Learn Extracted exam questions AP Macroeconomics 2022 Free Response · Set 1
2022 Free Response · Set 1
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Assume a country's economy is operating below full employment.
Draw a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, 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 $Y_F$
Identify one fiscal policy action the country's government can take to restore full employment.
Assume instead that no fiscal policy action is taken. Suppose a change in investment spending causes real GDP to increase by $200 billion. Calculate the minimum change in investment spending that could have caused this increase in real GDP if the marginal propensity to save is$0.25$. Show your work.
Assume the output gap was initially $800 billion. On your graph in part (a), show the short-run effect of the change in investment spending identified in part (c), labeling the new equilibrium real output as$Y_2$and the new equilibrium price level as$PL_2$.
Given your answer to part (d), is the actual rate of unemployment greater than, less than, or equal to the natural rate of unemployment? Explain.
Assume that private savings now increase. Draw a correctly labeled graph of the loanable funds market and show the effect of the increase in private savings on the real interest rate.
Based solely on the change in the real interest rate shown in part (f), what will happen to each of the following?
Real GDP in the short run. Explain.
Long-run aggregate supply. Explain.
Assume that commercial banks must hold a minimum of $20\%$ of their deposits as reserves. Now suppose that the central bank of the country sells $100{,}000$ of government bonds to commercial banks.
Calculate the maximum change and state the direction of change in the money supply as a result of the central bank bond sale. Show your work.
Draw a correctly labeled graph of the money market and show the effect of the change in the money supply identified in part (a) on the nominal interest rate.
Given the change in the money supply in part (a), if the velocity of money is constant, what will happen to the nominal gross domestic product? Explain.
Based on the change in the nominal gross domestic product in part (c), what happens to the price level if the real gross domestic product is constant?
Italy and Japan are trading partners and have flexible exchange rates. The Italian currency is the euro and the Japanese currency is the yen.
Suppose that the exchange rate between the euro and the yen is $1 \text{ euro} = 100 \text{ yen}$. What is the price of an Italian coat in yen if the coat costs $120$ euros in Italy?
Assume that real interest rates increase in Japan. Identify what will happen to net financial capital flows between Italy and Japan.
Draw a correctly labeled graph of the foreign exchange market for the yen and show the effect of the increase in real interest rates in Japan on the value of the yen.
Based solely on the change in the exchange rate identified in part (c), what will happen to Italy's exports to Japan? Explain.