1. The 2017 AP Macroeconomics Exam: Top Ten Mistakes
APAC – Washington, DC 2017
Fred Smith, Chief Reader Davidson College

2. Outline Test Development Committee Exam Data The 2017 FRQs
What went well!
The top ten mistakes on the exam.

3. The 2016-2017 Macroeconomics Test Development Committee
Committee Members
Jim Hartley, Co-Chair, Mount Holyoke College, South Hadley, MA
Gabriel Sanchez, Co-Chair, Bonita High School, La Verne, CA
Stephanie Vanderford, Providence Day School, Charlotte, NC
Elaine McBeth, College of William and Mary, Williamsburg, VA
Brian Held, Loyola High School, Los Angeles, CA
Holly Jones, The Pennington School, Pennington, NJ
Neil Sheflin, Rutgers University, Brunswick, NJ
ETS Test Development Specialists
Dr. Fekru Debebe
Dr. Marwa Hassan

4. Exam Data

5. The 2017 Exam Total Points Mean Mean/Max FRQ One FRQ Two FRQ Three 9 65
Mean
4.80
2.59
2.72
Mean/Max
53.3%
43.2%
54.5%
Students completed 120,693 (operational) exams in the United States.

6. Final Cut Scores
Year 1 2 3 4 5
2017
27.1
16.2
17.2
23.1
16.4
2016
26.8
17.5
23.4
16.1
2015
29.7
17.4
21.9
13.8
2014
25.8
17.9
18.8
22.6
14.9
2013
27.5
19.5
16.8
22.5
13.7
2012
26.9
18.2
23.7
13.0
(Percent at each score point)

7. FRQ Conditional Means
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8. The 2017 FRQs

9. Question One
Assume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. (a) Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph. (b) Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? (i) Short-run aggregate supply curve. Explain. (ii) Long-run Phillips curve (c) Identify a fiscal policy action that could be used to reduce the unemployment rate in the short run. (d) Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c). (e) Based on the change in real GDP identified in part (d), will the supply of Country X’s currency in the foreign exchange market increase, decrease, or remain the same? Explain. (f) Based on your answer to part (e) and assuming a flexible exchange rate system, will Country X’s currency appreciate, depreciate, or remain the same in the foreign exchange market?

10. Question Two
Assume that an economy is in long-run equilibrium. Assume that consumers wish to hold less money because they use credit cards more frequently to purchase goods and services than cash. (a) Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interest rate in the short run. (b) Based on the change in the interest rate in part (a), what will happen to each of the following in the short run? (i) Prices of previously issued bonds (ii) The price level and real income. Explain. (c) With a constant money supply, based on your answer to part b(ii), will the velocity of money increase, decrease, or remain the same, or is the change indeterminate? (d) If the central bank wishes to reverse the change in the interest rate identified in part (a), what open market operation would it use?

11. Question Three
A country is at full employment and produces two types of goods: consumer goods and capital goods. (a) Draw a correctly labeled graph of the production possibilities curve, with consumer goods on the horizontal axis and capital goods on the vertical axis. Indicate a point on your graph, labeled X, that represents full employment and a possible combination in which both goods are being produced. (b) Assume there is an increase in the country’s national savings. Draw a correctly labeled graph of the loanable funds market, showing the change in the real interest rate from the increase in savings. (c) On the same graph from part (a), show another point, labeled Z, that represents full employment and a new combination of consumer goods and capital goods consistent with the increase in the country’s national savings. (d) Referring to your answer to part (c), will the long-run aggregate supply curve shift to the right, shift to the left, or remain the same? Explain.

12. What went well…

13. What went well!
87% of students correctly sketched the PPF (PPC) required in Question 3, Part (a).
58% of students drew a correctly labeled graph of the Loanable Funds Market in Question 3, Part (b).
And, anecdotally, students seem to be doing a better job of drawing and providing the correct labels for graphs – Money Market, Loanable Funds, AD/AS.

14. Food for Thought: Some Information to Take Back to the Classroom
Test Development Committee’s Statement on Expected Responses
“When answering the Macroeconomics free response questions, a student should respond clearly and concisely. Including paragraphs or even full-sentence responses is not always necessary; however, it is important to address the verb prompts appropriately .”
“Show” means to use a diagram to illustrate your answer. Proper labeling of all elements including the axes of the diagram is necessary to receive full credit.
 “Explain” means to take the reader through all of the steps or linkages in the line of economic reasoning. Graphs and symbols are acceptable as part of the explanation. In some cases the line of economic reasoning can be brief. The student must decide what constitutes an explanation.
 “Identify” means to provide a specific answer that might be a list or a label on a graph, without any explanation or elaboration.
 “Calculate” means to use mathematical operations to determine a specific numerical response.

15. The Ten (plus one) Most Common Errors on the 2017 AP Macro Exam

16. Number Ten (tied)
Question 1, Part (f) – 31% Answered Correctly (f) Based on your answer to part (e) and assuming a flexible exchange rate system, will Country X’s currency appreciate, depreciate, or remain the same in the foreign exchange market? In part (e) the supply of Country X’s currency increased. Correct answer: Country X’s currency will depreciate.

