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CLEP Principles of Macroeconomics Practice Test

10 free sample questions with answers and explanations. See how you'd score on the real CLEP exam.

Question 1Unit 1: Basic Economic Concepts

A central bank concerned about inflation would most appropriately implement which combination of monetary policy actions?

A
A) Increase the money supply and lower the federal funds rate
B
B) Decrease the required reserve ratio and buy government bonds
C
C) Sell government securities and raise the federal funds rate
D
D) Lower the discount rate and expand open market purchases
E
E) Increase the monetary base and decrease interest rates

Explanation

Sell government securities and raise the federal funds rate is correct because selling securities reduces money supply while raising rates decreases borrowing, both contractionary measures that combat inflation.

Question 2Unit 1: Basic Economic Concepts

If the Federal Reserve increases the federal funds rate during a period of high inflation, banks would most likely respond by:

A
A) Lowering interest rates on savings accounts and loans
B
B) Increasing interest rates on consumer loans and mortgages
C
C) Purchasing more Treasury bonds to increase profits
D
D) Reducing their required reserve balances at the Fed
E
E) Expanding credit availability to stimulate borrowing

Explanation

Increasing interest rates on consumer loans and mortgages is correct because higher federal funds rates increase banks' borrowing costs, which they pass to consumers through higher loan and mortgage rates.

Question 3Unit 1: Basic Economic Concepts

Which of the following Federal Reserve actions would most directly reduce the money supply to combat rising inflation?

A
A) Lowering the discount rate to encourage bank borrowing
B
B) Selling government securities in open market operations
C
C) Decreasing the required reserve ratio for commercial banks
D
D) Increasing the federal funds rate target
E
E) Expanding the monetary base through quantitative easing

Explanation

Selling government securities in open market operations is correct because selling securities removes money from circulation, directly decreasing the money supply and reducing inflationary pressure.

Question 4Unit 1: Basic Economic Concepts

An increase in expected future income would most likely affect the loanable funds market by:

A
A) Decreasing demand for loanable funds and lowering real interest rates
B
B) Increasing demand for loanable funds and raising real interest rates
C
C) Increasing supply of loanable funds and lowering real interest rates
D
D) Decreasing supply of loanable funds and raising real interest rates
E
E) Having no effect on either supply or demand

Explanation

Increasing demand for loanable funds and raising r... is correct because higher expected future income increases current consumption demand, shifting loanable funds demand rightward and raising real interest rates.

Question 5Unit 1: Basic Economic Concepts

Which scenario would shift the supply of loanable funds leftward, increasing real interest rates?

A
A) Households increase retirement savings
B
B) Businesses reduce capital expenditure plans
C
C) Government implements policies encouraging private savings
D
D) Central bank reduces the discount rate
E
E) Decline in household disposable income due to recession

Explanation

Decline in household disposable income due to recession is correct because reduced disposable income decreases household savings, shifting loanable funds supply leftward and raising real interest rates.

Question 6Unit 1: Basic Economic Concepts

Which of the following would cause real interest rates to increase in the loanable funds market?

A
A) Increase in household savings rates
B
B) Decrease in business investment demand
C
C) Increase in government budget deficits
D
D) Decrease in inflation expectations
E
E) Increase in money supply growth

Explanation

Increase in government budget deficits is correct because increased government borrowing shifts demand for loanable funds rightward, raising equilibrium real interest rates.

Question 7Unit 1: Basic Economic Concepts

When converting a price index from a 2005 base year (index = 140) to a 2015 base year, what is the new index value for 2005?

A
A) 0
B
B) 71.4
C
C) 100
D
D) 140
E
E) 280

Explanation

71.4 is correct because 100 × (100/140) = 71.4, establishing 2015 as the new reference point with index 100.

Question 8Unit 1: Basic Economic Concepts

If the price index for 2012 is 120 with a 2010 base year, and prices increase by 25% from 2012 to 2018, what is the price index for 2018 using the same 2010 base year?

A
A) 120
B
B) 145
C
C) 150
D
D) 155
E
E) 175

Explanation

150 is correct because 120 × 1.25 = 150, reflecting the cumulative price increase from the 2010 base year.

Question 9Unit 1: Basic Economic Concepts

An increase in business confidence leading to greater capital investment would most likely cause the SRAS to shift in which direction?

A
A) Left, due to higher production costs
B
B) Right, due to increased productive capacity
C
C) Left, due to increased aggregate demand
D
D) Right, due to lower input prices
E
E) No shift, only a movement along the curve

Explanation

Right, due to increased productive capacity is correct because more capital investment expands productive capacity, allowing firms to supply greater output at each price level.

Question 10Unit 1: Basic Economic Concepts

Which factor would NOT shift the short-run aggregate supply curve?

A
A) Changes in expected future prices
B
B) Technological improvements
C
C) Changes in the quantity of capital stock
D
D) Changes in the current price level
E
E) Changes in input costs

Explanation

Changes in the current price level is correct because price level changes cause movements along SRAS, not shifts of the curve itself.

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