Tackle the Test: Free-Response Questions

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  1. Question

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    Rubric for FRQ 1 (4 points)

    1 point: The current account balance would increase (or move toward a surplus).

    1 point: The decrease in income would cause imports to decrease.

    1 point: The increase in infrastructure spending in China would reduce the surplus in the U.S. financial account and reduce the deficit in the U.S. current account.

    1 point: Because China is financing the program by borrowing, the demand for loanable funds in China would increase, causing an increase in the interest rate. It is likely that other countries would increase their lending to China, decreasing their lending to the United States. These capital outflows from the United States would reduce the U.S. surplus in the financial account and reduce the deficit in the current account.

  2. Question

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