Transcript Arthur Raymond Chief Reader Muhlenberg College Meet the

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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)
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(i)
(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 lumpsum tax.
Macro 2 (c)
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(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
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.
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MC falls (so P falls and Q increases)
Macro 2 (e)
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(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.
Micro 3 (d)
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Is choosing an early departure
a dominant strategy for Rankin
Wheels?
Roadway
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(6)
Early
Late
Rankin Wheels
Early
Late
1,000, 900
950, 850
750, 650
700, 800
(No) Rankin Wheels’ best strategy
changes as Roadway’s strategy changes.
Macro 2 (a)
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(7)
Define the Federal Funds Rate
It is the interest rate banks charge to
other banks for borrowed reserves.
Micro 2 (a)
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(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.)
Answer to Micro 2 (a)
(8)
W
$90
S
L
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)
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D shifts up