Download FRQ #9 Review Powerpoint

AP Review #1 – AD and AS
Draw a correctly labeled
Aggregate Supply and
Aggregate Demand graph that
shows that the economy is
currently experiencing a
recession. Be sure to label the
current price and output levels.
In order to combat a recession, the
FED uses the appropriate
monetary policy to solve the
problem. What is the name for this
policy? What are its policy
options? Draw a graph showing
this policy’s impact on the money
market.
Draw the effect of the interest
rate change on your AD/AS
graph. What happens to AD
as a result? Why? How does
this affect P, GDP, and
unemployment?
How does the interest rate
change affect the value of the
dollar in the foreign exchange
market? Why is this true? How
does this impact the flow of
financial capital from Japan?
Draw correctly labeled graphs of
the foreign exchange market
showing the effect of the interest
rate change on the value of the
dollar and the Japanese yen.
How do the currency exchange
rate changes affect American
imports of Japanese products?
Why?
The economy is in recession.
Assume instead of the monetary
policy change, the FED does
nothing. What happens to short
run aggregate supply as the
economy moves toward long
run equilibrium? Draw the
changes on a new AD/AS
graph.
The economy is in recession.
Instead of the monetary policy
change indicated earlier, the
government decides to utilize
fiscal policy to correct the
problem. What is this policy
called? What are the
government’s options? Draw an
AD/AS graph showing how this
affects P and GDP.
What will happen to the
government’s budget as a result of
their policy change? Draw a
correctly labeled graph of the
loanable funds market that shows
how the policy change impacts the
real interest rate. What happens to
the real interest rate?
How will the interest rate
change affect AD? Why?
How will it affect the value of
the dollar in the foreign
exchange market? Draw a
graph of the market for dollars
in the foreign exchange
market showing this impact.
How will the change in the
value of the dollar affect
imports and exports? How will
that affect AD, P, GDP, and
unemployment?