Putting It All Together/

Writing the FRQAP Macroeconomics

1. Review process/hints for writing the Economics FRQ

2. Work through a sample long FRQ

Agenda for Today

The FRQ section is 1/3 of the AP Economics exam score

There are three questions, the first of which is worth 15 points and the other two are worth 7.5 points each

Each year’s exam cut score is different… but in almost all cases, you need to score points in the FRQ to make a 3 or better

About the Economics FRQs

Most problems have the following components:

1. Starting point2. Pivotal event3. Initial effects4. Secondary or Long-Run effects

Process for Writing the Economics FRQ

1. Starting pointAssume the U.S. economy is currently

operating at an aggregate output level above potential output. Draw a correctly labeled graph showing aggregate demand, short-run aggregate supply, long-run aggregate supply, equilibrium output, and the aggregate price level.

Example of the 4-Step Process

2. Pivotal eventNow assume that the Federal Reserve

conducts contractionary monetary policy. Identify the open-market operation the Fed would conduct.

Example of the 4-Step Process

3. Initial effectsDraw a correctly labeled graph of the money

market to show the effect of the monetary policy on the nominal interest rate.

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.

Example of the 4-Step Process

4. Secondary or Long-Run effectsAssume Canada is the largest trading partner of

the U.S. 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 indicated on your graph above will affect the foreign exchange market. What will happen to the value of the U.S. dollar relative to the Canadian dollar?

How will the Federal Reserve’s contractionary monetary policy affect the real interest rate in the United States? Explain.

Example of the 4-Step Process

Respond clearly and concisely Skip lines between each part of the question –

and clearly label which part you’re answering Address the verb of the prompt appropriately

◦ “SHOW” means to model/graph with CORRECT LABELS◦ “EXPLAIN” means to provide the reasoning (providing a

formula or graph, or interpreting one)◦ “IDENTIFY” means providing the answer(s) asked for◦ “CALCULATE” means to show the mathematical means

for determining an answer

Hints for the Economics FRQs

Show your work – including the formula Review your answer when you’re done to

make sure it follows from the prompt, and that models and math are correct

Hints for the Economics FRQs

A. On the Aggregate Model, show an economy in recession.

i. Which group may enact countercyclical fiscal policy?

ii. What can this group change?

Example: Fiscal Policy Links – Starting Point

B. Show the effect of fiscal policy on the aggregate model.

i. What is the result of these policies in terms of the federal budget?

Example: Fiscal Policy Links – Pivotal Event

C. How does this fiscal policy impact the money market?

i. Show the change on a Money Market graph and its effect on interest rates.

D. How will the federal budget balance impact the Loanable Fund market?

i. Show this change and its effect on interest rates.

Example: Fiscal Policy Links – Initial Effects

E. Depict the impact of Money Market and Loanable Funds changes on the Investment Demand graph.

i. What is the name for this effect, and how will it impact the Aggregate Model?

Example: Fiscal Policy Links – Secondary Effects

F. Show the effect of higher US interest rates in the Loanable Funds market as a result of capital flows.

G. Graph this change in the Dollar Market. i. How will this affect the value of the dollar, as

well as US exports?ii. What is the overall effect on net exports and the

United States’ GDP?

Example: Fiscal Policy Links – Secondary Effects