Preparing for the AP Exam AP Macroeconomics MR. Graham

2 Module 44½: What to Expect on the AP Exam Module 44½: What to Expect on the AP Exam

Multiple-Choice Section (2/3 of final score) – 60 questions, 70 minutes – Plan on answering 15 questions per 15 minutes— write timing on your test – TIPS: Select the best answer Answer easy questions first Skip questions that are completely unfamiliar No “guessing penalty,” so don’t leave any blank

Multiple-Choice Section (2/3 of final score) – Basic Economic Concepts8-12% – Measurement of Economic Performance12-16% – National Income and Price Determination10-15% – Financial Sector15-20% – Stabilization Policies20-30% – Economic Growth 5-10% – International Trade and Finance10-15%

Free-Response Section (1/3 of score) – 3 questions, 60 minutes (including 10-minute reading period) – Plan on spending 25 minutes answering question 1 and 12.5 minutes answering questions 2 and 3— write timing on your test – TIPS: Models can provide or enhance an explanation (need to be correctly labeled) Number your responses (e.g. “2 (c) ii”) Answer need to be definite and consistent

2009 AP MACROECONOMICS FREE-RESPONSE QUESTION

2009 AP Macroeconomics Free-Response Question What are students asked to do? – (a) Using model, show… – (b) Calculate. – (c) What OMO? – (d) Using model, show… – (e) How will…? Explain. – (f) What will happen to: i) and ii)? Explain.

2009 AP Macroeconomics Free-Response Question Guess how many points for each part? (a) Using model, show… (b) Calculate. (c) What OMO? (d) Using model, show… (e) How will…? Explain. (f) What will happen to: i) and ii)? Explain. (a) 2 points (b) 1 point (c) 1 point (d) 2 points (e) 2 points (f) 3 points

Multiple-Choice Section – 60 points (1 point per question) Free-Response Section – 30 points (15 points for 1, 7.5 points for 2 and 3) AP Score Conversion Chart Macroeconomics (2000) Composite Score RangeAP Score

12 Module 44¾: All the Graphs You Need to Know Module 44¾: All the Graphs You Need to Know

The Circular-Flow Diagram

The Production Possibilities Curve

Long-Run Macroeconomic Equilibrium

The Money Market

The Loanable Funds Market

The Foreign Exchange Market

19 Module 45: Putting It All Together Module 45: Putting It All Together

To analyze any situation, you have to know where to start…

– This might be a change in the economy or a policy response to the “starting point”.

– The “pivotal event” will generally have some initial, short-run effects.

– We know that in the long run, monetary policy affects only the aggregate price level, not real GDP. – Because money is neutral, changes in the money supply have no effect on the real economy. – The aggregate price level and nominal values will be affected by the same proportion, leaving real values (including the real interest rate as mentioned in our scenario) unchanged.

Sample Question—“ A Structure for Macroeconomic Analysis ” What are students asked to do? 1.Using model, show… 2.What OMO? 3.Using model, show… 4.Using model, show…Explain. 5.Using model, show… 6.What will…? 7.How will…? Explain.

1.“Draw a correctly labeled graph showing aggregate demand, short-run aggregate supply, long-run aggregate supply, equilibrium output, and the aggregate price level” 2. “Identify the open-market operation the Fed would conduct” The Fed would sell U.S. Treasury securities

3.“Draw a correctly labeled graph of the money market to show the effect of the monetary policy on the nominal interest rate.”

4. “Show and explain how the Fed’s actions will affect equilibrium in the aggregate demand and supply graph you drew previously. Indicate the new aggregate price level on your graph.” A higher interest rate will lead to decreased investment and consumer spending, decreasing aggregate demand. The equilibrium price level and real GDP will fall

5.“Draw a correctly labeled graph of the foreign exchange market for the U.S. dollar showing how the change in the aggregate price level you indicate on your graph above will affect the foreign exchange market.” The decrease in the U.S. price level will make U.S. exports relatively inexpensive for Canadians to purchase and lead to an increase in demand for U.S. dollars with which to purchase those exports

6.“What will happen to the U.S. dollar relative to the Canadian dollar?” – The U.S. dollar will appreciate. 7.“How will the Federal Reserve’s contractionary monetary policy affect the real interest rate in the United States? Explain.” – There will be no effect on the real interest rate in the long run because, due to the neutrality of money, changes in the money supply do not affect real values in the long run.