5 Steps to a 5 AP Macroeconomics 2019

194 ❯ Step 5. Build Your Test-Taking Confidence

Question 2 (6 points)

Part (A): 2 points

i. 1 point: High unexpected inflation decreases the purchasing power of pensioners.

ii. 1 point: Banks collect loan repayments that have lost value with high inflation.

Part (B): 1 point

1 point is given for contractionary monetary policy—either raising the discount rate, raising

the reserve ratio, or selling securities in an open market operation. The explanation must

describe how higher rates will decrease investment, AD, and the price level.

Part (C): 1 point

1 point is given for a contractionary fiscal policy. Raise taxes or lower government spending.

Part (D): 2 points

These are graphing points.

1 point is given for a graph with correctly labeled axes and an initial equilibrium identified

at the intersection of the supply of pesos and the demand for pesos, and 1 point is given

for showing a leftward shift of the demand curve and clearly showing that the value of the

peso has fallen; it is depreciating.

Speso

D2 peso

Quantity of pesos

Dollar price

of a peso

Q 2 Q 1

D1 peso

p 1

p 2

Note: To receive all graphing points in the market for a currency, graph axes must be cor-

rectly labeled!