Free AP Macroeconomics Practice Exam (PDF)

This free AP Macroeconomics practice exam covers all six AP units — from economic indicators and the business cycle through the financial sector and stabilization policy to the open economy — in the real exam format: multiple choice plus free-response. Every question has a worked solution in the answer key, so you can grade yourself and see exactly where the marks come from. View it online below or download the print-ready PDF; no account needed.

1. Question 12 marks · Circular flow
   In the simple circular flow model of an economy, which of the following correctly describes the role of households?
   • A.
     Households buy resources in the factor market and sell goods in the product market
   • B.
     Households sell resources in the factor market and buy goods in the product market
   • C.
     Households sell both resources and final goods to firms
   • D.
     Households are buyers in both the factor market and the product market
   • E.
     Households are sellers in both the factor market and the product market
2. Question 22 marks · PPC & economic growth
   Which of the following would shift a country's production possibilities curve outward?
   • A.
     A decrease in the unemployment rate
   • B.
     An increase in the size of the labor force
   • C.
     A reallocation of resources from capital goods to consumer goods
   • D.
     An increase in aggregate demand
   • E.
     A rise in the general price level
3. Question 32 marks · GDP measurement
   Which of the following transactions would be included in this year's United States GDP?
   • A.
     The purchase of a used car from a dealership
   • B.
     A Social Security check received by a retiree
   • C.
     The commission a real-estate agent earns for selling an existing house
   • D.
     The purchase of 100 shares of corporate stock
   • E.
     Flour purchased by a bakery to make bread that it sells
4. Question 42 marks · Types of unemployment
   A coal miner loses her job because power companies permanently switch to renewable energy, and her skills do not match available job openings. While she actively searches for work, she is best classified as:
   • A.
     frictionally unemployed
   • B.
     structurally unemployed
   • C.
     cyclically unemployed
   • D.
     seasonally unemployed
   • E.
     not in the labor force
5. Question 52 marks · CPI & inflation
   A country's consumer price index rises from 125 to 130 over one year. The inflation rate for that year is:
   • A.
     0.04 percent
   • B.
     3.8 percent
   • C.
     4 percent
   • D.
     5 percent
   • E.
     30 percent
6. Question 62 marks · AD/AS shifts
   A sharp, sustained decline in stock market wealth will most likely have which of the following short-run effects?
   • A.
     Aggregate demand shifts left, decreasing both the price level and real output
   • B.
     Aggregate demand shifts right, increasing the price level and real output
   • C.
     Short-run aggregate supply shifts left, raising the price level
   • D.
     A movement along the aggregate demand curve, with no shift
   • E.
     Long-run aggregate supply shifts left, reducing potential output
7. Question 72 marks · Spending multiplier
   In an economy with a marginal propensity to consume of 0.8, government purchases increase by 20 billion dollars. Assuming no crowding out and a constant price level, the maximum increase in real GDP is:
   • A.
     16 billion dollars
   • B.
     20 billion dollars
   • C.
     25 billion dollars
   • D.
     80 billion dollars
   • E.
     100 billion dollars
8. Question 82 marks · Sticky wages & SRAS
   According to the sticky-wage explanation of the upward-sloping short-run aggregate supply curve, an unanticipated fall in the price level reduces output in the short run because:
   • A.
     nominal wages fall immediately, reducing household spending
   • B.
     nominal wages are fixed by contracts, so real wages rise and firms reduce employment
   • C.
     real wages fall, causing workers to quit their jobs
   • D.
     menu costs prevent firms from adjusting their prices
   • E.
     workers instantly renegotiate their contracts to restore the old real wage
9. Question 92 marks · Fiscal policy
   An economy is operating in a recessionary gap. Which of the following is a discretionary fiscal policy action that would move the economy toward full employment?
   • A.
     The central bank purchases government bonds on the open market
   • B.
     Unemployment insurance payments rise automatically as layoffs increase
   • C.
     The legislature increases government spending on infrastructure
   • D.
     The legislature raises personal income tax rates
   • E.
     The central bank lowers the interest rate it pays on reserves
10. Question 102 marks · Money market
    The central bank increases the money supply. In the money market, the short-run effect is that:
    • A.
      the money supply curve shifts right and the nominal interest rate falls
    • B.
      the money demand curve shifts right and the nominal interest rate rises
    • C.
      the money supply curve shifts right and the nominal interest rate rises
    • D.
      there is a movement along the money supply curve as the interest rate falls
    • E.
      the real interest rate rises because expected inflation increases
11. Question 112 marks · Money creation & the money multiplier
    A customer deposits 1,000 dollars of currency into a checking account. The required reserve ratio is 10 percent, banks hold no excess reserves, and all loans are redeposited in the banking system. The maximum increase in the total money supply resulting from this deposit is:
    • A.
      100 dollars
    • B.
      900 dollars
    • C.
      1,000 dollars
    • D.
      9,000 dollars
    • E.
      10,000 dollars
12. Question 122 marks · Fed tools & ample reserves
    In an ample-reserves regime — the Federal Reserve's operating framework since 2008 — the Fed's primary tool for raising the federal funds rate is:
    • A.
      selling small quantities of government bonds to drain reserves
    • B.
      raising the interest rate it pays on reserve balances
    • C.
      raising the required reserve ratio
    • D.
      printing less currency
    • E.
      lowering the discount rate
13. Question 132 marks · Phillips curve
    A significant, sustained increase in oil prices will most likely cause:
    • A.
      a movement along the short-run Phillips curve toward higher inflation and lower unemployment
    • B.
      the short-run Phillips curve to shift right, with both higher inflation and higher unemployment
    • C.
      the short-run Phillips curve to shift left
    • D.
      a movement along the long-run Phillips curve toward higher inflation
    • E.
      the long-run Phillips curve to shift right
14. Question 142 marks · Monetary & fiscal policy mix
    The federal government increases its purchases, financed by borrowing, while the central bank simultaneously sells government securities. The most likely short-run effects on real interest rates and real GDP are:
    • A.
      interest rates rise; real GDP rises
    • B.
      interest rates rise; the change in real GDP is indeterminate
    • C.
      interest rates are indeterminate; real GDP rises
    • D.
      interest rates fall; the change in real GDP is indeterminate
    • E.
      both interest rates and real GDP are indeterminate
15. Question 152 marks · Exchange rates
    American consumers significantly increase their purchases of goods imported from Japan. In the foreign exchange market, this will most likely cause:
    • A.
      the demand for yen to increase and the yen to appreciate against the dollar
    • B.
      the supply of yen to increase and the yen to depreciate against the dollar
    • C.
      the demand for dollars to increase and the dollar to appreciate against the yen
    • D.
      the yen to depreciate, because Japan is now exporting more goods
    • E.
      no change, because trade in goods does not affect currency markets
16. Question 1610 marks · AD/AS, fiscal policy & crowding out
    Fiscal policy in a recession. The economy of Alandia is in short-run equilibrium with real GDP of 480 billion dollars, while full-employment output is 500 billion dollars. The marginal propensity to consume is 0.75. The government is considering a change in its purchases of goods and services, financed by borrowing, to close the gap.
    $Y = 480, \qquad Y_f = 500 \text{ (billions of dollars)}, \qquad MPC = 0.75$
    (a)

