Also, since the question doesn’t state that there is any inflation, doesn’t it automatically mean that the real interest rate goes down as nominal goes down also?
when do the answers come out?
Late July/Early August
What did you guys think of Micro? I signed up thinking I would self study but my busy schedule eventually led to me learning (or trying to learn) most of the material in one night. Hoping for a 4
For Macro and interest rate, I actually put indeterminate first, but then saw “Indicate how the change in real GDP.” I did past FRQs and have never seen CB give a question whose answer is indeterminate and apply that to the rest of the page. That’s why I changed it to decrease interest rate, but nothing about inflation was specified.
Another basis on the question is that a change in nominal interest rate, decrease in this case, will positively affect the investment demand and ultimately the country’s AD curve, shifting to a higher equilibrium REAL quantity, as evidenced by the use of real output on the x axis. However, the question says “given your answer in part (d)(ii)” so I was not fully sure on what they wanted us to relate to. I eventually ended up changing indeterminate change in real interest rate to decrease in real interest rate.
The federal funds rate Definetly went down. The Real interest rate Definently went down. Demand for yen Definently went up. ThereFore, Appreciation. Looked up all of these and asked my macro teacher. Both of them aggreed with these answers.
For Macroecon, how did you guys do question number 2 part C ?
@czebos That’s exactly what I got. Thank god.
Why does federal funds rate go down? I think for the real interest rate questions, there may be two different answers, but maybe not since it didn’t ask to explain. I think the right answer is that real interest rate goes down, since it is in the short run and does not mention inflation. If you went indepth and mentioned inflation and effect of bonds on AD/AS, you may get the point. That’s just a prediction.
http://apcentral.collegeboard.com/apc/public/repository/ap07_macro_form_b_frq.pdf
2007B exam question 1c. The answer is indeterminate. I’m sure there were more, this was just one I remember from the top of my head that we did in class.
Answer:http://apcentral.collegeboard.com/apc/public/repository/ap07_macroecon_form-b-sgs_complete.pdf
But if u put indeterminate as the real interest rate what did u put for change in real gdp and value of yen?
What number did you guys get for the elasticity of supply problem in bananas in the frq (micro)?
@swimguy1234 The reason that is definitely indeterminate is that they say that “assume the price level in New Zealand rises.” This year’s question did not have any assumption like the 2007 one did.
- (d). Okay so look. If the fed pursues open market policies, specifically by buying bonds to lower the unemployment rate, it is evident the money supply will increase, yes? This affects the money market curve. Money supply shifts right and nominal interest rates fall.
If nominal interest rates fall, consumer and investment spending increases, shifting AD right, increasing price level. Now that price level has increased, inflation obviously has as well.
Because inflation has increased but nominal interest rates have decreased, the real interest rate is indeterminate.
**I’m not sure what the confusion is about… 
It seems pretty clear-cut to me. Sure the question didn’t state that “assume the price level in New Zealand rises” but it is a natural outcome of a decrease in interest rates, as illustrated above.
Me realizing how many mistakes I made on my FRQs for Macro and Micro: [insert Mr. Krabs blur meme here]
I don’t think you can conclude it’s indeterminant based on inflation. It’s the short-run, so the price level doesn’t have time to change so dramatically.
@jakobk I think you’re right. The FRQ from 2007 specifically mentions that PL changes, meaning LR. This FRQ mentioned real interest rates in the SR, so there’s really no inflation to make the real interest rate indeterminate.
@swimguy1234 your logic is a fallacy. You are thinking about what will happen to the economy to balance it self out. You’re taking 5 steps away from one point. All of your cause-and
- effect are things that will happen, you are right. But you are wrong because the question implys that it’s asking directly after the change in buying bonds. If a question asked “suddenly resources are cheaper, what will happen to aggregate supply” You can’t say the supply won’t change because the economy will ultimately adjust itself eventually after shifting the supply curve to the right, and then back over. The question is implicitly saying that “you should assume that the purchase of bonds is the ONLY thing that has occurred in this economy.” Many people in my class argue points like yours and they are logical, just not consistent with macro.
And as for your example, they are two COMPLETELY different questions. One asks about what happens to real interest rates if price level changes (no consistent relation). And the other asks what happens to real interest rate if money supply shifts right( inverse relation)
I’m not saying “what will happen to the economy to balance itself out” and I’m not saying anything about how the economy will self-adjust…
I’m merely saying AD will shift right, which is true in the short run due to the lower nominal interest rate…
@czebos Look, there isn’t necessarily an inverse relationship between money supply and REAL interest rate… Like I’ve said many times, the inverse relationship is between nominal interest rate and money supply, not real…
buying bonds --> increase in money supply --> decrease in interest rates and federal funds rate --> increased investment --> increase in rGDP/AD --> increased demand for japanese goods --> appreciation of the yen
… right?