5 Steps to a 5 AP Macroeconomics 2019

Take the Diagnostic Exam ❮ 27

Macroeconomics Answers and Explanations, Section I

This test was designed to test you on topics that you will see on the AP Macroeconomics

exam in the approximate proportions that you will see them. Chronologically they appear

in the approximate order of their review in Step 4 of this book, but this is not the case on

the AP exam. Topics on your practice exams will be shuffled.

Questions from Chapter 5

1. A—Economic capital includes machinery, like a
   cement mixer, used to produce goods and services.
   A barrel of oil is a natural resource, and a nurse
   is a unit of labor. A share of corporate stock is a
   financial instrument used to raise money so that a
   firm can purchase more economic resources.


2. B—A quick calculation of opportunity costs
   shows that the opportunity cost of one more
   paper is three crepes in Nation X and one crepe
   in Nation Y. The opportunity cost of one more
   crepe is one-third paper in Nation X and one
   crepe in Nation Y. Nations benefit by specializ-
   ing in the goods for which they have a compara-
   tive advantage. Thus, Nation Y can specialize in
   paper production, and Nation X can specialize in
   crepe production. Nation X trades some crepes to
   Nation Y in exchange for paper.


3. E—Economic growth occurs when the production
   possibility frontier shifts outward. A movement
   from W to X or to Y is an improved allocation of
   unemployed resources, but the potential produc-
   tion has not grown for this nation.

Questions from Chapter 6

4. A—If smartphones are normal goods, an increase
   in household income increases demand for smart-
   phones, which increases quantity and price. Even
   though this is a macroeconomics exam, be pre-
   pared for simple supply and demand questions to
   test your understanding of markets.
   Questions from Chapter 7


5. D—The GDP of a nation includes the value of
   production done within the borders of that nation,
   regardless of the nationality of the owners. If a U.S.
   factory moves to Brazil, U.S. GDP falls and it rises
   in Brazil.


6. B—Structural unemployment is the result
   of changing demand for skills, not the busi-
   ness cycle. Automation decreases the demand
   for human grocery checkers, and this trend is
   unlikely to reverse itself.


7. C—The percentage change in real income is
   approximately equal to the percentage change in
   nominal income minus the percentage change in
   the price level.


8. Suppose the Japanese economy is suffering a
   prolonged recession. Lower Japanese household
   incomes will affect U.S. exports to Japan, demand
   for the dollar, and the value of the dollar relative
   to the yen in which of the following ways?

EXPORTS DEMAND VALUE
TO JAPAN FOR $ OF $

(A) Decrease Decrease Decrease
(B) Decrease Decrease Increase
(C) Decrease Increase Decrease
(D) Increase Decrease Decrease
(E) Increase Decrease Increase

30. Which of the following is a likely effect of a
    higher tariff imposed by the United States on
    imported automobiles?
    (A) Net exports will fall and the dollar will appre-
    ciate in value.
    (B) Net exports will fall and the dollar will depre-
    ciate in value.
    (C) The price of automobiles in the United States
    will fall.
    (D) Net exports will rise and the dollar will depre-
    ciate in value.
    (E) Net exports will rise and the dollar will appre-
    ciate in value.