Econ Question

Test Preparation AP Test Preparation
1

<p>Hi I've been checking out some of the AP FRQ's for Macro Econ and I was wonderin if I could get some help on this one.. thx in advance</p>

<p>"The United States is experiencing a high rate of unemployment.</p>

<pre><code> a. Identify one fiscal policy action that Congress might initiate to decrease the unemployment rate.

b. Assume that the policy you identified reduced unemployment, but the economy is still operating below full employment. Using a correctly labeled aggregate demand/aggregate supply graph, show and explain how the action you identified would affect each of the following:
i) Output
ii) Price level
c. Briefly explain how the policy you identified would affect interest rates.
d. Given that the economy is still below full employment, identify the open market policy the Federal Reserve could implement to increase the money supply.
e. Using correctly labeled graphs, show and explain how an increase in money supply will affect each of the following in the short run.
i) Interest rates
ii) Output
iii) Price level
</code></pre>

2

<p>+~---bump---+~</p>

3

<p>a. Using the philips curve ... if inflaion is increased then unemployment falls. The government can do this buy buying government securities to cause an influx of money into the hands of the citizens. This causes the demand curve to rise but in-turn cases demand-pull inflation, and decreases unemployment </p>

<p>i)output-->GDP increases because demand increases causing a shortage which causes supplies to increase supply to equilibirum....Spending mulitplier deal.
ii. Price Level rises </p>

<p>c. People have more money to spend so they also have more money to invest. Causing interest rates to fall as borrowing is low and investment high </p>

<p>d. As i said before purchase government securities. Possibly decrease discount rate and decrease required reserve ration </p>

<p>e. i Graph interest rates vs. Money amount and draw the demand of money with the supply of money
ii. Show GDP expanding as demand goes up
iii. Price level expands as demand goes up causing inflation.</p>

<p>Man this was a tough question....I had to review a lot of stuff</p>