Macroeconomics Section II: Free-Response Questions
Directions: You have one hour to answer all three free-response questions: one long and two short questions. Spend the
first 10 minutes for planning, and in the remaining 50 minutes construct your responses. Explain your answers thoroughly
with examples and illustrations if appropriate.
- The U.S. economy is currently experiencing the following conditions:
■ Inflation is at 7 percent.
■ Unemployment is at 4.2 percent.
■ Real GDP is growing at 4 percent.
A. Examining the data, what is the main problem in this scenario? Explain.
B. Describe the appropriate actions the Federal Reserve should take to provide a solution to this scenario.
Use an aggregate supply and demand curve to illustrate the impact of the Fed’s policy on the following:
■ Interest rates
■ Price level
C. Describe the appropriate actions Congress would take to remedy the scenario. Illustrate the effects of your
answer on an aggregate demand and aggregate supply model.
D. Why is it important for Congress and the Federal Reserve to work together?- Assume a closed economy with business, households, and the government:
A. Draw and correctly label a circular flow diagram for the headline above.
B. Identify two methods of calculating GDP and explain how each works.
C. Identify the determinants of aggregate demand and the determinants of aggregate supply. - Assume the economy is experiencing a recession:
A. Identify possible remedies the Federal Reserve would implement.
B. Identify possible remedies Congress would vote on implementing.
Macroeconomics Full-Length Practice Test 2Macroeconomics Full-Length
Practice Test 2