Learn Extracted exam questions AP Macroeconomics 2024 Free Response · Set 1
2024 Free Response · Set 1
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The economy of Alpha is in short-run equilibrium with a cyclical unemployment rate of 3%, a frictional unemployment rate of 4%, and an actual unemployment rate of 8%.
Calculate Alpha's natural rate of unemployment. Show your work.
Draw a correctly labeled graph of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves for Alpha, and show each of the following.
(i) The current equilibrium output and price level, labeled $Y_1$ and $PL_1$, respectively
(ii) The full-employment output, labeled $Y_F$
Assume that policymakers take no action to close the output gap.
Explain how Alpha's economy will adjust to full employment in the long run.
On your graph in part (b), show how Alpha's economy will adjust to full employment in the long run, labeling the new equilibrium price level $PL_2$.
Assume instead that Alpha's central bank is considering using monetary policy to close a recessionary output gap. The banking system in Alpha has ample reserves. Identify a specific monetary policy action the central bank of Alpha would take to close the output gap in the short run.
Draw a correctly labeled graph of the reserve market in Alpha, and show the effect of the action taken by the central bank identified in part (d) on the policy rate.
Based on the change in the policy rate shown in part (e), what would happen to each of the following in the short run in Alpha?
The price of previously issued bonds
The price level. Explain.
The table provided shows economic data for the country of Louland. The base year is year 1, and the GDP deflator in year 2 is 115.
| Year 1 | Year 2 | |
|---|---|---|
| Nominal GDP | 800,000 | 1,035,000 |
| Population | 1,000 | 1,200 |
Calculate real GDP in Louland in year 2. Show your work.
How would the change in real GDP from year 1 to year 2 affect the demand for money and the nominal interest rate in Louland?
Did the standard of living of the average citizen in Louland increase, decrease, or remain the same from year 1 to year 2? Explain using numbers.
What was the numerical value of the inflation rate from year 1 to year 2?
If nominal wages increased by 10% from year 1 to year 2, what happened to the real wages of workers in Louland during this time? Explain.
Assume Malaysia's economy is in a recession and its government currently has a balanced budget.
Identify a specific fiscal policy action that the government of Malaysia would implement to address the recession.
How will the fiscal policy action identified in part (a) affect the real interest rate in Malaysia? Explain.
Malaysia and Japan are trading partners with flexible exchange rates. Malaysia's currency is the ringgit (MYR), and Japan's currency is the yen (JPY). Draw a correctly labeled graph of the foreign exchange market for the ringgit relative to the yen. Show the effect of the change in the real interest rate identified in part (b) on the international value of the ringgit.
As a result of the change in the value of the ringgit shown in part (c), will Malaysia's imports increase, decrease, or remain the same? Explain.