
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$4,000
Correct Incorrect Correct answer

$5,000
Correct Incorrect Correct answer

$5,250
Correct Incorrect Correct answer

Correct

Incorrect
Question 20 of 60

20. Question

The aggregate demand curve slopes downward as a result of

the interest-rate effect
Correct Incorrect Correct answer

the wealth effect
Correct Incorrect Correct answer

the foreign exchange rate effect or foreign purchases effect
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all of the above
Correct Incorrect Correct answer

none of the above
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Question 21 of 60

21. Question

The short-run aggregate supply curve slopes upward because

input prices are flexible in the short run
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output prices are fixed in the short run
Correct Incorrect Correct answer

nominal wages are sticky or slow to change in the short run
Correct Incorrect Correct answer

of the interest rate effect
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of the wealth effect
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Question 22 of 60

22. Question

If aggregate demand decreases in the short run, real output will

increase and unemployment will decrease.
Correct Incorrect Correct answer

decrease and unemployment will increase.
Correct Incorrect Correct answer

increase and unemployment will increase.
Correct Incorrect Correct answer

decrease and unemployment will decrease.
Correct Incorrect Correct answer

stay the same
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Correct

Incorrect
Question 23 of 60

23. Question

Fiscal policy is

central bank decisions about the policy rate
Correct Incorrect Correct answer

open market operations
Correct Incorrect Correct answer

the setting of foreign exchange rates
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the central bank changing administered rates
Correct Incorrect Correct answer

government decisions about spending and taxation
Correct Incorrect Correct answer

Correct

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Question 24 of 60

24. Question

The spending multiplier effect means that

an increase in government borrowing raises interest rates
Correct Incorrect Correct answer

an increase in the price level increases net exports
Correct Incorrect Correct answer

an initial change in spending leads to a larger change in total output
Correct Incorrect Correct answer

an increase in the price level increases interest rates
Correct Incorrect Correct answer

an increase in the price level increases purchasing power
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Question 25 of 60

25. Question

If the marginal propensity to consume (MPC) is 0.8, the simple spending multiplier is

1.2
Correct Incorrect Correct answer

4
Correct Incorrect Correct answer

2
Correct Incorrect Correct answer

5
Correct Incorrect Correct answer

0.8
Correct Incorrect Correct answer

Correct

Incorrect
Question 26 of 60

26. Question

Assume that a nation has a closed economy with no taxes or savings. Suppose the government increases spending by $100 and MPC is 0.8. The total increase in gross domestic product could be as high as

$100
Correct Incorrect Correct answer

$400
Correct Incorrect Correct answer

$500
Correct Incorrect Correct answer

$80
Correct Incorrect Correct answer

$800
Correct Incorrect Correct answer

Correct

Incorrect
Question 27 of 60

27. Question

Crowding out refers to

government borrowing raising interest rates and reducing private investment
Correct Incorrect Correct answer

a change in spending that leads to a larger change in total output
Correct Incorrect Correct answer

too much money chasing too few goods
Correct Incorrect Correct answer

when a nation imports more than it exports
Correct Incorrect Correct answer

an increase in the price level that increases interest rates
Correct Incorrect Correct answer

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Incorrect
Question 28 of 60

28. Question

If the economy is at full employment and the government increases spending without offsetting taxes, then in the long run

output increases permanently
Correct Incorrect Correct answer

the government will have a budget surplus
Correct Incorrect Correct answer

output decreases
Correct Incorrect Correct answer

interest rates decrease permanently
Correct Incorrect Correct answer

price level rises
Correct Incorrect Correct answer

Correct

Incorrect
Question 29 of 60

29. Question

Automatic stabilizers are government policies that

require congressional decision making
Correct Incorrect Correct answer

are made by the central bank
Correct Incorrect Correct answer

always increase taxes
Correct Incorrect Correct answer

always increase spending
Correct Incorrect Correct answer

help to offset fluctuations in output to some extent
Correct Incorrect Correct answer

Correct

Incorrect
Question 30 of 60

30. Question

If aggregate demand is currently intersecting the short-run aggregate supply curve at a point that is greater than full-employment output, which policy is appropriate?

