Learn Extracted exam questions AP Macroeconomics 2018 Free Response
2018 Free Response
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Assume the United States economy is in recession.
Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following.
Current price level, labeled $PL_1$
Current output, labeled $Y_1$
Now assume the euro zone, a major trading partner of the United States, enters into a recession.
What will be the effect on United States exports to the euro zone? Explain.
On your graph in part (a), show the effect of the change identified in part (b)(i) on real output in the United States.
What will be the effect of the change identified in part (b)(ii) on unemployment in the United States?
Assume the euro zone recession causes a decrease in the demand for United States dollars in the foreign exchange market.
Will the euro appreciate, depreciate, or remain unchanged against the dollar? Explain.
Draw a correctly labeled graph of the foreign exchange market for dollars, and show the effect of the decrease in the demand for dollars on the exchange rate for dollars.
Assume the United States implements a combination of expansionary fiscal and monetary policies. In the absence of complete crowding out, what will be the effect of these policies on each of the following?
Aggregate demand in the United States
The price level in the United States
Interest rates in the United States. Explain.
Assume the economy of Ucheland is currently at full employment. The government of Ucheland reduces the tax rate on household interest earnings.
What will happen to private savings in Ucheland?
Draw a correctly labeled graph of the loanable funds market, and show the effect of the change in private savings identified in part (a) on the equilibrium real interest rate.
Given the real interest rate change identified in part (b), answer the following questions.
What is the short-run effect on aggregate demand? Explain.
What is the long-run effect on potential real gross domestic product in Ucheland? Explain.
Countries face trade-offs between producing consumer goods and producing capital goods.
Country X takes one hour to produce a unit of consumer goods and two hours to produce a unit of capital goods. Country Y takes two hours to produce a unit of consumer goods and four hours to produce a unit of capital goods. Which country has a comparative advantage in the production of consumer goods? Explain.
The following table shows labor-market data for Country X.
| Category | Value |
|---|---|
| Employed | 180,000 |
| Frictionally unemployed | 10,000 |
| Structurally unemployed | 5,000 |
| Cyclically unemployed | 5,000 |
| Not in the labor force | 100,000 |
Calculate the unemployment rate in Country X. Show your work.
Calculate the labor force participation rate in Country X. Show your work.
Draw a correctly labeled graph of the production possibilities curve for Country X, with consumer goods on the horizontal axis and capital goods on the vertical axis. Indicate a point on your graph, labeled Z, that reflects the current level of unemployment.