AP Questions:

Question 1 II] Assume that a country's economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. a. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. i. Current price level, labeled PL1, and current output level, labeled Y1 ii. The full-employment output level, labeled YF. b. What openmarket operation can the country's central bank use to move the economy toward its longrun equilibrium? c. Use a correctly labeled money-market graph to show how the country's central bank action to move the economy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run. d. Based on the interest rate change from part (c), will each of the following increase, decrease, or remain the same in the short run? i. Real output. Explain. ii. Natural rate of unemployment e. Assume instead that the central bank does not pursue the monetary policy action from part (b) and there was no other government intervention. Will each of the following increase, decrease, or remain the same in the long run? i. Short-run aggregate supply. Explain. ii. Employment Question 2 D The following is the balance sheet for Raymond Bank, one of many commercial banks in a country. Assets Liabilities and l-lquily Reserves $5.000 Demand deposits $20,000 Business loans 5 I0,000 Student loans 58.000 Govemmenl securities $2,000 I-'qttity (Not worth) 35ml) Total assets $25,000 Total liabilities and equity 325.000 Assume a 10 percent reserve requirement. a. Calculate Raymond Bank's required reserves. b. Calculate the maximum amount of additional loans that Raymond Bank can make without selling its holdings of government securities. c Assuming that Raymond Bank and other banks now lend out all excess reserves, calculate the maximum possible change in the following. i. Demand deposits throughout the banking system ii. Total reserves throughout the banking system d. Suppose that the country's central bank purchases $1,000 of Raymond Bank's holdings of government securities as part of its open-market operations. Do Raymond Bank's required reserves initially increase, decrease, or remain the same as a result of the central bank's purchase? Explain. Question 3 Singapore and Japan are trading partners. The Japanese economy is operating at full employment, and Japan's current account balance is zero. a. Assume the exchange rate between the Singapore dollar (SGD) and the Japanese yen (JPY) changes from 1 SGD = 82 JPY to 1 SGD = 65 JPY. Does the JPY appreciate or depreciate against the SGD? b. Given your answer in part (a), will each of the following increase, decrease, or remain the same? i. The price of Japanese goods in Singapore dollars ii. Japan's net exports c. Draw a single correctly labeled graph with the long-run Phillips curve and short-run Phillips curve for Japan. On the graph, show the new short-run equilibrium as a result of the change in Japan's net exports from part (b) (ii), labeled point X. d. Given your answer in part (b) (ii), will each of the following be in deficit, surplus, or zero for Japan? i. Current account balance ii. Financial (capital) account balance