Common Errors on the 2012 AP Macroeconomics Exam AP Annual Conference 2012 Orlando, Florida Arthur Raymond Chief Reader, AP Macroeconomics Muhlenberg College Allentown, PA

Exam Question Development Questions are solicited from teachers and professors familiar with the AP course. The Test Development Committee reviews and edits the questions multiple times at its thrice yearly meetings before questions are used on exams. A preliminary rubric is established once a question is chosen for the exam 2

Exam Question Development Members of Test Development Committee Clark Ross, Co-chair: Davidson College, Davidson, North Carolina Patti Brazill, Co-chair: Irondequoit High School, Rochester, NY Sally Meek, College Board Advisor, Plano West Senior High School, Plano, Texas Uchenna Elike, Alabama A&M U., Normal, Alabama Gabriel Sanchez, Bonita High School, La Verne, California Nora Traum, North Carolina State U., Raleigh, North Carolina Holly Jones, The Pennington School, Pennington, NJ 3

Exam Question Process Members of Test Development Committee 4

ETS Test Development Specialists Fekru Debebe Huanwei Zhao Marwa Hassan 5

Common Errors AP Macroeconomics General Advice from TD Committee Common Errors on the 2012 AP Macroeconomics Exam 6

General Advice from TD Committee When answering the Macroeconomics or Microeconomics free response questions, a student should respond clearly and concisely. Including paragraphs or even full-sentence responses is not always necessary; however, it is important to address the verb prompts appropriately (as explained below). A written response that presents conflicting answers is likely to lead to the loss of points. 7

General Advice from TD Committee The definitions of the following terms that are frequently used as prompts in free response questions are: “Show” means to use a diagram to illustrate your answer. Correct labeling of all elements including the axes of the diagram is necessary to receive full credit. “Explain” means to take the reader through all of the steps or linkages in the line of economic reasoning. Graphs and symbols are acceptable as part of the explanation. “Identify” means to provide a specific answer that might be a list or a label on a graph, without any explanation or elaboration. “Calculate” means to use mathematical operations to determine a specific numerical response, along with providing your work. 8

Common Errors on the 2012 AP Macroeconomics Exam General Content Areas of Errors Money and Banking Real vs Nominal Distinction Long-Run Aggregate Supply International Economics Error rate of top ten errors ranged from 53.7% to 95.4% 9

Error Number 10 Question 2, Part (b)(i) Stem: Assume that Luis withdraws $5,000 in cash from his checking account at Mi Tierra Bank Question: By how much will Mi Tierra Bank’s reserves change based on Luis’ withdrawal? (1 pt.) -5,000 10

Errors 9 and 2 Question 1, Part (c) (ii) Stem: Suppose Rankinland has a current account deficit. Rankinland’s currency is called the bera. Question: What will happen to the international value of the bera solely due to the change in the real GDP from part (b)(iv)? Explain. (2 points) (Real GDP increased in part (b)(iv)) The bera depreciates The supply of the bera increases (because imports increase) 11

Error Number 8 Question 3, Part (d)(ii) Stem: As a result of the increase in exports, export-oriented industries in Andersonland increase expenditures on new container ships and equipment. Question: What is the impact on the long-run aggregate supply? Explain. (1 pt.) LRAS increases because the stock of physical capital increases. 12

Error Number 7 Question 1, Part (b)(iii) Stem: Assume that the Central Bank of Rankinland pursues an expansionary monetary policy. Question: Assuming no change to the price level, what happens to the real interest rate as a result of expansionary monetary policy? Explain. (1 pt.) Decreases because the nominal interest rate decreases and the price level is unchanged. 13

Error Number 6 Question 2, Part (b)(iii) Stem: Assume that Luis withdraws $5,000 in cash from his checking account at Mi Terra Bank. Question: As a result of the withdrawal, what is the new value of excess reserves on the balance sheet of Mi Terra Bank based on the reserve requirement from part (a)? (1 pt.) (The reserve requirement is 0.10, initial deposits are $100,000 and existing reserves are $15,000 (Required reserves are $10,000 and excess reserves are $5,000) $500 14

Error Number 5 Question 3, Part (c) Question: Based on your answer in part (b), what is the impact of higher exports on real wages in the short run? Explain. (1 pt.) (In part (b), an increase in exports increased AD which produced an increase in equilibrium real GDP and the price level. The stem also stated that nominal wages are fixed in the short run.) Real wages decrease because the price level increases and nominal wages are fixed. 15

Error Number 4 Question 2, Part (b)(ii) Stem: Assume that Luis withdraws $5,000 in cash from his checking account at Mi Terra Bank. Question: What is the initial effect of the withdrawal on the M1 measure of the money supply? Explain (1 pt.) No effect because both demand deposits and cash are part of M1. 16

Errors Number 3 and 1 Question, Part (c)(i) Stem: Suppose Rankinland has a current account deficit. Rankinland’s currency is called the bera. Question: What will initially happen to the current account deficit in Rankinland solely due to the change in real GDP from part (b)(iv)? Explain. (2 pts.) (Real GDP increased in part (b)(iv)) Current account deficit increases. Because imports increase. 17

Good News Students did very well on: Question 3, Part (a) where students were asked to draw an AD-SRAS-LRAS diagram when there is full employment. Question 1, Part (a) where students were asked to draw a production possibility frontier (ppf). Question 1, Part (a) where students were asked to show a point in the ppf diagram that could represent a recession. 18