Tuesday, May 23, 2017

2017 AP Microeconomics FRQ #3

2017 AP Microeconomics FRQ #3

2017 AP Microeconomics FRQ #2

2017 AP Microeconomics FRQ #2

2017 AP Microeconomics FRQ #1

2017 AP Microeconomics FRQ #1

(A) Draw a CLG for the corn market and a representative corn farmer (Firm). On your graph show each of the following.
(i) The equilibrium price and quantity in the corn market, labelled PM & QM.
(ii) The profit maximising quantity of corn produced by the representative farmer earning zero economic profit (normal profit) labelled QF.

(B) Assume the demand for ethanol increases. On your graph in part (A) show what will happen to each of the following in the short-run
(i) The market price and quantity of corn labelled P* & Q*.
(ii) The area of profit or loss earned by the corn farmer. Shaded completely.

If the demand for Ethanol increases then the demand for corn must increases as corn is an input for Ethanol.

(C) Relative to your answer in part (B), state what will happen to the market equilibrium price and quantity of corn in the long-run. Explain.

Profits in the short run, attract firms
Firms enter in the long-run
Firms enter and produce more Supply, Supply increases
Increased Supply means quantity produced increases
Increased Supply drives prices lower

Tuesday, May 9, 2017

Wednesday, May 3, 2017

Equation of Exchange (Quantity Theory of Money)

Quantity Theory of Money
Equation of Exchange

Lorenzo in Hong Kong @ AIS wants to know about
Equation of Exchange and how has it been tested.
Monetarists believe that inappropriate monetary policy will cause macroeconomic instability.
M*V = P*Q
(Money Supply (times) the Velocity of Money) = (Price * Quantity or Nominal GDP)

Monetarists want the V (velocity of money) to be stable
(no sudden increases in the money supply)

If the money supply rises faster than the rate of growth then we will have inflation
If the Money Supply doubles the Price Level doubles

1995 - 0 questions

2000  #40
Answer - A Income velocity of money increased

2005 #58 

Answer - E the price level will increase

2008 #21
Answer - B Nominal national income

If velocity is stable, meaning that the factors affecting it change gradually and predictably, changes in M lead directly to changes in Nominal GDP (PxQ)
2010 #16

Answer - A increase in nominal output

If the economy is expected to grow at 2 percent in a given year, the Fed should allow the money supply to increase by 2 percent. The Fed should be bound to fixed rules in conducting monetary policy because discretionary power can destabilize the economy.­
2012 #59

Answer - E Long Run RGDP

Practise Test Question (No idea where it is from)
Answer - A Monetarists believe V is stable

People have a stable desire to hold money relative to other financial assets. 
If the money supply is stable and V, velocity is stable then total spending is stable

From Chinese Booklet (no idea where it came from)
Answer - A.

Answer - E

Sunday, April 30, 2017


I have some time before the AP exams,, if you have questions send me an e-mail and let me help.

or leave a question on the blog