AP®︎ Macroeconomics: Unit 3 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Unit 3 of AP Macroeconomics – National Income and Price Determination.
Questions List
Unit 3 (All Topics)
Question 1 Topic 3.1Easy
This question tests the following: MOD-2.A.1
What does aggregate demand represent?
What You’re Being Tested On:
Explore the learning objectives taken directly from the College Board’s AP® Macroeconomics Curriculum. Ensure you’re prepared for the exact topics covered on the AP® exam, in-class tests, and quizzes, and gain confidence in your mastery of the material.
Unit 3: National Income and Price Determination
This unit analyzes national income and price levels through the lens of aggregate demand and supply, exploring how equilibrium is affected by policy and economic shocks.
Topic 3.1: Aggregate Demand (AD)
Learning Objective: MOD-2.A
a. Define (using graphs as appropriate) the aggregate demand (AD) curve. b. Explain (using graphs as appropriate) the slope of the AD curve and its determinants.
Essential Knowledge: MOD-2.A.1
The aggregate demand (AD) curve describes the relationship between the price level and the quantity of goods and services demanded by households (consumption), firms (investment), government (government spending), and the rest of the world (net exports).
Essential Knowledge: MOD-2.A.2
The negative slope of the AD curve is explained by the real wealth effect, the interest rate effect, and the exchange rate effect. [See EK MKT-3.A.1]
Essential Knowledge: MOD-2.A.3
Any change in the components of aggregate demand (consumption, investment, government spending, or net exports) that is not due to changes in the price level leads to a shift of the AD curve.
Topic 3.2: Multipliers
Learning Objective: MOD-2.B
a. Define the expenditure multiplier, the tax multiplier, the marginal propensity to consume, and the marginal propensity to save. b. Explain how changes in spending and taxes lead to changes in real GDP. c. Calculate how changes in spending and taxes lead to changes in real GDP.
Essential Knowledge: MOD-2.B.1
A $1 change to autonomous expenditures leads to further changes in total expenditures and total output.
Essential Knowledge: MOD-2.B.2
The expenditure multiplier quantifies the size of the change in aggregate demand as a result of a change in any of the components of aggregate demand.
Essential Knowledge: MOD-2.B.3
The tax multiplier quantifies the size of the change in aggregate demand as a result of a change in taxes.
Essential Knowledge: MOD-2.B.4
The expenditure multiplier and tax multiplier depend on the marginal propensity to consume.
Essential Knowledge: MOD-2.B.5
The marginal propensity to consume is the change in consumer spending divided by the change in disposable income. The sum of the marginal propensity to consume and marginal propensity to save is equal to one.
Topic 3.3: Short-Run Aggregate Supply (SRAS)
Learning Objective: MOD-2.C
a. Define (using graphs as appropriate) the short-run aggregate supply (SRAS) curve. b. Explain (using graphs as appropriate) the slope of the SRAS curve and its determinants.
Essential Knowledge: MOD-2.C.1
The short-run aggregate supply (SRAS) curve describes the relationship between the price level and the quantity of goods and services supplied in an economy.
Essential Knowledge: MOD-2.C.2
The SRAS curve is upward-sloping because of sticky wages and prices. [See EK MOD-2.E.1]
Essential Knowledge: MOD-2.C.3
Any factor that causes production costs to change, such as a change in inflationary expectations, will cause the SRAS curve to shift.
Learning Objective: MOD-2.D
Explain (using graphs as appropriate) how movement along the SRAS curve implies a relationship between the price level (and inflation) and unemployment.
Essential Knowledge: MOD-2.D.1
Moving along the SRAS curve, an increase in the price level is associated with an increase in output, which means employment must correspondingly rise. With the labor force held constant, unemployment will fall. So, there is a short-run trade-off between inflation and unemployment. [See EK MOD-3.A.1]
Topic 3.4: Long-Run Aggregate Supply (LRAS)
Learning Objective: MOD-2.E
Define (using graphs as appropriate) the short run and the long run.
Essential Knowledge: MOD-2.E.1
In the long run all prices and wages are fully flexible, while in the short run some input prices are fixed. A consequence of flexible long-run prices and wages is the lack of a long-run trade-off between inflation and unemployment.
Learning Objective: MOD-2.F
Define (using graphs as appropriate) the long-run aggregate supply (LRAS) curve.
Essential Knowledge: MOD-2.F.1
The LRAS curve corresponds to the production possibilities curve (PPC) because they both represent maximum sustainable capacity. Maximum sustainable capacity is the total output an economic system will produce over a set period of time if all resources are fully employed. [See LO MOD-2.I]
Essential Knowledge: MOD-2.F.2
The LRAS curve is vertical at the full-employment level of output because in the long run wages and prices fully adjust.
