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Arthur Raymond Chief Reader Muhlenberg College

Arthur Raymond Chief Reader Muhlenberg College Meet the Test Development Committee APAC, Las Vegas, 2007. Top Ten Errors on the 2007 Economics AP Exam. Micro 1 (b) (1 and 2). Assume that the government imposes a lump sum tax on GCR (a firm w/patent)

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Arthur Raymond Chief Reader Muhlenberg College

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  1. Arthur RaymondChief ReaderMuhlenberg College • Meet the Test Development CommitteeAPAC, Las Vegas, 2007

  2. Top Ten Errors on the2007 Economics AP Exam

  3. Micro 1 (b) (1 and 2) • Assume that the government imposes a lump sum tax on GCR (a firm w/patent) • What will happen to output and market price? Explain. Market price and output are unchanged because MC is unchanged by a lump-sum tax.

  4. Macro 2 (c) (3) • Assume that the open-market operation that you indicated in part (b) (purchase) is equal to $10 million. If the required reserve ratio is 0.2, calculate the maximum change in loans throughout the banking system. • $40 million

  5. Micro I (c) (4) • (c) Assume … that the government grants a per-unit subsidy to GCR for Aspy (firm w/patent). • (i) What will happen to output and market price? Explain. • MC falls (so P falls and Q increases)

  6. Macro 2 (e) (5 and 10) • Assume that the Federal Reserve’s action results in some inflation. What would be the impact of the open market operation (purchase) on the real rate of interest? • Real rate falls because nominal rate decreases and inflation increases.

  7. Micro 3 (d) (6) • Is choosing an early departure a dominant strategy for Rankin Wheels? • (No) Rankin Wheels’ best strategy changes as Roadway’s strategy changes.

  8. Macro 2 (a) (7) • Define the Federal Funds Rate • It is the interest rate banks charge to other banks for borrowed reserves.

  9. Micro 2 (a) (8) • Using the specific information above, draw a correctly labeled graph of HZRad’s current supply for unskilled labor. (…can hire all the unskilled labor it needs at a wage of $90 per day per worker.)

  10. Answer to Micro 2 (a) (8) W S $90 L

  11. Macro 1 (b) (9) • Using a correctly labeled graph of the foreign exchange market for the US dollar to show the impact of the change in relative price levels (PUS falls relative to Japan) on each of the following. • (i) Demand for the dollar • (ii) • D shifts up

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