2018 Macro FRQ Best Guesses by Jacob Reed

2018 Macro FRQ Best Guesses by Jacob Reed from Review. Econ. com Find the questions here: https: //apcentral. collegeboard. org/p df/ap 18 -frq-macroeconomics. pdf

1. a LRAS PL SRAS PLe AD Ye Yf RGDP

b. i. Exports decrease as the euro zone recession decreases euro zone national income. So euro zone consumers buy fewer imports from the US.

b. ii LRAS PL SRAS PLe PL 1 AD AD 1 Ye Yf RGDP

biii The unemployment rate will increase – Due to the decrease in real output.

c i. The euro will appreciate because the supply of euros will decrease as there will be fewer euro zone consumers supplying euros when they are demanding fewer dollars. Also, when the dollar depreciates relative to the euro, the euro will appreciate relative to the dollar. The relative values of currencies are inversely related.

cii Price of Dollars in Euros Pe P 1 Market for Dollars S D 1 Qe Q D of Dollars

d. i. Aggregate demand increases ii. The price level rises iii. Interest rates will be indeterminate because the expansionary monetary policy increases the supply of money causing interest rates to fall and the expansionary fiscal policy decreases the supply (or increases the demand) of loanable funds causing interest rates to raise. The net effect is indeterminate.

2. a. Private savings will increase Due to the incentive of lower taxes on savings interest earnings.

b. Real Interest Rate Supply 1 re r 1 Demand Qe Q 1 Q of LF

c. i. Aggregate demand will shift to the right as the lower interest rate increases investment (and/or consumption). ii. Potential real GDP will increase as the increased investment means there is more capital formation.

3. a. Neither country has the comparative advantage in the production of consumer goods as their opportunity costs are the same. Country X 1 consumer good = 1/2 capital goods 1 capital good = 2/1 = 2 consumer goods Country Y 1 consumer good = 2/4 = 1/2 capital goods 1 capital good = 4/2 = 2 consumer goods

b. (10, 000 + 5, 000) /(180, 000+10, 000+5000) x 100 = 10 The unemployment rate is 10% c. (180, 000+10, 000+5, 000)/(100, 000 +180, 000+10, 000+5, 000) x 100 = 66. 6% The labor force participation rate is 66. 6%

Capital Goods d Z Consumer Goods Edit… I have decided to change the PPC to linear as opposed to bowed out as the opportunity costs portion of the prompt indicates constant opportunity costs. But I expect a bowed out curve will be accepted.