    Identify whether Alandia is experiencing a recessionary or an inflationary gap, and state its size. Describe how this situation would appear on a correctly labeled aggregate demand–aggregate supply graph.

    [2]
    (b)

    Calculate the minimum increase in government purchases needed to close the output gap. Show your work.

    [3]
    (c)

    Using the money market, explain how the increase in government purchases will affect the nominal interest rate in the short run.

    [2]
    (d)

    Explain how the interest-rate change in part (c) affects private investment, what this implies for the actual change in real GDP relative to your answer in part (b), and how it affects Alandia's rate of long-run economic growth.

    [3]
17. Question 176 marks · Bank balance sheets & money creation
    The banking system. First Bank of Alandia has the following simplified balance sheet. Assets: reserves of 30,000 dollars and loans of 170,000 dollars. Liabilities: demand deposits of 200,000 dollars. The required reserve ratio is 10 percent.
    $Reserves = 30{,}000, \qquad Loans = 170{,}000, \qquad Deposits = 200{,}000, \qquad rr = 0.10$
    (a)

    Calculate First Bank's required reserves and its excess reserves. Show your work.

    [2]
    (b)

    What is the maximum amount of new loans that First Bank alone can safely make? Explain.

    [2]
    (c)

    Assuming all banks lend out their full excess reserves and all loans are redeposited in the banking system, calculate the maximum increase in demand deposits for the banking system as a whole. Show your work.

    [2]
18. Question 186 marks · Foreign exchange & net exports
    Exchange rates. The United Kingdom and the United States trade goods and financial assets freely, and the exchange rate between the pound and the dollar floats. Suppose the Bank of England raises interest rates while interest rates in the United States remain unchanged.
    (a)

    Explain how the change in United Kingdom interest rates affects international capital flows and the demand for the British pound in the foreign exchange market.

    [2]
    (b)

    Will the pound appreciate or depreciate against the dollar? Explain by describing what happens in the foreign exchange market graph for the pound.

    [2]
    (c)

    Explain the effect of this exchange-rate change on the United Kingdom's net exports.

    [2]