AP Macroeconomics 2007 Free-Response Questions

Transcription

1 AP Macroeconomics 2007 Free-Response Questions The College Board: Connecting Students to College Success The College Board is a not-for-profit membership association whose mission is to connect students to college success and opportunity. Founded in 1900, the association is composed of more than 5,000 schools, colleges, universities, and other educational organizations. Each year, the College Board serves seven million students and their parents, 23,000 high schools, and 3,500 colleges through major programs and services in college admissions, guidance, assessment, financial aid, enrollment, and teaching and learning. Among its best-known programs are the SAT, the PSAT/NMSQT, and the Advanced Placement Program (AP ). The College Board is committed to the principles of excellence and equity, and that commitment is embodied in all of its programs, services, activities, and concerns. College Board, Advanced Placement Program, AP, AP Central, SAT, and the acorn logo are registered trademarks of the College Board. PSAT/NMSQT is a registered trademark of the College Board and National Merit Scholarship Corporation. Permission to use copyrighted College Board materials may be requested online at: Visit the College Board on the Web: AP Central is the official online home for the AP Program: apcentral.collegeboard.com.

2 2007 AP MACROECONOMICS FREE-RESPONSE QUESTIONS MACROECONOMICS Section II Planning Time 10 minutes Writing Time 50 minutes Directions: You have 50 minutes to answer all three of the following questions. It is suggested that you spend approximately half your time on the first question and divide the remaining time equally between the next two questions. In answering the questions, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with black or dark blue ink. 1. Assume that declining stock market prices in the United States cause many United States financial investors to sell their stocks and increase their money holdings. (a) Draw a correctly labeled graph of the money market and show the impact of the financial investors actions on each of the following. (i) Demand for money (ii) Nominal interest rate (b) Due to the decline in wealth caused by the change in stock prices, the general price level in the United States falls relative to the price level in Japan, a trading partner. Use a correctly labeled graph of the foreign exchange market for the United States dollar to show the impact of the change in relative price levels on each of the following. (i) Demand for the dollar (ii) Price of the dollar (yen/dollar) (c) How will the change in the price of the dollar you indicated in part (b) (ii) affect net exports of the United States? Explain. (d) Using a correctly labeled aggregate demand and aggregate supply graph, show how the change in net exports in part (c) will affect each of the following in the short run. (i) Aggregate demand (ii) Output and price level (e) Given your answers to part (d), what will happen to unemployment in the short run? Explain. -2- GO ON TO THE NEXT PAGE.

3 2007 AP MACROECONOMICS FREE-RESPONSE QUESTIONS 2. In recent years, the Federal Reserve has made targeting the federal funds rate a main focus of its monetary policy. (a) Define the federal funds rate. (b) If the Federal Reserve wants to lower the federal funds rate, what open-market operation would be appropriate? (c) Assume that the open-market operation that you indicated in part (b) is equal to $10 million. If the required reserve ratio is 0.2, calculate the maximum change in loans throughout the banking system. (d) Indicate the effect of the open-market operation that you indicated in part (b) on the nominal interest rate. (e) Assume that the Federal Reserve s action results in some inflation. What would be the impact of the open-market operation on the real rate of interest? Explain. 3. Indicate whether each of the following is counted in the United States gross domestic product for the year Explain each of your answers. (a) The value of a used textbook sold through an online auction in 2006 (b) Rent paid in 2006 by residents in an apartment building built in 2000 (c) Commissions earned in 2006 by a stockbroker (d) The value of automobiles produced in 2006 entirely in South Korea by a firm fully owned by United States citizens STOP END OF EXAM -3-

4 AP Macroeconomics 2007 Scoring Guidelines Form B The College Board: Connecting Students to College Success The College Board is a not-for-profit membership association whose mission is to connect students to college success and opportunity. Founded in 1900, the association is composed of more than 5,000 schools, colleges, universities, and other educational organizations. Each year, the College Board serves seven million students and their parents, 23,000 high schools, and 3,500 colleges through major programs and services in college admissions, guidance, assessment, financial aid, enrollment, and teaching and learning. Among its best-known programs are the SAT, the PSAT/NMSQT, and the Advanced Placement Program (AP ). The College Board is committed to the principles of excellence and equity, and that commitment is embodied in all of its programs, services, activities, and concerns. College Board, Advanced Placement Program, AP, AP Central, SAT, and the acorn logo are registered trademarks of the College Board. PSAT/NMSQT is a registered trademark of the College Board and National Merit Scholarship Corporation. Permission to use copyrighted College Board materials may be requested online at: Visit the College Board on the Web: AP Central is the official online home for the AP Program: apcentral.collegeboard.com.

5 12 points ( ) AP MACROECONOMICS 2007 SCORING GUIDELINES (Form B) Question 1 (a) 4 points: One point is earned for a correctly labeled graph. One point is earned for showing a rightward shift in New Zealand s AD curve. One point is earned for the explanation that New Zealand s exports to Australia increase. One point is earned for concluding that New Zealand s output increases.

6 AP MACROECONOMICS 2007 SCORING GUIDELINES (Form B) Question 1 (continued) (b) 4 points: One point is earned for a correctly labeled graph of the money market. One point is earned for showing a rightward shift of the money demand curve. One point is earned for the explanation that higher income means more volume of transactions. One point is earned for concluding that the nominal interest rate increases. (c) 2 points: One point is earned for stating that the real interest rate is indeterminate. One point is earned for the explanation that the real interest rate is eroded by inflation but increases as a result of the increase in money demand. (d) 2 points: One point is earned for stating that the aggregate supply curve will shift to the right. One point is earned for stating that the aggregate demand curve is unaffected.

7 7 points ( ) AP MACROECONOMICS 2007 SCORING GUIDELINES (Form B) Question 2 (a) 3 points: One point is earned for a correctly labeled graph of the loanable funds market. One point is earned for shifting the demand for funds curve to the right. One point is earned for concluding that the real interest rate rises. (b) 2 points: One point is earned for shifting the supply of funds curve to the right. One point is earned for concluding that the real interest rate falls. (c) 2 points: One point is earned for stating that the production possibilities curve (PPC) will shift to the right. One point is earned for the explanation that the country s capital stock increases.

8 7 points (5 + 2) AP MACROECONOMICS 2007 SCORING GUIDELINES (Form B) Question 3 (a) 5 points: One point is earned for stating that capital will flow out from the United States to European Union countries. One point is earned for the explanation that the higher interest rate in the European Union attracts investment funds from the United States. One point is earned for a correctly labeled graph of the foreign exchange market for the euro. One point is earned for shifting the demand curve for the euro to the right. One point is earned for concluding that the euro would appreciate. (b) 2 points: One point is earned for concluding that the European Union s net exports would fall. One point is earned for the explanation that due to the appreciating euro, the European Union s goods would become relatively expensive to consumers in the United States, and exports to the United States would decrease but the European Union s imports from the United States would increase.