Decrease taxes
Correct Incorrect Correct answer

Increase government spending
Correct Incorrect Correct answer

Increase taxes and/or decrease spending
Correct Incorrect Correct answer

Decrease the policy rate
Correct Incorrect Correct answer

Decrease the administered rates
Correct Incorrect Correct answer

Correct

Incorrect
Question 31 of 60

31. Question

The opportunity cost of holding money instead of bonds is:

The interest income that could have been earned from investing in bonds.
Correct Incorrect Correct answer

The price of goods purchased with money.
Correct Incorrect Correct answer

The depreciation of physical cash over time.
Correct Incorrect Correct answer

The future value of stocks.
Correct Incorrect Correct answer

The face value of the money held.
Correct Incorrect Correct answer

Correct

Incorrect
Question 32 of 60

32. Question

If the expected real interest rate on a loan is 3% and the expected inflation rate is 2%, what is the nominal interest rate that lenders and borrowers would agree upon?

1%
Correct Incorrect Correct answer

2%
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3%
Correct Incorrect Correct answer

5%
Correct Incorrect Correct answer

6%
Correct Incorrect Correct answer

Correct

Incorrect
Question 33 of 60

33. Question

The monetary base consists of

Currency in circulation and demand deposits.
Correct Incorrect Correct answer

Bank loans and government bonds.
Correct Incorrect Correct answer

All forms of money including M1 and M2.
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Only physical currency held by the public.
Correct Incorrect Correct answer

Currency in circulation and bank reserves held at the central bank.
Correct Incorrect Correct answer

Correct

Incorrect
Question 34 of 60

34. Question

A commercial bank receives a new deposit of $10,000. The required reserve ratio is 10%. Which of the following correctly describes how this deposit affects the bank’s balance sheet?

Required reserves increase by $1,000, and excess reserves increase by $9,000.
Correct Incorrect Correct answer

Required reserves increase by $9,000, and excess reserves increase by $1,000.
Correct Incorrect Correct answer

Required reserves increase by $10,000, and loans increase by $10,000.
Correct Incorrect Correct answer

Required reserves increase by $1,000, and the rest must be sent to the Federal Reserve.
Correct Incorrect Correct answer

Required reserves decrease by $1,000, and loans increase by $9,000.
Correct Incorrect Correct answer

Correct

Incorrect
Question 35 of 60

35. Question

Which of the following would cause the actual increase in the money supply to be smaller than the deposit expansion multiplier would predict?

Banks fully lending out all excess reserves
Correct Incorrect Correct answer

The public depositing all cash into banks
Correct Incorrect Correct answer

The Federal Reserve lowering the discount rate
Correct Incorrect Correct answer

Banks voluntarily holding excess reserves and the public holding excess currency
Correct Incorrect Correct answer

The required reserve ratio decreasing
Correct Incorrect Correct answer

Correct

Incorrect
Question 36 of 60

36. Question

Which of the following best explains why the money demand curve is downward sloping?

At higher nominal interest rates, people hold more money because it earns interest.
Correct Incorrect Correct answer

At higher nominal interest rates, the opportunity cost of holding money increases, so people hold less of it.
Correct Incorrect Correct answer

At lower nominal interest rates, people prefer to hold bonds instead of money.
Correct Incorrect Correct answer

The money demand curve slopes downward because money supply decreases with interest rates.
Correct Incorrect Correct answer

The money demand curve slopes downward because the Federal Reserve sets interest rates directly.
Correct Incorrect Correct answer

Correct

Incorrect
Question 37 of 60

37. Question

Which of the following would increase the demand for money?

A decrease in the nominal interest rate
Correct Incorrect Correct answer

A decrease in the price level
Correct Incorrect Correct answer

An increase in real GDP
Correct Incorrect Correct answer

A decrease in the money supply
Correct Incorrect Correct answer

A decrease in the velocity of money
Correct Incorrect Correct answer

Correct

Incorrect
Question 38 of 60

38. Question

In an economy with ample reserves—such as the current U.S. banking system—the Federal Reserve’s primary tool for influencing the nominal interest rate is to:

Increase or decrease the interest on reserve balances
Correct Incorrect Correct answer

Buy or sell government securities in the open market.
Correct Incorrect Correct answer

Change the reserve requirement.
Correct Incorrect Correct answer

Change the discount rate to influence bank borrowing.
Correct Incorrect Correct answer

