Transcript FRQ answers - Fort Bend ISD

AP Practice FRQs
1. Increased saving increases the supply of
loanable funds. This causes i to fall.
a. D for the US $ will fall b/c there will be a
decrease in D for US financial assets; the
US $ will depreciate
b. US imports will fall (foreign goods more
expensive) and US exports will rise (US
goods less expensive)
2. a. $5000 (all of it is new $)
b. i. $4500; ii. $50,000 ($4500 x 10 +
$5000)
c. Money supply will decrease b/c banks
will loan less money
d. Money supply will decrease b/c banks
will have less money and will, therefore,
loan less money
3. a. i. Inflation will eat away at the real
value of their savings causing them to
have less purchasing power when they
use their money than they would have
had if they’d spent it.
ii. The value of the $ they repay will be less
than the value they spent. They win.
b. Increase taxes or cut G; c. Sell bonds
d. Nominal interest rate will rise. Banks
have to raise i so that $ repaid has more
real value than $ lent.
e. B/c P in Y is high, D for Y’s goods falls.
Demand for Y’s currency falls so Y’s
currency depreciates.
Inflation
b. i. Increase in P of
oil/other production costs;
increase in wages;
decrease in worker
productivity
4.
8%
4%
SRPC2
SRPC
2%
Inflation
5%
Unemployment
LRPC
5% Unemployment
d. There is no long
run relationship
between inflation and
unemployment.
5.
Inflation
LRPC
SRPC
NRU
Unemployment
a. i. An increase in G will increase AD, thus increasing P and
increasing GDP. Inflation increases and unemployment
decreases. SRPC doesn’t move but the point moves from 1
point to another on same SRPC.
ii. Expectation that P will fall causes people to spend less now.
AD falls so inflation falls and unemployment rises. Point
moves from 1 point to another on same SRPC.
b. Govt. is giving more money to unemployed people thus
allowing them to remain unemployed longer. The NRU will
increase thus shifting the LRPC to the right.
6. a. The unemployment rate will fall below
the NRU.
b. Unemployment rate will be unaffected b/c
people are still employed.
c. Govt. giving less $ to unemployed people
thus forcing them back to work more
quickly. NRU will fall.
Inflation
LRPC2
NRU2
LRPC1
NRU1 Unemployment
7. a. Capital will flow out of Japan and into
the US b/c US financial assets will
become more valuable and Japanese
financial assets will become less valuable.
b. (only have to draw graph of Yen!)
P
S1
S2
P1
P
P2
S
P1
D2
P2
D1
D
Yen
Q
Dollars
Q
Supply of yen increases b/c Japanese investors have to
supply more yen in order to get more $. Yen depreciates.
c. Exports to Japan will fall (US goods more expensive) and
imports from Japan will rise (Japanese goods less
expensive.)
8. a. Getting rid of income tax has the effect
of increasing income. When income rises,
C rises and savings rises.
b. b/c savings increases, supply of loanable
funds increases; i falls and b/c i falls, I rises
S1
i
S2
i1
i2
D
Q
c. Long run economic growth will increase b/c
I increases which increases the nation’s capital
stock thus pushing LRAS further to the right.
9. a. Purchases of US financial assets
would fall b/c money would move to
Europe rather than the U.S.
b. The $ would depreciate b/c the D for the
$ would fall.
c. US exports would increase
d. US imports would decrease
10. a. Fed funds rate – the interest rate that
banks charge one another on overnight
loans
b. Buy bonds
c. $40 million ($10 – (10 x 0.2)) x 1/0.2
d. The nominal interest rate will fall
e. The real rate of interest will fall b/c real
interest rate = nominal interest rate –
expected inflation. If nom. i goes down
and inflation goes up, real i falls.
11. a. S of $ will increase and $ will
depreciate.
b. Value of $ will increase b/c there will be a
greater D for $ b/c there’s a greater D for
US financial assets
ii. Q of dollars supplied will increase b/c D
for $ increases
12. a.
i
Sm2
Sm1
i2
i1
Dm
Q
b. Interest-sensitive C falls b/c borrowing $ becomes
more expensive. I falls b/c borrowing $ becomes
more expensive. There is no change in G.
P
AS
P1
P2
AD2
GDP2 GDP1 GDP
AD1