AP Macroeconomics Page 1 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) Directions Neatly write your responses in the spaces provided. Use a blue or black pen. Don't write in the margins. Remember to complete the submission information on every page you turn in. 1. The main variables used in macroeconomics are output, price level, unemployment, and interest rates. Changes in these variables are interrelated in various ways. A. The AD/AS model is central to macroeconomic analysis. This model describes changes in the economy in terms of the price level and output (RGDP). I. Consider an economy that is in short-run disequilibrium, with output well below the full-employment level. Describe how that economy would return to long-run equilibrium. Use graphs to explain your answer. (12 points) II. Explain how supply shocks and demand shocks affect the AD/AS model. (12 points) AP Macroeconomics Page 2 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) B. Interest rates, the price level, and employment are closely interrelated concepts in macroeconomics. I. Describe how changes in interest rates affect unemployment and the price level. (12 points) II. Discuss the government policies that can be used to control inflation, and analyze the effects of these policies on other important macroeconomic variables. (12 points) AP Macroeconomics Page 3 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) C. Describe the cause of stagflation and explain why stagflation presents difficulties for economic policymakers. (10 points) D. Changes in interest rates have an important effect on the macroeconomy. I. Describe the factors that lead to higher and lower interest rates, and explain how these changes in interest rates affect the economy. (9 points) AP Macroeconomics Page 4 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) II. Describe the crowding-out effect, and explain how this effect impacts a nation's economy. (9 points) 2. International trade is another important component of macroeconomic analysis. Government policy has important effects on national and international trade. A. Countries often impose trade barriers against other countries. Explain how trade barriers affect both the domestic economy of the country imposing them and the global economy as a whole. (10 points) AP Macroeconomics Page 5 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) B. Describe how a contractionary monetary policy impacts a nation's international trade. Be sure to discuss the value of that nation's currency, the price of goods produced in that nation, and its trade balance. (10 points) C. Some economists consider a large trade deficit to be detrimental to a nation's economy. I. Describe the effect of expansionary economic policies on a nation's trade deficit. Be sure to consider both monetary and fiscal policy. (10 points) AP Macroeconomics Page 6 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) II. According to the twin deficits effect, an increase in the government budget deficit will also increase that nation's trade deficit. Explain why this effect is expected to occur. (7 points) 3. In the long run, economies are expected to move toward equilibrium at the fullemployment level of production. Governments, particularly in democratic countries with frequent elections, often try to use economic policy in the shortrun to improve the nation's economy. Consider a country experiencing a recession. A. The legislature is considering the use of fiscal policy measures to bring output up to the full-employment level. The government's commerce ministry has reported to the legislature that the nation's marginal propensity to consume is 0.8 and that RGDP is $200 billion below the full-employment level. I. The Minister of Commerce recommends deficit spending to stimulate the economy. What increase in spending is necessary to bring the economy up to the full-employment level of output? (8 points) AP Macroeconomics Page 7 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) II. Legislative leaders favor a tax cut over a spending increase as a response to the recession. What size tax cut would bring the economy up to the full-employment level of output? (8 points) III. The country's president wants the legislature to pass a balanced-budget spending increase to end the recession. What increase in spending would be necessary to carry out the president's plan? (8 points) AP Macroeconomics Page 8 of 8 Exam: Macroeconomics User Name:_______________ Instructor: _________________ Date:__________ (print clearly) Copyright 2010 Apex Learning Inc. (See Terms of Use at www.apexvs.com/TermsOfUse) B. The head of the central bank of this country believes that because of the different proposals before the legislature, fiscal policy measures will not be taken any time soon. What monetary policy options can the central bank pursue to end the recession? What could prevent these measures from being effective? Explain your answers. (13 points)