2023, Set 2, Question 2 · Short · 5 points
2023 AP Macroeconomics FRQ 2 (Set 2) answers
US income growth and trade with South Africa
Decide how rising US income changes US net exports and the capital and financial account, link that to jobs in South Africa, and graph what happens to the value of the rand.
Skip to the worked answer and scoring (try the question first if you can)
1 Read the question
The question is College Board's, from the 2023, Set 2 exam. It starts on page 4 of the PDF.
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
Score your answer against College Board's scoring guidelines, one point at a time. Give yourself a point only when your answer says what the guideline asks for.
Scoring guidelines (PDF, page 4) What the exam readers saw (Chief Reader report)
4 Worked answer and scoring
Here is how a response that earns every point could read, part by part, and what each of College Board's scoring points asks for, put in our own words. Open a part once you have written your own answer to it. The scoring guidelines PDF above is the official word on every point.
Everything follows from Americans having more income. They buy more goods and services, South African goods among them, and that one change runs through the trade balance, the capital and financial account, South Africa's economy and the market for the rand.
Part a 1 point
Model answer
United States net exports decrease. With more real income, Americans buy more goods, including more from South Africa, so United States imports rise.
What earns the point
- Net exports decrease, because Americans buy more South African goods, which raises United States imports. Higher income raises spending on imports. Mixing up exports, imports and net exports was the confusion the report described.
Part b 2 points
Model answer
(i) The United States capital and financial account moves into surplus. The current account was at zero and moves into deficit, and the balance of payments has to balance.
(ii) Unemployment in South Africa decreases. Its exports to the United States rise, which raises South Africa's aggregate demand and real GDP, and producing more takes more workers.
What earns each point
- The capital and financial account moves into surplus. With the current account now in deficit, the capital and financial account has to move the other way by the same amount.
- South African unemployment decreases, because its exports rise, raising its aggregate demand and real GDP. The explanation runs through South Africa's exports to its aggregate demand and output.
Part c 2 points
Model answer
Draw the market for the rand: quantity of rand across, the price of the rand in dollars (USD per ZAR) up, with the starting equilibrium marked. Americans need rand to buy South African goods, so demand for the rand shifts right, from D1 to D2. The exchange rate rises from ER1 to ER2: the rand appreciates.
What earns each point
- A correctly labeled foreign exchange market for the rand, with its starting equilibrium. The vertical axis is the rand's price in dollars, USD per ZAR. The report lists a wrongly expressed price on that axis, and a graph with no starting equilibrium, as mistakes.
- Demand for the rand shifts right and the rand appreciates. Buying more South African goods means buying more rand. Shifting supply instead was one of the mistakes the readers saw.
Common mistakes
From what the exam readers reported seeing in 2023 students' answers, in our words:
- In part (a), confusing exports, imports and net exports.
- In part (b), splitting the capital and financial account into two accounts, or not seeing that a fall in net exports moves the capital and financial account the other way.
- In part (b)(ii), not explaining how more United States imports from South Africa lower South African unemployment: its exports rise, and so do its aggregate demand and output.
- In part (c), expressing the price of the rand wrongly on the vertical axis, leaving out the starting equilibrium, or shifting the wrong curve.
Question, scoring guidelines and Chief Reader report: College Board. The title, summary and worked answer are ours.