Tackle the Test: Free-Response Questions

436

  1. Question

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    Suppose the United States and India were the only two countries in the world.

    Rubric for FRQ 1 (9 points)

    image

    1 point: The vertical axis is labeled “Exchange rate (Indian rupees per U.S. dollar)” and the horizontal axis is labeled “Quantity of U.S. dollars.”

    1 point: Demand is downward-sloping and labeled, supply is upward-sloping and labeled.

    1 point: The equilibrium exchange rate and the equilibrium quantity of dollars are labeled on the axes at the point where the supply and demand curves intersect.

    1 point: The fixed exchange rate level is depicted above the equilibrium exchange rate.

    1 point: Surplus

    1 point: The quantity supplied exceeds the quantity demanded at the higher fixed exchange rate.

    1 point: The surplus is labeled as the horizontal distance between the supply and demand curves at the fixed exchange rate.

    1 point: Buy

    1 point: The new demand curve is shown to the right of the old demand curve, crossing the supply curve at the fixed exchange rate.

  2. Question

    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
    Suppose the United States and Australia were the only two countries in the world, and that both countries pursued a floating exchange rate regime. Note that the currency in Australia is the Australian dollar.