Topic 3.5: Equilibrium in the Aggregate Demand– Aggregate Supply (AD–AS) Model
Learning Objective: MOD-2.G
Explain (using graphs as appropriate) the short-run and long-run equilibrium price level and output level.
Essential Knowledge: MOD-2.G.1
Short-run equilibrium occurs when the aggregate quantity of output demanded and the aggregate quantity of output supplied are equal—i.e., at the intersection of the AD and SRAS curves.
Essential Knowledge: MOD-2.G.2
Long-run equilibrium occurs when the AD and SRAS curves intersect on the LRAS—i.e., at the full-employment level of real output.
Essential Knowledge: MOD-2.G.3
The short-run equilibrium output can be at the full-employment level of output, above it, or below it, creating positive (i.e., inflationary) or negative (i.e., recessionary) output gaps.
Topic 3.6: Changes in the AD–AS Model in the Short Run
Learning Objective: MOD-2.H
Explain (using graphs as appropriate) the response of output, employment, and the price level to an aggregate demand or aggregate supply shock in the short run.
Essential Knowledge: MOD-2.H.1
A positive (negative) shock in AD causes output, employment, and the price level to rise (fall) in the short run.
Essential Knowledge: MOD-2.H.2
A positive (negative) shock in SRAS causes output and employment to rise (fall) and the price level to fall (rise) in the short run.
Essential Knowledge: MOD-2.H.3
Inflation can be caused by changes in aggregate demand (demand-pull) or aggregate supply (cost-push).
Topic 3.7: Long-Run Self-Adjustment
Learning Objective: MOD-2.I
Explain (using graphs as appropriate) the response of output, employment, and the price level to an aggregate demand or aggregate supply shock in the long run.
Essential Knowledge: MOD-2.I.1
In the long run, in the absence of government policy actions, flexible wages and prices will adjust to restore full employment and unemployment will revert to its natural rate after a shock to aggregate demand or short-run aggregate supply. [See EK MEA-1.E.2]
Essential Knowledge: MOD-2.I.2
Shifts in the long-run aggregate supply curve indicate changes in the full-employment level of output and economic growth.
Topic 3.8: Fiscal Policy
Learning Objective: POL-1.A
a. Define fiscal policy and related terms. b. Explain (using graphs as appropriate) the short-run effects of a fiscal policy action. c. Calculate the short-run effects of a fiscal policy action.
Essential Knowledge: POL-1.A.1
Governments implement fiscal policies to achieve macroeconomic goals, such as full employment.
Essential Knowledge: POL-1.A.2
The tools of fiscal policy are government spending and taxes/transfers.
Essential Knowledge: POL-1.A.3
Changes in government spending affect aggregate demand directly, and changes in taxes/transfers affect aggregate demand indirectly.
Essential Knowledge: POL-1.A.4
The government spending multiplier is greater than the tax multiplier.
Essential Knowledge: POL-1.A.5
Expansionary or contractionary fiscal policies are used to restore full employment when the economy is in a negative (i.e., recessionary) or positive (i.e., inflationary) output gap.
Essential Knowledge: POL-1.A.6
Fiscal policy can influence aggregate demand, real output, and the price level. [See also EK MKT-5.E.2 for the effect on exchange rates.]
Essential Knowledge: POL-1.A.7
The AD–AS model is used to demonstrate the short-run effects of fiscal policy.
Learning Objective: POL-1.B
Define why there are lags to discretionary fiscal policy.
Essential Knowledge: POL-1.B.1
In reality, there are lags to discretionary fiscal policy because of factors such as the time it takes to decide on and implement a policy action.
Topic 3.9: Automatic Stabilizers
Learning Objective: POL-1.C
a. Define automatic stabilizers. b. Explain how automatic stabilizers moderate business cycles.
Essential Knowledge: POL-1.C.1
Automatic stabilizers support the economy during recessions and help prevent the economy from being overheated during expansionary periods.
Essential Knowledge: POL-1.C.2
Tax revenues decrease automatically as GDP falls, preventing consumption and the economy from falling further.
Essential Knowledge: POL-1.C.3
Tax revenues increase automatically as GDP rises, slowing consumption and preventing the economy from overheating.
Essential Knowledge: POL-1.C.4
Government policies, institutions, or agencies may also have social service programs whose transfer payments act as automatic stabilizers.
