AP Macroeconomics Practice Exam 2 ❮ 203- In a private closed economy, which of the
following statements is true?
(A) Household saving can never be negative.
(B) Investment is always greater than savings.
(C) The economy is in equilibrium when con-
sumption equals saving.
(D) Saving is equal to zero when consumption
equals disposable income.
(E) Government is the only source of spending
and investment. - Which of the following is true of a typical con-
traction of the business cycle?
(A) Consumption is falling, but household
wealth is rising.
(B) Consumption is increasing.
(C) Private investment is rising.
(D) Employment and inflation are low.
(E) Private saving rates are rising. - Which of the following is most likely to pro-
duce stronger economic growth over time?
(A) More rapid consumption of natural resources.
(B) Higher adult illiteracy rates.
(C) A falling stock of capital goods.
(D) Investment tax credits.
(E) Higher taxes on foreign capital investment. - If $100 of new autonomous private investment
were added to an economy with a marginal pro-
pensity to consume of 0.90, by how much would
aggregate demand shift to the right?
(A) $190
(B) $900
(C) $1,000
(D) $1,900
(E) $90
31. Which of the following is true about the rela-
tionship between the M1 and M2 measures of
money?
(A) M 1 minus M 2 equals 0.
(B) M1 includes checking deposits, while M 2
includes checking and saving deposits.
(C) M2 includes coin and paper money, but
M1 does not.
(D) M2 is more liquid than M1.
(E) M1 is greater than M2.
32. Which of the following increases the size of the
tax multiplier?
(A) An increase in the marginal propensity to
consume.
(B) An increase in the reserve ratio.
(C) An increase in the marginal propensity to
save.
(D) A decrease in the spending multiplier.
(E) A decrease in the velocity of money.
33. Which of the following might worsen a nation’s
trade deficit?
(A) Lower wages relative to other nations.
(B) Lower taxes on corporate profits relative to
other nations.
(C) A higher interest rate on financial assets
relative to other nations.
(D) A higher rate of inflation relative to other
nations.
(E) Other nations remove tariffs and quotas on
foreign imports.
34. If the economy is suffering from extremely high
rates of inflation, which of the following fiscal
policies would be an appropriate strategy for the
economy?
(A) Increase government spending and decrease
taxes.
(B) Decrease government spending and increase
taxes.
(C) Increase government spending with no
change in taxes.
(D) The Federal Reserve increases the discount
rate.
(E) Decrease taxes with no change in govern-
ment spending.