2014, Question 1 · 11 points
Borrowed government spending in a recession
Graph an economy below full employment, judge how debt-financed spending affects cyclical and natural unemployment, compute the largest possible GDP change with an MPC of 0.75, show the loanable funds effect and its link to long-run growth, and decide what happens if the spending is tax-financed instead.
This exam had three free-response questions in a 10 minute planning period plus 50 minutes of writing, with a suggestion to spend about half the time on Question 1 and split the rest evenly between Questions 2 and 3. The current exam has 3 free-response questions in 60 minutes. The skills these questions practice still count.
Lessons this question draws on
1 Read the question
The question is College Board's, from the 2014 exam. It starts on page 2 of the PDF. College Board no longer posts this exam, so it opens from the copy of College Board's PDF that the Internet Archive saved on June 12, 2024.
2 Write your answer
Answer each part the way you would on the exam, in full sentences, with your work shown. Your writing saves as you type.
3 Score it
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Scoring guidelines (PDF, page 2) What the exam readers saw (Student Performance Q&A)
Question, scoring guidelines and Chief Reader report: College Board, from the Internet Archive. The title, summary are ours.