2024 AP Macroeconomics Free-Response Questions
Advanced PlacementEconomicsFree Response
3 questions20 pts
3 gradable20 rubric criteria0 dependencies
q1
Question 1
1. 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%. (a) Calculate Alpha's natural rate of unemployment. Show your work. (b) 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 Y₁ and PL₁, respectively (ii) The full-employment output, labeled Y_F (c) Assume that policymakers take no action to close the output gap. (i) Explain how Alpha's economy will adjust to full employment in the long run. (ii) 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 PL₂. (d) 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. (e) 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. (f) 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? (i) The price of previously issued bonds (ii) The price level. Explain.
Rubric Criteria (10)
C1The response calculates Alpha's natural rate of unemployment as 5% and shows the work, using either the difference between actual and cyclical unemployment (8% − 3% = 5%) or the sum of frictional and structural unemployment (4% + 1% = 5%).
1.0000pts
C2The response draws a correctly labeled aggregate demand–aggregate supply graph showing the price level PL₁ and real output Y₁ at the intersection of the AD and SRAS curves.
1.0000pts
C3The response shows a vertical long-run aggregate supply (LRAS) curve to the right of Y₁ and labels the full-employment output Y_F.
1.0000pts
C4The response explains that input prices (e.g., nominal wages) and/or inflationary expectations will decrease, causing SRAS to increase until the economy reaches full employment.
1.0000pts
C5On the graph from part (b), the response shows the long-run adjustment by shifting the SRAS curve to the right until it intersects the AD and LRAS curves at a lower price level labeled PL₂.
1.0000pts
C6The response states that the central bank would decrease its administered interest rates or decrease interest on reserves.
1.0000pts
C7The response draws a correctly labeled graph of the reserve market with the supply curve intersecting the demand curve in the range of ample reserves.
1.0000pts
C8The response shows a decrease in the administered interest rates resulting in a decrease in the policy rate, or shows a decrease in the lower bound of the demand curve for reserves resulting in a decrease in the policy rate.
1.0000pts
C9The response states that the price of previously issued bonds will increase and that the price level will increase.
1.0000pts
C10The response explains that the decrease in nominal interest rates will increase interest-sensitive spending (consumption, investment, or net exports), which will increase aggregate demand.
1.0000pts
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q2
Question 2
2. 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 | (a) Calculate real GDP in Louland in year 2. Show your work. (b) 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? (c) 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. (d) What was the numerical value of the inflation rate from year 1 to year 2 ? (e) 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. Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.
Rubric Criteria (5)
C1The response calculates real GDP in Louland in year 2 as 900,000 and shows the work, such as by computing (Nominal GDP / GDP Deflator) × 100 = (1,035,000 / 115) × 100 = 900,000.
1.0000pts
C2The response states that the demand for money would increase and the nominal interest rate would increase.
1.0000pts
C3The response states that the standard of living of the average citizen in Louland decreased from year 1 to year 2 and explains that real GDP per capita in year 1 was 800 and in year 2 was 750.
1.0000pts
C4The response states that the inflation rate from year 1 to year 2 was 15%.
1.0000pts
C5The response states that real wages decreased and explains that nominal wages increased by less than the inflation rate (10% < 15%).
1.0000pts
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q3
Question 3
3. Assume Malaysia's economy is in a recession and its government currently has a balanced budget. (a) Identify a specific fiscal policy action that the government of Malaysia would implement to address the recession. (b) How will the fiscal policy action identified in part (a) affect the real interest rate in Malaysia? Explain. (c) 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. (d) 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. Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.
Rubric Criteria (5)
C1The response states an increase in government spending, a decrease in taxes, or an increase in transfer payments.
1.0000pts
C2The response states that the real interest rate will increase and explains that government borrowing will increase, which will increase the demand for loanable funds (or decrease the supply of loanable funds).
1.0000pts
C3The response draws a correctly labeled graph of the foreign exchange market for the ringgit.
1.0000pts
C4The response shows an increase in the demand for the ringgit (or a decrease in the supply of the ringgit), resulting in an appreciation of the ringgit.
1.0000pts
C5The response states that Malaysia’s imports will increase and explains that the appreciation of the ringgit will make Japanese goods relatively less expensive than they were before.
1.0000pts
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