AP Macroeconomics : AP Macroeconomics
Study concepts, example questions & explanations for AP Macroeconomics
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Example Questions
Example Question #1 : How To Find Economic Growth
In order, the four phases of the business cycle are:
expansion, peak, contraction, and trough
expansion, contraction, peak, and trough
contraction, expansion, peak, and trough
peak, contraction, expansion, and trough
expansion, peak, contraction, and trough
The four phases of the business cycle are expansion, peak, contraction, and trough. Real GDP growth is positive during an expansion, followed by a point at which real GDP growth peaks, then begins to decline during a contraction, and finally a bottoming out at the point of the trough. Each of the other answer choices represents a distortion of this order.
Example Question #52 : Ap Macroeconomics
If the income level in a given economy increases by $100 and spending increases by $80, the marginal propensity to save in that economy is equal to which of the following?
0.2
0.75
0.5
0.8
0.2
The marginal propensity to consume is calcuated by the change in consumption over the change in income. In this example, the marginal propensity to consume is 80/100 = 0.8. However, the problem asks for the marginal propensity to save and not the marginal propensity to consume.
In any economy, whatever money is not used for consumption is considered savings. Therefore, to find the marginal propensity to save, subtract the marginal propensity to consume from 1. Thus, 1 - 0.8 = 0.2. The marginal propensity to consume in this problem would be 0.2.
Example Question #2 : Tax Policy
An excise tax levied by a state government on gasoline is paid to the government by __________.
the oil company who sells the gasoline
any individual who buys the gasoline
only individuals who buy a certain amount of gasoline
the individual owners of gas stations
the oil company who sells the gasoline
An excise tax is an indirect tax, or one that is not paid directly by consumers, but instead by the producers of the good being taxed. Gasoline excise taxes are typically paid by the oil companies who refine, produce, and sell the gasoline, in order to offset pollution and other trandportation costs governments incur from the sale of gas. Quite often, the cost of the tax to the company is passed on to the consumer in the form of higher prices.
Example Question #1 : Fiscal Policy
Which of the following is not a part of the business cycle?
Contraction
Trough
Expansion
Plateau
Plateau
The four phases of the business cycle are expansion, peak, contraction, and trough. A plateau is not one of these four phases.
Example Question #1 : Real Output
How does an increase in imports affect a nation's GDP?
An increase in imports decreases a nation's GDP.
An increase in imports does not affect a nation's GDP.
An increase in imports raises a nation's GDP.
An increase in imports does not affect a nation's GDP.
Using the GDP equation 
Example Question #2 : Real Output
A recessionary gap occurs when __________.
potential output exceeds real output
real output exceeds potential output
nominal output exceeds potential output
real output is equal to potential output
potential output exceeds real output
A recessionary gap is defined as a situation in which real output is below potential output. In other words, the economy could be producing more than it is.
The answer choice "real output exceeds potential output" is incorrect; it describes an inflationary gap.
The answer choice "nominal output exceeds potential output" is incorrect; inflationary and recessariony gaps refer to real output levels, not nominal levels.
Example Question #1 : Other Fiscal Policy
Which of the following is not a tool used by the Federal Reserve?
Adjusting the reserve requirements for banks
All of these tools are used by the Federal Reserve
Increasing aggregate demand through fiscal policy
Buying and selling bonds via open market operations
Adjusting the discount rate
Increasing aggregate demand through fiscal policy
Fiscal policy is the use of government spending to influence the economy. As such, fiscal policy is outside of the scope of the Federal Reserve's powers - fiscal policy can only be initiated by Congress.
Example Question #2 : Other Fiscal Policy
Which of the following is the most effective fiscal policy if potential GDP exceeds current GDP?
The Federal Reserve sells US Treasury bonds.
Government spending increases.
The Federal Reserve buys US Treasury bonds.
The tax rate increases.
Government spending increases.
If potential GDP exceeds current GDP, the country is in a recessionary gap. The fiscal policies that are effective in closing a recessionary gap are to increase government spending or to decrease (not increase) taxes.
Note that Federal Reserve operations are monetary, not fiscal, policies.
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