Increase or decrease the money supply directly.
Correct Incorrect Correct answer

Correct

Incorrect
Question 39 of 60

39. Question

If the Federal Reserve lowers the target range for its administered rates, which of the following sequences is most likely to occur in the short run

Nominal interest rates rise → Investment decreases → Aggregate demand decreases
Correct Incorrect Correct answer

Nominal interest rates rise → Net exports increase → Aggregate demand increases
Correct Incorrect Correct answer

Nominal interest rates fall → Consumption decreases → Aggregate demand decreases
Correct Incorrect Correct answer

Real interest rates increase → Aggregate demand increases → Price level falls
Correct Incorrect Correct answer

Nominal interest rates fall → Investment increases → Aggregate demand increases
Correct Incorrect Correct answer

Correct

Incorrect
Question 40 of 60

40. Question

The Federal Reserve sells bonds in an open market operation. What is the impact of this on the money market in the short run?

The money supply curve shifts right, lowering the nominal interest rate.
Correct Incorrect Correct answer

The money demand curve shifts left, raising the nominal interest rate.
Correct Incorrect Correct answer

The money supply curve shifts left, raising the nominal interest rate.
Correct Incorrect Correct answer

The money demand curve shifts right, lowering the nominal interest rate.
Correct Incorrect Correct answer

The money supply curve remains unchanged, but the money demand curve shifts left.
Correct Incorrect Correct answer

Correct

Incorrect
Question 41 of 60

41. Question

In the reserve market, the Federal Reserve lowers the interest rate it pays on reserves. Which of the following is the most likely short-run effect?

Banks will hold more excess reserves, increasing the federal funds rate.
Correct Incorrect Correct answer

Banks will lend out more reserves, decreasing the federal funds rate.
Correct Incorrect Correct answer

The quantity of reserves in the system will decrease.
Correct Incorrect Correct answer

The federal funds rate will rise to the discount rate.
Correct Incorrect Correct answer

The demand for reserves will shift left, increasing nominal interest rates.
Correct Incorrect Correct answer

Correct

Incorrect
Question 42 of 60

42. Question

Which of the following best explains why the actual change in the money supply is often less than predicted by the simple deposit expansion multiplier?

The central bank always offsets the multiplier effect.
Correct Incorrect Correct answer

Households hold all their funds in time deposits.
Correct Incorrect Correct answer

Banks may hold excess reserves and the public may hold more cash.
Correct Incorrect Correct answer

The reserve requirement is not binding in any banking system.
Correct Incorrect Correct answer

The monetary base automatically adjusts to match the theoretical multiplier.
Correct Incorrect Correct answer

Correct

Incorrect
Question 43 of 60

43. Question

Suppose the government increases its budget deficit. In the private loanable funds market, which of the following is the most likely short-run effect, assuming a closed economy?

The supply of loanable funds shifts right, lowering the real interest rate.
Correct Incorrect Correct answer

The demand for loanable funds shifts left, lowering the real interest rate.
Correct Incorrect Correct answer

The supply of loanable funds shifts left, raising the real interest rate.
Correct Incorrect Correct answer

The demand for loanable funds shifts right, lowering the real interest rate.
Correct Incorrect Correct answer

The real interest rate remains unchanged because saving adjusts automatically.
Correct Incorrect Correct answer

Correct

Incorrect
Question 44 of 60

44. Question

Assume that the central bank wants to enact a contractionary monetary policy in a banking system with ample reserves. Which policy action is most likely to achieve its goal?

Increase the required reserve ratio
Correct Incorrect Correct answer

Sell Treasury securities in open market operations
Correct Incorrect Correct answer

Buy Treasury securities in open market operations
Correct Incorrect Correct answer

Lower the discount rate
Correct Incorrect Correct answer

Raise the interest on reserve balances (IORB)
Correct Incorrect Correct answer

Correct

Incorrect
Question 45 of 60

45. Question

Assume that the banking system has ample reserves and the central bank (the Fed in the United States) lowers its administered rates, the result would

shift the supply curve of reserves to the left
Correct Incorrect Correct answer

shift the endpoints of the demand curve downward
Correct Incorrect Correct answer

lead to a lower policy rate
Correct Incorrect Correct answer

reduce the quantity of reserves
Correct Incorrect Correct answer

raise the federal funds rate
Correct Incorrect Correct answer

Correct

Incorrect
Question 46 of 60

46. Question

Assume that firms become more optimistic about future profits, increasing investment demand at each interest rate. Which of the following is correct?

