ExamTeXAP Macroeconomics · Unit 5 · Long-run consequences of stabilization policies · last updated
Long-run consequences of stabilization policies practice questions (AP Macroeconomics)
Unit 5 covers the combined effects of fiscal and monetary policy, the short-run and long-run Phillips curves, the quantity theory of money, deficits and the national debt, crowding out, and the sources of long-run economic growth. Below are all 6 free AP Macroeconomics questions on it from our free exams, each with a worked answer behind a toggle, then 7 key terms with the formulas typeset, and a door to make an AP Macroeconomics-style paper on this unit from your own notes. The free exams are typeset PDFs with an answer key; the exam downloads without a signup.
Sample questions
All 6 free AP Macroeconomics questions on this unit, from the free AP Macroeconomics Practice Test and the free AP Macroeconomics Multiple Choice Questions with Answers. Each answer is behind its own toggle; the whole paper, its PDF and the full answer key are on the exam page.
- Question 12 marks · Phillips curveA 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
- A.
- Question 22 marks · Monetary & fiscal policy mixThe 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
- A.
- Question 31 mark · Fiscal policy & Phillips curveWhich of the following is an example of an automatic stabilizer?
- A.Congress passing an infrastructure spending bill after unemployment rises
- B.Unemployment insurance payments that increase as more workers lose their jobs
- C.The central bank lowering interest rates during a recession
- D.A temporary tax rebate enacted in response to a recession
- E.A balanced-budget rule requiring spending cuts whenever tax revenue falls
- A.
- Question 41 mark · Fiscal policy & Phillips curveAccording to the long-run Phillips curve, a permanent increase in the growth rate of the money supply will eventually result in:
- A.a permanently lower unemployment rate and a higher inflation rate
- B.a higher inflation rate with unemployment back at its natural rate
- C.a lower inflation rate and a higher unemployment rate
- D.no change in either the inflation rate or the unemployment rate
- E.a leftward shift of the short-run Phillips curve
- A.
- Question 51 mark · Fiscal policy & Phillips curveAt the start of year 1, Kesh's national debt is 500 billion dollars. In year 1 the government runs a budget deficit of 60 billion dollars, and in year 2 it runs a budget surplus of 10 billion dollars. At the end of year 2, the national debt is:
- A.50 billion dollars
- B.450 billion dollars
- C.550 billion dollars
- D.560 billion dollars
- E.570 billion dollars
- A.
- Question 61 mark · Fiscal policy & Phillips curveOne reason monetary policy can usually be implemented more quickly than discretionary fiscal policy is that:
- A.the central bank can act without new legislation being passed
- B.changes in interest rates affect investment spending immediately
- C.the central bank does not need economic data to recognize that a problem exists
- D.fiscal policy cannot be used until the central bank has adjusted the money supply
- E.monetary policy has no effect on the government's budget
- A.
Key terms
The definitions and formulas AP Macroeconomics expects for long-run consequences of stabilization policies, typeset as they appear on the paper.
- Short-run Phillips curve (SRPC)
- The inverse relationship between inflation and unemployment in the short run. A shift of aggregate demand is a movement along the SRPC; a supply shock or a change in expected inflation shifts it.
- Long-run Phillips curve (LRPC)
- Vertical at the natural rate of unemployment: in the long run there is no trade-off, and sustained expansionary policy raises inflation without lowering unemployment.
- Stagflation
- Rising inflation together with rising unemployment, produced by a negative supply shock that shifts SRAS left and the SRPC right. Demand-side policy can fix only one of the two problems.
- Quantity theory of money
- With velocity stable and output at potential, growth in the money supply translates into inflation one for one in the long run.
- Deficit and debt
- A budget deficit is one year's spending in excess of tax revenue; the national debt is the accumulated stock of past deficits. Deficits add to the debt; surpluses reduce it.
- Policy mix
- Expansionary fiscal with contractionary monetary policy, or any other combination, has predictable effects on the real interest rate and investment even when the effect on output is ambiguous. FRQs ask for the direction of each variable with the reasoning.
- Sources of long-run growth
- Growth in potential output comes from more physical capital, more and better-educated labor (human capital), and better technology: anything that shifts LRAS and the PPC outward. Policies that raise saving and investment support it.
Frequently asked questions
Are there free long-run consequences of stabilization policies practice questions for AP Macroeconomics?
Yes. 6 questions on long-run consequences of stabilization policies appear in the free AP Macroeconomics Practice Test and the free AP Macroeconomics Multiple Choice Questions with Answers, and the sample questions on this page come from them with worked answers. Each exam can be read online or downloaded as a typeset PDF without signing up, and its full answer key is emailed on request.
How do I make an AP Macroeconomics practice paper on long-run consequences of stabilization policies from my notes?
Open the create page with the AP Macroeconomics style preselected, tick "Unit 5 · Long-run consequences of stabilization policies" under the units to cover (or upload your notes and slides on it), choose the question mix and time limit, and generate. You get a typeset PDF in the AP format with a separate answer key, in about a minute. It is free to try, no card needed.
What does AP Macroeconomics expect you to know about long-run consequences of stabilization policies?
Unit 5 covers the combined effects of fiscal and monetary policy, the short-run and long-run Phillips curves, the quantity theory of money, deficits and the national debt, crowding out, and the sources of long-run economic growth. The terms to have cold: Short-run Phillips curve (SRPC), Long-run Phillips curve (LRPC), Stagflation, Quantity theory of money, Deficit and debt. Each is defined below with its formula typeset where one applies.
Other AP Macroeconomics topics
Make an AP Macroeconomics paper on long-run consequences of stabilization policies from your notes
Open "Pick your exam" with the AP Macroeconomics style preselected and tick "Unit 5 · Long-run consequences of stabilization policies", or upload your notes on it. You get a typeset paper in the AP format with a separate answer key.