Econowaugh AP

Monday, April 27, 2020

ALL Stagflation FRQ's

ALL Stagflation FRQ's

2006 AP Macroeconomics Exam

(A.)

Below Full Employment = Recession

(B.) Assume an increase in the world price of oil.

Stagflation can also be called a
Negative Supply Shock = Oil Shortage
Cost Push Inflation = Business Costs increase, Businesses will raise their prices
Inflationary Expectations = Expectations of increase in costs

(C.) What will happen to unemployment?

Always link unemployment with output

Output decreases unemployment increases

2005 AP Macroeconomics Exam

(A.)

In the Short-Run, there is a trade-off between inflation and unemployment

(B.) Short-Run Aggregate Supply shifts to the left = (Stagflation)

(i) One factor that could have caused the shift left

(ii) Show the effect

Business Costs increasing shifts the SRAS curve left

Wages increased

Input prices increased

Business taxes increased

Productivity decreased

A leftward shift of the SRAS curve is
a rightward shift of the SRPC

(C.) Draw a CLG of the LRPC at 5%.

(D.) What is the relationship between inflation and unemployment in the long-run?

There is no relationship between inflation and unemployment

in the long-run.

2004B AP Macroeconomics Exam

(A.) Using an AD/AS graph show the increase in the price of oil.

(i) Real Output

(ii) Price Level

Oil price increase business costs as all business use gas for transportation
and electricity
the US gets about 85% of its electricity from coal, oil, natural gas
if oil prices increase electricity and transportation costs increase
leftward shift of the SRAS

(B.) Show the increase on the oil prices with a Phillips curve graph.

Lefts ward shift of the SRAS curve is a
rightward shift of the SRPC

(C.) Assume that the FED (Central Bank) increases the Money Supply

(i) Explain how increasing the money supply will affect the AD.

Money supply increases and the Nominal Interest Rates decrease

NIR decrease increases investment which increases AD

(ii) Indicate how this will affect the PL and Output

MS increases, NIR decrease, Investment Increases, AD increases, PL increases, RGDP increases and Output increases

(D.) The government decides to reduce business taxes to get us out of the Stagflation scenario.

A decrease in business taxes will

shift the SRAS curve to the right

Friday, April 24, 2020

ALL (Transfer Payments) FRQ's

ALL Transfer Payments FRQ's

2011B AP Macroeconomics Exam

(A.) Economy is in Long-run Equilibrium, draw a graph

(B.) Consumer confidence falls.

Consumer confidence falls means that consumers are worried about the economy
and therefore will spend less
consumption (C) decreases and AD decreases

(E.) Draw a graph of the loanable funds market showing the effect on transfer payments on the real interest rate.

Transfer payments are payments for things like

Welfare Benefits = payments to poorer citizens

Unemployment benefits = payments to citizens who have become unemployed

both of these increase when the country slides into a recession

More transfer payments implies the government must pay for these

so Government Spending increases

If we slide into a recession and transfer payments increase then
Gs must increase to pay for the increase in transfer payments
the government has to borrow to pay for these transfer payments
this reduces the supply of loanable funds in the banks
driving up the RIR

It is also acceptable to say that as the Gs increases
then the demand for loanable funds increases
as the government borrows from the banks to pay for transfer payments
this increase in the demand for loanable funds
drives up the RIR, increases.