Demand shifts right; real interest rate rises, equilibrium quantity rises
Correct Incorrect Correct answer

Supply shifts right; real interest rate falls, equilibrium quantity rises
Correct Incorrect Correct answer

Demand shifts left; real interest rate falls, equilibrium quantity falls
Correct Incorrect Correct answer

Demand shifts right; real interest rate falls, equilibrium quantity falls
Correct Incorrect Correct answer

Supply shifts left; real interest rate rises, equilibrium quantity falls
Correct Incorrect Correct answer

Correct

Incorrect
Question 47 of 60

47. Question

Suppose in a given year, the money supply is $500 billion, the velocity of money is 4, and the real output is $1,000 billion in base year prices. What is the price level?

0.5
Correct Incorrect Correct answer

1.0
Correct Incorrect Correct answer

2.0
Correct Incorrect Correct answer

4.0
Correct Incorrect Correct answer

8.0
Correct Incorrect Correct answer

Correct

Incorrect
Question 48 of 60

48. Question

A government budget deficit is financed by

increasing tariff revenue
Correct Incorrect Correct answer

increasing exports
Correct Incorrect Correct answer

reducing the money supply
Correct Incorrect Correct answer

decreasing the price level
Correct Incorrect Correct answer

the Treasury issuing bonds to borrow from the public
Correct Incorrect Correct answer

Correct

Incorrect
Question 49 of 60

49. Question

Crowding out tends to dampen the effect of expansionary fiscal policy because

it increases the multiplier
Correct Incorrect Correct answer

it lowers interest rates
Correct Incorrect Correct answer

it accelerates growth in output
Correct Incorrect Correct answer

government borrowing increases interest rates and reduces private investment
Correct Incorrect Correct answer

it increases gross private domestic investment
Correct Incorrect Correct answer

Correct

Incorrect
Question 50 of 60

50. Question

The short-run Phillips curve shows the trade-off between

unemployment and money supply
Correct Incorrect Correct answer

inflation and real GDP
Correct Incorrect Correct answer

inflation and unemployment
Correct Incorrect Correct answer

interest rates and output
Correct Incorrect Correct answer

government spending and taxes
Correct Incorrect Correct answer

Correct

Incorrect
Question 51 of 60

51. Question

In the long run, the economy is operating at its natural rate of unemployment where the inflation rate is 3 percent and the unemployment rate is 5 percent. If the central bank increases the money supply to stimulate output, which of the following best describes what will happen to unemployment and inflation in the long run according to the long-run Phillips curve?

Unemployment will decrease and inflation will increase permanently.
Correct Incorrect Correct answer

Unemployment will increase and inflation will decrease permanently.
Correct Incorrect Correct answer

Both unemployment and inflation will remain unchanged.
Correct Incorrect Correct answer

Unemployment will return to 5 percent, but inflation will be higher than 3 percent.
Correct Incorrect Correct answer

Unemployment will remain at 5 percent, and inflation will return to 3 percent.
Correct Incorrect Correct answer

Correct

Incorrect
Question 52 of 60

52. Question

Which of the following changes is most likely to lead to long-run economic growth in a country?

An increase in consumer spending resulting from a temporary tax cut
Correct Incorrect Correct answer

An increase in government spending on transfer payments
Correct Incorrect Correct answer

An increase in the quantity and quality of physical capital
Correct Incorrect Correct answer

A decrease in the money supply to reduce inflation
Correct Incorrect Correct answer

A reduction in aggregate demand due to higher interest rates
Correct Incorrect Correct answer

Correct

Incorrect
Question 53 of 60

53. Question

Which of the following government policies is most likely to increase long-run economic growth?

Increasing investment in education and job training programs
Correct Incorrect Correct answer

Increasing unemployment benefits to stabilize household income during recessions
Correct Incorrect Correct answer

Increasing tariffs on imported capital goods to protect domestic industries
Correct Incorrect Correct answer

Reducing spending on infrastructure to balance the federal budget
Correct Incorrect Correct answer

Increasing the money supply to lower short-term interest rates
Correct Incorrect Correct answer

Correct

Incorrect
Question 54 of 60

54. Question

Which of the following would move the financial and capital account of the United States toward a surplus?

