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    2009 FRQs

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    Jacob Xiao

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    © All Rights Reserved
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    2009 FRQs

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    2009 FRQs

    Uploaded by

    Jacob Xiao

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    AP® Macroeconomics

    2009 Free-Response Questions

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    2009 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 the United States economy is in long-run equilibrium with an expected inflation rate of 6 percent
    and an unemployment rate of 5 percent. The nominal interest rate is 8 percent.
    (a) Using a correctly labeled graph with both the short-run and long-run Phillips curves and the relevant
    numbers from above, show the current long-run equilibrium as point A.
    (b) Calculate the real interest rate in the long-run equilibrium.
    (c) Assume now that the Federal Reserve decides to target an inflation rate of 3 percent. What open-market
    operation should the Federal Reserve undertake?
    (d) Using a correctly labeled graph of the money market, show how the Federal Reserve’s action you identified
    in part (c) will affect the nominal interest rate.
    (e) How will the interest rate change you identified in part (d) affect aggregate demand in the short run?
    Explain.
    (f) Assume that the Federal Reserve action is successful. What will happen to each of the following as the
    economy approaches a new long-run equilibrium?
    (i) The short-run Phillips curve. Explain.
    (ii) The natural rate of unemployment

    2. Assume that as a result of increased political instability, investors move their funds out of the country of Tara.
    (a) How will this decision by investors affect the international value of Tara’s currency on the foreign exchange
    market? Explain.
    (b) Using a correctly labeled graph of the loanable funds market in Tara, show the impact of this decision by
    investors on the real interest rate in Tara.
    (c) Given your answer in part (b), what will happen to Tara’s rate of economic growth? Explain.

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    GO ON TO THE NEXT PAGE.


    -2-
    2009 AP® MACROECONOMICS FREE-RESPONSE QUESTIONS

    3. Assume that the reserve requirement is 20 percent and banks hold no excess reserves.
    (a) Assume that Kim deposits $100 of cash from her pocket into her checking account. Calculate each of the
    following.
    (i) The maximum dollar amount the commercial bank can initially lend
    (ii) The maximum total change in demand deposits in the banking system
    (iii) The maximum change in the money supply
    (b) Assume that the Federal Reserve buys $5 million in government bonds on the open market. As a result of
    the open market purchase, calculate the maximum increase in the money supply in the banking system.
    (c) Given the increase in the money supply in part (b), what happens to real wages in the short run? Explain.

    STOP

    END OF EXAM

    © 2009 The College Board. All rights reserved.


    Visit the College Board on the Web: www.collegeboard.com.

    -3-

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