AP
®
Macroeconomics 2021 Scoring Commentary
Question 1
Note: Student samples are quoted verbatim and may contain spelling and grammatical errors.
Overview
The question examined students’ understanding of the aggregate demand/aggregate supply (AD/AS) in an
in
flationary gap in Smithland, and the link to fiscal and monetary policies, the natural rate of unemployment
and the nominal interest rate, and the effect of the policies on the foreign exchange market. Part (a) required
students to identify the short-run aggregate demand, the long-run aggregate supply and the aggregate demand
curves in a graph, show the current equilibrium real output, the price level, and the full-employment output
level. In part (b), students were asked to assume that the government in Smithland cuts individual income
taxes and to show and label the short-run effects on equilibrium real output in the graph in part (a). In part (c),
based solely on the change in real output in part (b), students were asked to indicate what will happen to the
natural rate of unemployment in the short-run and what will happen to the nominal interest rate and to explain
why the nominal interest rate changed. In part (d), students were asked to assume instead that the central bank
intervenes to correct the inflationary output gap and indicate what open-market operation action the central
bank will take. In part (e), students were asked to draw a correctly labelled graph of the money market and
show the effect of the open market operation identified in part (d) on the nominal interest rate. Part (f) required
students to use the effect on interest rate identified in part (e) to show and explain what will happen to the
international value of Smithland’s currency in the foreign exchange market. Finally, in part (g), based solely on
the change in the foreign exchange rate identified in part (f), students were asked to indicate and explain,
whether the hypothetical economy’s imports will increase, decrease, or stay the same.
Sample: 1A
Score: 9
The response earned 1 point in part (a)(i) for drawing a correctly labeled aggregate demand-aggregate
s
upply graph showing Y
1
and PL
1
.
•
• The response earned 1 point in part (a)(i) for correctly showing a vertical LRAS curve to the l eft of Y
1
and labelling the full
employment
output
Y
f
.
• The response earned
1
p
oint in
part
(b)
for
correctly
shifting
AD t
o t
he
right and
showing
an
increase
in real
output
labeled Y
2
.
• The response earned 1 point in part (c)(i) for stating that the natural rate of unemployment is
un
changed.
• The response earned 1 point in part (c)(ii) for stating that nominal interest rates will increase because
o
f the increase in the demand for money that results from the increase in aggregate demand.
• The response earned 1 point in part (d) for stating that the central bank should sell bonds.
• The response earned 1 point in part (e) for drawing a correctly labeled graph of the money market and
e
arned 1 point for correctly shifting money supply to the left and showing an increase in the nominal
interest rate.
• The response did not earn the point in part (f) because the explanation of Smithland’s currency
a
ppreciation does not tie the increase in financial capital inflows to the increase in demand for the
currency.
• The response earned 1 point in part (g) for stating that Smithland’s imports will increase because
f
oreign goods will become relatively cheaper.
© 2021 College Board.
Visit College Board on the web: collegeboard.org.