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AP Macro Problem Set 3 Student

1. The document contains a 5 question problem set on macroeconomics covering topics like aggregate demand, aggregate supply, fiscal policy, and labor productivity. 2. It includes questions asking to define key concepts, graph curves, and explain how economic indicators are affected by changes in factors like government spending, taxes, and productivity. 3. Students must show and label graphs correctly and fully explain their answers.

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8K views

AP Macro Problem Set 3 Student

1. The document contains a 5 question problem set on macroeconomics covering topics like aggregate demand, aggregate supply, fiscal policy, and labor productivity. 2. It includes questions asking to define key concepts, graph curves, and explain how economic indicators are affected by changes in factors like government spending, taxes, and productivity. 3. Students must show and label graphs correctly and fully explain their answers.

Uploaded by

spfitz11
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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1. ____/35 2. ____/20 3. ____/8 4. ____/15 5.

____/22

Name: _______________________

Total: ______/100

AP Macroeconomics Problem Set #3 Aggregate Demand, Aggregate Supply and Fiscal Policy
1. ( ____/35) Aggregate Demand and Aggregate Supply a. Define and give examples of the determinants of aggregate demand. ( ____/10) b. Define and give examples of the determinants of aggregate supply. ( ____/10) c. Define sticky vs. flexible wages and prices. ( ____/5) d. Graph the following curves (on the same graph): AD, SRAS and LRAS. Make sure to correctly label the axes. ( ____/10) ( ____/20) Key Concepts Define and explain each concept and give specific examples: a. The Multiplier Effect and Spending Multiplier ( ____/10) b. Crowding Out ( ____/5) c. A Built-in Stabilizer ( ____/5) ( _____/8) Macroeconomic Equilibrium What causes each of the following? An increase in AD? ( ____/2) A decrease in AD? ( ____/2) An increase in AS? ( ____/2) A decrease in AS? ( ____/2) 4. ( ____/15 Points) Fiscal Policy a. Explain the difference between expansionary and contractionary fiscal policies. Explain their goals and give specific examples. ( ____/10) b. To support your answer in part a, draw a recessionary gap and an inflationary gap. Draw and explain how fiscal policy is used to close the gaps using accurate numbers. ( ____/5) 5. ( ____/22 Points) Practice Free Response Questions Complete the attached FRQs. Make sure to fully explain when asked FRQ #1: ( ____/10) FRQ #2: ( ____/5) FRQ #3: ( ____/7)

2.

3. a. b. c. d.

FRQ #1
1. Assume that the economy is operating below the full-employment level of output and that the government budget is balanced. (a) Using a correctly labeled aggregate demand and aggregate supply graph, show how an increase in government spending will affect each of the following in the short-run. (i) Real Output (ii) Price level (b) Explain how this increase in government spending will affect each of the following in the short-run. (i) Real interest rates (ii) Investment Now assume that instead of increasing government spending, the government decreases corporate-profits taxes. (c) Using a correctly labeled aggregate demand and aggregate supply graph, show and explain how this decrease in corporate-profits taxes will affect each of the following. (i) Aggregate demand (ii) Long-run aggregate supply (iii) Real output (iv) Price level (d) Assume that this country produces two goods, X and Y. Draw a correctly labeled production possibilities curve for this economy. Now show on the graph how this decrease in corporate-profits taxes will affect this economy's production possibilities curve.

FRQ #2
Explain how each of the following will affect the long-run aggregate supply (potential real gross domestic product). (a) A decrease in the labor force participation rate (b) An increase in the government deficit following a reduction in personal income taxes (c) A decrease in the quantity of inputs required to produce a unit of labor (d) An increase in the quantity and quality of education (e) An increase in the rate of saving

FRQ#3
Labor productivity in output per unit of labor. An increase in labor productivity is a source of economic growth. (a) Identify two sources of increase in labor productivity (b) Assume that a countrys economy is at full employment. Productivity has been rising. Using a correctly labeled graph of aggregate demand and aggregate supply, show the long run-effect of the growth in productivity on each of the following. (i) Real output (ii) Price level (c) Assume that the economy produces only two goods, good X and good Y. Using a correctly labeled production possibility diagram, show the effect of the increase in labor productivity.

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