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AP Macro Unit 5 Practice Test: Long-Run Consequences of Stabilization Policies

This AP Macro Unit 5 practice test covers the long-run consequences of stabilization policies. Key topics include economic growth, productivity, and the Phillips Curve. The unit also reviews deficits, debt, and the impact of crowding out. Work through these AP Macroeconomic practice questions to connect short-run policies with long-run outcomes.

Next: AP Macro Unit 6 Practice Test

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	Real GDP	Interest Rates
(A)	Increase	Increase
(B)	Decrease	Decrease
(C)	Increase	Decrease
(D)	Decrease	Increase
(E)	Increase	Indeterminate

	Fiscal Policy	Monetary Policy
(A)	Increase taxes	Buy government bonds
(B)	Increase taxes	Increase administered rates
(C)	Decreases taxes	Decrease administered rates
(D)	Increase taxes	Decrease administered rates
(E)	Decreases taxes	Increase administered rates

	Price Level	Real Output
(A)	Increase	Increase
(B)	Increase	Decrease
(C)	Decrease	Decrease
(D)	Decrease	Increase
(E)	Increase	No change

	Deficit	Debt	Real Output
(A)	Decrease	Decrease	Decrease
(B)	Decrease	Decrease	Increase
(C)	Decrease	Increase	Increase
(D)	Increase	Increase	Increase
(E)	Increase	Increase	Decrease

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AP Macro Unit 5 Practice Test: Long-Run Consequences of Stabilization Policies

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1. Question

A nation is enacting expansionary fiscal policy leading to a budget deficit. If the banking system has limited reserves, what could the central bank do to maintain stable interest rates?

2. Question

If a government enacts an expansionary fiscal policy and an expansionary monetary policy at the same time, what will most likely happen to real GDP and interest rates in the short run?

3. Question

What is the best policy combination to decrease inflation in an ample reserve system?

4. Question

What is the best policy combination to deal with a recession?

5. Question

A nation’s economy is at long-run equilibrium and then the government engages in expansionary fiscal policy. How will this action be shown in the Phillips Curve?

6. Question

A nation’s economy is initially at a long-run equilibrium and then moves into a recession caused by a decrease in consumer spending. How will this be shown on the Phillips Curve?

7. Question

An economy begins in long-run equilibrium and then experiences cost-push inflation. How can this be shown on the Phillips Curve?

8. Question

An economy is initially in long-run equilibrium. Then the public decreases their expectations for inflation. How can this be shown on the Phillps Curve?

9. Question

What determines the position of the long-run Phillips Curve?

10. Question

Assume that an economy is at long-run equilibrium, prices and wages are completely flexible, and that inflation is correctly anticipated. Then the government enacts an expansionary monetary policy. What would be the result on real output and the price level?

11. Question

If nominal GDP is $2,000 and the money supply is $400, what is the velocity of money?

12. Question

What causes government budget deficits?

13. Question

If a government increases government spending without increasing taxes, what will be the result in the short run?

14. Question

Assume that a government begins with a balanced budget. Then the government increases government spending without raising taxes. What is the likely effect?

15. Question

Which of the following is most likely to cause economic growth?

16. Question

An increase in economic growth can be shown by which of the following?

17. Question

How do can economic growth be shown on a production possibilities curve?

18. Question

What policies can the government enact to increase economic growth?

19. Question

Which of the following government policies is most likely to promote economic growth?

20. Question

Which of the following will decrease long-run economic growth?

Next: AP Macro Unit 6 Practice Test