17. Number Ten (tied)
Question 1, Part (d) – second point – 31% Answered Correctly (d) Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c). In Part (c) government spending increased and/or taxes were lowered. A student could earn two points in Part (d). The first point was awarded for a correctly labeled AD/AS graph. Correct answer: The second point – the point missed in 69% of responses – required the student to show the AD curve shifting to the right and to show the new higher equilibrium price level and RGDP.

18. Number Ten - Graph
Question 1, Part (d) – second point – 31% Answered Correctly (d) Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c). In Part (c) government spending increased and/or taxes were lowered. A student could earn two points in Part (d). The first point was awarded for a correctly labeled AD/AS graph. Correct answer: The second point – the point missed in 69% of responses – required the student to show the AD curve shifting to the right and to show the new higher equilibrium price level and RGDP.

19. Number Nine
Question 2, Part (d) – 25.5% Answered Correctly (d) If the central bank wishes to reverse the change in the interest rate identified in part (a), what open market operation would it use? In Part (a) the interest rate fell. Correct answer: The central bank should sell bonds.

20. Number Eight
Question 1, Part (a) – second point – 24.0% Answered Correctly Assume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. (a) Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph. A student could earn two points in Part (a). The first point was awarded for a correctly labeled graph that illustrated a downward sloping Phillips Curve. Correct answer: The second point was awarded to a student who sketched in a correctly labeled LRPC, who placed a dot labeled “B” on the SRPC to the right of the LRPC, and who correctly used the data given in the question.

21. Number Eight - Graph
Question 1, Part (a) – second point – 24.0% Answered Correctly Assume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. (a) Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph. A student could earn two points in Part (a). The first point was awarded for a correctly labeled graph that illustrated a downward sloping Phillips Curve. Correct answer: The second point was awarded to a student who sketched in a correctly labeled LRPC, who placed a dot labeled “B” on the SRPC to the right of the LRPC, and who correctly used the data given in the question.

22. Number Seven
Question 3, Part (d) – 22.6% Answered Correctly (d) Referring to your answer to part (c), will the long-run aggregate supply curve shift to the right, shift to the left, or remain the same? Explain. In part (c) the country produced more capital goods than it had previously (in part (a)). Correct answer: The LRAS will shift to the right due to an increase in capital accumulation.

23. Number Six Question 2, Part (b, i) – 21.9% Answered Correctly
(b)  Based on the change in the interest rate in part (a), what will happen to each of the following in the short run?
Prices of previously issued bonds.
The price level and real income. Explain.
In Part (a) the interest rate fell.
Correct answer: The price of previously issued bonds will increase.

24. Number Five
Question 2, Part (a) – second point – 18.2% Answered Correctly (a) Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interest rate in the short run. A student could earn two points in Part (a). The first point was awarded for a correctly labeled graph of the money market. Correct answer: The second point was awarded to a student who correctly illustrated the demand for money shifting to the left and showing the interest rate falling.

25. Number Five - Graph
Question 2, Part (a) – second point – 18.2% Answered Correctly (a) Draw a correctly labeled graph of the money market and show the effect of the reduced holdings of money on the equilibrium nominal interest rate in the short run. A student could earn two points in Part (a). The first point was awarded for a correctly labeled graph of the money market. Correct answer: The second point was awarded to a student who correctly illustrated the demand for money shifting to the left and showing the interest rate falling.

26. Number Four
Question 2, Part (c) – 18.2% Answered Correctly (c) With a constant money supply, based on your answer to part b(ii), will the velocity of money increase, decrease, or remain the same, or is the change indeterminate? In Part (b, ii) the price level and real income increased. Correct answer: The velocity of money will increase.

27. Number Three
Question 1, Part (e) – 15.3% Answered Correctly (e) Based on the change in real GDP identified in part (d), will the supply of Country X’s currency in the foreign exchange market increase, decrease, or remain the same? Explain. In Part (d, ii) RGDP increased. Correct answer: The supply of Country X’s currency will increase because the residents of Country X will increase their spending on imports due to the increase in the RGDP (national income).

28. Number Two
Question 1, Part (b, i) – 13.7% Answered Correctly (b) Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? (i) Short-run aggregate supply curve. Explain. (ii) Long-run Phillips curve In Part (a) the economy is operating below full employment. Correct answer: The SRAS curve will shift to the right in the long run as nominal wages (input prices) fall in response to high unemployment (loose labor markets).

29. The Most Commonly Made Mistake in 2017
Question 2, Part (b, ii) – 6.7% Answered Correctly (b) Based on the change in the interest rate in part (a), what will happen to each of the following in the short run? (i) Prices of previously issued bonds (ii) The price level and real income. Explain. In Part (a) the interest rate fell. Correct answer: The lower interest rate will cause an increase in interest rate sensitive spending (C, I, or NX) which causes AD to shift to the right increasing the price level and real income (RGDP).

30. Thank You.