Official 2011 AP Economics Thread

Makes sense. Thanks to both of you. Encourage greater investment=increase in AD, right? So, if you decrease interest rate, this will increase AD?</p>

Nevermind. I just realized that they want to increase the MONEY SUPPLY.</p>

When an economy is at full employment, which of the following will most likely create demand-pull inflation in the short run?
(A) An increase in the discount rate.
(B) An increase in personal income taxes.
(C) A decrease in the real rate of interest.
(D) A decrease in government spending.
(E) A decrease in the money supply.</p>

Sorry for all the questions.</p>

I had to do process of elimination for that one. Demand-pull means shifting AD to the right. A, B, D, and E do the opposite, so it has to be C.</p>

Your looking for something that would increase AD. The decrease in the real rate of interest increases investment and the interest sensitive components of consumption(such as buying a car or a house). This increases AD and creates demand pull inflation.</p>

Choice C</p>

I don’t mind the questions. They help me study.</p>

Alright, yea I completely forgot about crowding out. Let me make sure I have this completely right so I don’t make the same mistake tomorrow; if GDP increases (especially because of government spending) yet taxes stay the same, the government has to borrow more money to compensate for the money invested, and end up causing interest rates to increase as well?</p>

EDIT: Also, something that I saw while reading through the posts that I feel needs correcting. The equilibrium point is not where the companies make no profit, it’s the point where marginal cost becomes greater than marginal revenue. So in short, it’s the point where the next product made will cost more than it will bring in in revenue. Just a small thing but hey, maybe it’ll be the difference for someone.</p>

Yes, please keep posting questions. I’m learning better by reading yalls explanations. Especially international trade questions, please.</p>

@thesimpson, yea basically. If gov’t spending increases then they have to borrow more money so the demand for loanable funds increases which jacks up the real interest rate and leaves less money for businesses to get.</p>

Can anyone explain what we need to know about credit/capital accounts?</p>

Correct, more specifically real interest rates would increase. Taking it one tiny step further, AD would have fully shift right because of the decrease in investment. That is why expansionary fiscal policy should be accompanied by expansionary monetary policy.</p>

Is MR always 1/2 of Demand in a monopoly graph? In other words, will MR increase if D is increased?</p>

General question about the FRQs. Is it just regular lined paper? If so, do we still draw our graphs on there? 60 minutes seems like a long time, especially when your answers dont take very long (a sentence or 2 and/or a graph). Is this really how it is, or is the time actually more constrained?</p>

@appleandrice</p>

I would know that current account is equal to export - imports, and that when they’re added together they’re equal to 0; ergo, if one is positive the other is negative and vice versa.</p>

@ Tenebrous </p>

If it’s anything like government, we’ll have more than enough time :P.</p>

@Theundertaken, yes MR is always lower than the demand. But I think it’s actually twice the slope because that makes it steeper, right?
@Tenebrous, yea it’s lined paper and I guess it’s because you have time to make everything neater…I don’t know. There is a mandatory reading period though.</p>

@appleandrice The current account is made up of the balance on goods and services + net investment income - net transfers. The capital and financial account must balance with the current account.</p>

That’s about all I’m going to remember about it.</p>

@TenebrousNight There is a lot of extra time that’s not needed on the part two. My class practiced all of them using 30mins instead of the 60, i think it is.</p>

Just a quick question, what text did you guys use as your main one in class?</p>

None…my teacher said don’t use a book just listen to him.</p>

Really? Wow. I used the McConnell and Brue Economics 18th edition. I found that it fully explained a lot of the things I didn’t understand when my teacher explained them. Honestly, I found it to be a better teacher than him.</p>

Yea, my teacher is awesome at teaching microecon. Too bad he didn’t get to cover a lot of macro so I had to self-study a lot of it.
If gov’t regulates a monopoly would they put it at the quantity of productive or allocative efficiency?</p>

Can you help me with this question?
Which of the following is most likely to occur if the Federal Reserve engages in open market operations to reduce inflation?
A) Decrease in interest rate
B) Decrease in reserves in the banking system
C) Decrease in government deficit
D) Increase in money supply
E)Increase in Exports</p>