AP®︎ Macroeconomics: Unit 5 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Unit 5 of AP Macroeconomics – Long–Run Consequences of Stabilization Policies.
Questions List
Unit 5 (All Topics)
Question 1 Topic 5.1Easy
This question tests the following: POL-1.F
What is fiscal policy primarily concerned with?
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 5: Long–Run Consequences of Stabilization Policies
This unit examines the long-run effects of stabilization policies and investigates how fiscal and monetary tools impact economic growth and price stability.
Topic 5.1: Fiscal and Monetary Policy Actions in the Short Run
Learning Objective: POL-1.F
Explain (using graphs as appropriate) the effects of combined fiscal and monetary policy actions.
Essential Knowledge: POL-1.F.1
A combination of expansionary or contractionary fiscal and monetary policies may be 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.F.2
A combination of fiscal and monetary policies can influence aggregate demand, real output, the price level, and interest rates. [For additional details on fiscal and monetary policy actions and how to demonstrate their effects graphically, see LO POL-1.A and LO POL-1.D.]
Topic 5.2: The Phillips Curve
Learning Objective: MOD-3.A
a. Define (using graphs as appropriate) the short-run Phillips curve and the long-run Phillips curve. b. Explain (using graphs as appropriate) short-run and long-run equilibrium in the Phillips curve model.
Essential Knowledge: MOD-3.A.1
The short-run trade-off between inflation and unemployment can be illustrated by the downward-sloping short-run Phillips curve (SRPC).
Essential Knowledge: MOD-3.A.2
An economy is always operating somewhere along the SRPC.
Essential Knowledge: MOD-3.A.3
The long-run relationship between inflation and unemployment can be illustrated by the long-run Phillips curve (LRPC), which is vertical at the natural rate of unemployment.
Essential Knowledge: MOD-3.A.4
Long-run equilibrium corresponds to the intersection of the SRPC and the LRPC.
Essential Knowledge: MOD-3.A.5
Points to the left of long-run equilibrium represent inflationary gaps, while points to the right of long-run equilibrium represent recessionary gaps.
Learning Objective: MOD-3.B
Explain (using graphs as appropriate) the response of unemployment and inflation in the short run and in the long run.
Essential Knowledge: MOD-3.B.1
Demand shocks correspond to movement along the SRPC.
Essential Knowledge: MOD-3.B.2
Supply shocks correspond to shifts of the SRPC.
Essential Knowledge: MOD-3.B.3
Factors that cause the natural rate of unemployment to change will cause the LRPC to shift.
Topic 5.3: Money Growth and Inflation
Learning Objective: POL-3.A
a. Explain (using graphs as appropriate) how inflation is a monetary phenomenon. b. Define the quantity theory of money. c. Calculate the money supply, velocity, the price level, and real output using the quantity theory of money.
Essential Knowledge: POL-3.A.1
Inflation (deflation) results from increasing (decreasing) the money supply at too rapid of a rate for a sustained period of time.
Essential Knowledge: POL-3.A.2
When the economy is at full employment, changes in the money supply have no effect on real output in the long run.
Essential Knowledge: POL-3.A.3
In the long run, the growth rate of the money supply determines the growth rate of the price level (inflation rate) according to the quantity theory of money.
Topic 5.4: Government Deficits and the National Debt
Learning Objective: POL-3.B
a. Define the government budget surplus (deficit) and national debt. b. Explain the issues involved with the burden of the national debt.
Essential Knowledge: POL-3.B.1
The government budget surplus (deficit) is the difference between tax revenues and government purchases plus transfer payments in a given year.
Essential Knowledge: POL-3.B.2
A government adds to the national debt when it runs a budget deficit.
Essential Knowledge: POL-3.B.3
A government must pay interest on its accumulated debt, thus increasing the national debt and increasingly forgoing using those funds for alternative uses. [See also LO POL-3.C on crowding out.]
Topic 5.5: Crowding Out
Learning Objective: POL-3.C
a. Define crowding out. b. Explain (using graphs as appropriate) how fiscal policy may cause crowding out.
Essential Knowledge: POL-3.C.1
When a government is in budget deficit, it typically borrows to finance its spending.
Essential Knowledge: POL-3.C.2
A loanable funds market model can be used to show the effect of government borrowing on the equilibrium real interest rate and the resulting crowding out of private investment. [See MKT-4]
Essential Knowledge: POL-3.C.3
Crowding out refers to the adverse effect of increased government borrowing, which leads to decreased levels of interest-sensitive private sector spending in the short run.
Essential Knowledge: POL-3.C.4
A potential long-run impact of crowding out is a lower rate of physical capital accumulation and less economic growth as a result.
Topic 5.6: Economic Growth
Learning Objective: MEA-2.B
a. Define measures and determinants of economic growth. b. Explain (using graphs and data as appropriate) the determinants of economic growth. c. Calculate (using graphs and data as appropriate) per capita GDP and economic growth.
Essential Knowledge: MEA-2.B.1
Economic growth can be measured as the growth rate in real GDP per capita over time.
Essential Knowledge: MEA-2.B.2
Aggregate employment and aggregate output are directly related because firms need to employ more workers in order to produce more output, holding other factors constant. This is captured by the aggregate production function.
Essential Knowledge: MEA-2.B.3
Output per employed worker is a measure of average labor productivity.
Essential Knowledge: MEA-2.B.4
Productivity is determined by the level of technology and physical and human capital per worker.
Essential Knowledge: MEA-2.B.5
The aggregate production function shows that output per capita is positively related to both physical and human capital per capita.
Learning Objective: MOD-1.C
Explain (using graphs as appropriate) how the PPC is related to the long-run aggregate supply (LRAS) curve.
Essential Knowledge: MOD-1.C.1
An outward shift in the PPC is analogous to a rightward shift of the long-run aggregate supply curve. [See LO MOD-2.I]
Topic 5.7: Public Policy and Economic Growth
Learning Objective: POL-4.A
a. Explain (using graphs as appropriate) public policies aimed at influencing long-run economic growth. b. Define supply-side fiscal policies. [For a description of economic growth and information about how to show it graphically, see LO MEA-2.B, LO MOD-1.B, and LO MOD-2.I]
Essential Knowledge: POL-4.A.1
Public policies that impact productivity and labor force participation affect real GDP per capita and economic growth.
Essential Knowledge: POL-4.A.2
Government policies that invest in infrastructure and technology affect growth.
Essential Knowledge: POL-4.A.3
Supply-side fiscal policies affect aggregate demand, aggregate supply, and potential output in the short run and long run by influencing incentives that affect household and business economic behavior.
