2024, Set 2, Question 3 · Short · 5 points
2024 AP Macroeconomics FRQ 3 (Set 2) answers
Jamaican fiscal policy, net exports and its currency
Choose a fiscal policy to reach full employment, decide how the higher output changes net exports, graph the effect on the Jamaican dollar, and explain the result for the capital and financial account.
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 2024, Set 2 exam. It starts on page 5 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 6) 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.
Expansionary fiscal policy raises Jamaica's income, and part (b) asks only about that income effect. From there it is the trade chain: more imports, more Jamaican dollars supplied to buy lira, a weaker Jamaican dollar, and a capital and financial account that has to offset the current account.
Part a 1 point
Model answer
Increase government spending. (A tax cut or higher transfer payments would also work.)
What earns the point
- More government spending, lower taxes or higher transfer payments. A cyclical unemployment rate of 4% means a recession, which calls for expansionary fiscal policy.
Part b 1 point
Model answer
Net exports decrease. Higher real output means higher income in Jamaica, and Jamaicans spend part of that extra income on goods from other countries. Imports rise, so net exports fall.
What earns the point
- Net exports decrease, because higher real income raises Jamaican demand for foreign goods, so imports rise. The question says to use only the change in real output, so the reason has to be income and imports. Explaining it through a higher price level answers a different question.
Part c 2 points
Model answer
Draw the market for Jamaican dollars: quantity of Jamaican dollars across, the price of the Jamaican dollar in lira (TRY per JMD) up. To buy more Turkish goods, Jamaicans exchange more Jamaican dollars for lira, so the supply of Jamaican dollars shifts right, from S1 to S2. The exchange rate falls from ER1 to ER2: the Jamaican dollar depreciates.
What earns each point
- A correctly labeled foreign exchange market for the Jamaican dollar. The vertical axis is the Jamaican dollar's price in lira. The readers reported mislabeled vertical axes as a mistake on this graph.
- Supply of Jamaican dollars increases and the Jamaican dollar depreciates. More imports means more Jamaican dollars offered for lira. More supply against the same demand lowers the price, and the new, lower exchange rate has to show.
Part d 1 point
Model answer
The capital and financial account moves into surplus. Lower net exports push the current account into deficit, and because the balance of payments must balance (CA + CFA = 0), with the CFA starting balanced, it moves into an equal surplus.
What earns the point
- The CFA moves into surplus, because the current account moved into deficit and CA + CFA = 0. The answer needs the balance of payments identity, not just the direction.
Common mistakes
From what the exam readers reported seeing in 2024 students' answers, in our words:
- In part (b), saying net exports rise because output rose, or getting the direction right but explaining it with a higher price level instead of higher income.
- In part (c), mislabeling the vertical axis, shifting supply of the Jamaican dollar in the wrong direction, or not showing the change in its value.
- In part (d), not connecting the capital and financial account to the current account through CA + CFA = 0.
Question, scoring guidelines and Chief Reader report: College Board. The title, summary and worked answer are ours.