Learn Extracted exam questions AP Macroeconomics 2022 Free Response · Set 2
2022 Free Response · Set 2
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Assume the United States economy is in short-run macroeconomic equilibrium at an output level greater than potential output.
Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, and show each of the following.
(i) The current equilibrium real output and price level, labeled as $Y_1$ and $PL_1$, respectively (ii) The full-employment output, labeled as $Y_F$
Assume government spending increases by $100 billion. On your graph in part (a), show the short-run effect of the change in government spending on the equilibrium real output and price level. Label the new equilibrium output as $Y_2$ and the new equilibrium price level as $PL_2$.
Assume the marginal propensity to consume is 0.8. As a result of the increase in government spending, what is the numerical value of the maximum change in each of the following in the short run?
Real output
Assume the marginal propensity to consume is 0.8. As a result of the increase in government spending, what is the numerical value of the maximum change in each of the following in the short run?
Household savings
Draw a correctly labeled graph of the money market and show the effect of the change in real output identified in part (c)(i) on the equilibrium nominal interest rate.
Based on the change in the nominal interest rate shown in part (d), what will happen to the prices of previously issued bonds in the short run?
The United States and the European Union are trading partners with flexible exchange rates. The currency in the United States is the dollar, and the currency in the European Union is the euro. Assume the inflation rate in the United States increases relative to the inflation rate in the European Union. As a result of the change in the United States inflation rate, what will happen to each of the following in the foreign exchange market?
The demand for dollars. Explain.
The United States and the European Union are trading partners with flexible exchange rates. The currency in the United States is the dollar, and the currency in the European Union is the euro. Assume the inflation rate in the United States increases relative to the inflation rate in the European Union. As a result of the change in the United States inflation rate, what will happen to each of the following in the foreign exchange market?
The international value of the dollar
Suppose the Federal Reserve attempts to keep the value of the dollar constant in the foreign exchange market. Based on the change in the value of the dollar in part (f)(ii), should the Federal Reserve buy or sell each of the following?
The euro
Suppose the Federal Reserve attempts to keep the value of the dollar constant in the foreign exchange market. Based on the change in the value of the dollar in part (f)(ii), should the Federal Reserve buy or sell each of the following?
The dollar
The table below shows macroeconomic data for Country A.
| Year | Nominal GDP | GDP Deflator | Population |
|---|---|---|---|
| 2020 | 40,000 | 100 | 100 |
| 2021 | 88,000 | 200 | 110 |
Calculate each of the following for Country A in year 2021. Show your work.
Real GDP
Calculate each of the following for Country A in year 2021. Show your work.
Real GDP per capita
Based solely on the data provided, has the standard of living for the average person in Country A increased, decreased, or stayed the same between 2020 and 2021 ? Explain.
How would an increase in government spending on education affect economic growth in Country A? Explain.
Assume that Country A produces consumer goods and capital goods. Draw a correctly labeled production possibilities curve for Country A, and show the effect of the increase in government spending on education on your graph.
The economy of Country Zeta is in long-run equilibrium; however, the government is concerned about the size of the national debt.
Identify one specific fiscal policy action the government could take to reduce the national debt.
Draw a correctly labeled graph of the loanable funds market, and show the effect of the fiscal policy action identified in part (a) on the real interest rate.
Based on the change in the real interest rate identified in part (b), what will happen to each of the following?
Aggregate demand in the short run. Explain.
Based on the change in the real interest rate identified in part (b), what will happen to each of the following?
Potential real output. Explain.