A U.S. firm imports computer chips from South Korea
Correct Incorrect Correct answer

A U.S. tourist spends money on vacation in Italy
Correct Incorrect Correct answer

A Chinese investor purchases U.S. government bonds
Correct Incorrect Correct answer

An American company buys a factory in Mexico
Correct Incorrect Correct answer

A U.S. corporation donates money to a foreign charity
Correct Incorrect Correct answer

Correct

Incorrect
Question 55 of 60

55. Question

A country’s current account is in deficit. Which of the following could explain this situation?

The country exports more goods than it imports.
Correct Incorrect Correct answer

The country has large outflows of financial capital.
Correct Incorrect Correct answer

The country imports more goods and services than it exports.
Correct Incorrect Correct answer

The country has a lower price level than its trading partners.
Correct Incorrect Correct answer

The country has low interest rates.
Correct Incorrect Correct answer

Correct

Incorrect
Question 56 of 60

56. Question

Which of the following is most likely to lead to a capital and financial account surplus?

Domestic investors buy a large amount of foreign stocks.
Correct Incorrect Correct answer

The country experiences a large current account deficit.
Correct Incorrect Correct answer

The government increases foreign aid payments.
Correct Incorrect Correct answer

Domestic residents send money abroad to family.
Correct Incorrect Correct answer

Foreign investors purchase a significant number of domestic bonds.
Correct Incorrect Correct answer

Correct

Incorrect
Question 57 of 60

57. Question

The exchange rate changes from 1 euro = $1.10 to 1 euro = $1.00.
Which of the following statements is correct?

The euro has depreciated because it now buys fewer dollars.
Correct Incorrect Correct answer

The euro has appreciated because it now buys more dollars.
Correct Incorrect Correct answer

The dollar has depreciated because it now buys fewer euros.
Correct Incorrect Correct answer

Both currencies have depreciated.
Correct Incorrect Correct answer

There has been no change in relative value.
Correct Incorrect Correct answer

Correct

Incorrect
Question 58 of 60

58. Question

If the United States adopts a contractionary monetary policy, holding all else constant, what is most likely to happen to the value of the U.S. dollar in the short run?

The dollar will depreciate because U.S. interest rates fall.
Correct Incorrect Correct answer

The dollar will appreciate because U.S. interest rates rise.
Correct Incorrect Correct answer

The dollar will depreciate because foreign investors will sell U.S. assets.
Correct Incorrect Correct answer

The dollar will remain unchanged because monetary policy does not affect exchange rates.
Correct Incorrect Correct answer

The dollar will appreciate because the money supply increases
Correct Incorrect Correct answer

Correct

Incorrect
Question 59 of 60

59. Question

Suppose the U.S dollar depreciates relative to the Japanese yen. Which of the following is most likely to happen to U.S. net exports

Net exports decrease because Japanese goods are cheaper.
Correct Incorrect Correct answer

Net exports increase because U.S. goods are cheaper for Japanese consumers.
Correct Incorrect Correct answer

Net exports decrease because U.S. imports rise.
Correct Incorrect Correct answer

Net exports are unchanged.
Correct Incorrect Correct answer

Net exports decrease because the Japanese yen appreciates.
Correct Incorrect Correct answer

Correct

Incorrect
Question 60 of 60

60. Question

Suppose the U.S. government increases its budget deficit through expansionary fiscal policy. Which of the following is most likely to occur in the short run, assuming flexible or floating exchange rates?

U.S. interest rates rise, attracting foreign capital and causing the dollar to appreciate.
Correct Incorrect Correct answer

U.S. interest rates fall, reducing foreign capital inflows and causing the dollar to depreciate.
Correct Incorrect Correct answer

Aggregate demand decreases, causing the dollar to appreciate.
Correct Incorrect Correct answer

U.S. exports increase due to the depreciation of the dollar.
Correct Incorrect Correct answer

Foreign demand for U.S. goods decreases, shifting demand for dollars left.
Correct Incorrect Correct answer

Correct

Incorrect

Current
Correct
Incorrect

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