AP Macroeconomics Free Response Questions on Production Possibilities Curves

What is AP Macroeconomics?

AP Macroeconomics is a high school course designed to teach students the fundamentals of economics at a macro level. It covers GDP, unemployment, inflation, monetary and fiscal policies, and international trade. A major component of the course includes understanding aggregate supply and demand, and tools for analyzing economic fluctuations. The course culminates in the AP exam, which features multiple-choice and free response questions, including scenarios involving aggregate supply and demand. Mastering these topics can help students earn college credit and better prepare for advanced economics courses.

Where did we get these AP Macroeconomics free response questions on aggregate supply and demand? 

The AP Macroeconomics free response questions on aggregate supply and demand provided here are sourced from official College Board exams and teacher-developed practice materials. These questions are carefully selected to align with key concepts covered in the AP Macroeconomics curriculum. Each question focuses on scenarios analyzing aggregate supply, aggregate demand, or shifts in either curve due to various economic changes. By practicing with these real and high-quality examples, students can enhance their understanding, test-taking skills, and overall readiness for the AP exam.

How to use these AP Macroeconomics free response questions

Use these AP Macroeconomics free response questions on aggregate supply and demand to maximize your learning as timed practice. Start by reading the question carefully, then outline your answer with clear labels and diagrams where necessary. Focus on explaining shifts in aggregate supply or demand and the resulting impact on equilibrium output, price levels, and the economy. Review the scoring rubric to understand how points are awarded. Practicing consistently with these questions will boost your confidence and help you ace the AP exam.

What is a Production Possibilities Curve?

A Production Possibilities Curve (PPC) is a graphical representation that illustrates the maximum combination of two goods or services an economy can produce given its resources and technology. The curve shows the trade-offs and opportunity costs of allocating resources between different outputs. Points on the curve represent efficient production, while points inside indicate underutilization of resources, and points outside are unattainable. The PPC helps analyze economic efficiency, resource allocation, and the impact of economic growth or technological advancements.

You might benefit from checking out our AP Macro Notes on Production Possibilities Curves.

AP Macroeconomics Free Response Questions on Production Possibilities Curves

Question 1

The table below shows macroeconomic data for Country A. Year Nominal GDP GDP Deflator Population 2020 40,000 100 100 2021 88,000 200 110 

(a) Calculate each of the following for Country A in year 2021. Show your work. (i) Real GDP (ii) Real GDP per capita 

(b) Based solely on the data provided, has the standard of living for the average person in Country A increased, decreased, or stayed the same between 2020 and 2021 ? Explain. 

(c) How would an increase in government spending on education affect economic growth in Country A? Explain. 

(d) Assume that Country A produces consumer goods and capital goods. Draw a correctly labeled production possibilities curve for Country A, and show the effect of the increase in government spending on education on your graph.

Question 2

Sweden and Norway use equal quantities of resources to produce food and capital goods. The table below shows the maximum possible production of food OR capital goods for each country. 

(a) Draw a correctly labeled graph of the production possibilities curve for Sweden. Place food on the horizontal axis and capital goods on the vertical axis. Plot the relevant numerical values on the graph. 

(b) On your graph in part (a), indicate the following. (i) A point that represents an efficient level of production, labeled E (ii) A point that represents an inefficient level of production, labeled I (iii) A point that represents an unattainable level of production, labeled U 

(c) Assume Sweden moves from producing 20 units of food and 60 units of capital goods to producing 30 units of food and 40 units of capital goods. What will happen to economic growth in Sweden in the future? 

(d) Which country has the comparative advantage in the production of capital goods? Explain. 

(e) Based on the table above, identify a specific number of units of capital goods that could be traded for 10 units of food and be mutually beneficial.

Question 3

Countries face trade-offs between producing consumer goods and producing capital goods. (a) Country X takes one hour to produce a unit of consumer goods and two hours to produce a unit of capital goods. Country Y takes two hours to produce a unit of consumer goods and four hours to produce a unit of capital goods. Which country has a comparative advantage in the production of consumer goods? Explain. The following table shows labor-market data for Country X. 

(b) Calculate the unemployment rate in Country X. Show your work. 

(c) Calculate the labor force participation rate in Country X. Show your work. 

(d) Draw a correctly labeled graph of the production possibilities curve for Country X, with consumer goods on the horizontal axis and capital goods on the vertical axis. Indicate a point on your graph, labeled Z, that reflects the current level of unemployment.

Question 4

A country is at full employment and produces two types of goods: consumer goods and capital goods. 

(a) Draw a correctly labeled graph of the production possibilities curve, with consumer goods on the horizontal axis and capital goods on the vertical axis. Indicate a point on your graph, labeled X, that represents full employment and a possible combination in which both goods are being produced. 

(b) Assume there is an increase in the country’s national savings. Draw a correctly labeled graph of the loanable funds market, showing the change in the real interest rate from the increase in savings. 

(c) On the same graph from part (a), show another point, labeled Z, that represents full employment and a new combination of consumer goods and capital goods consistent with the increase in the country’s national savings. 

(d) Referring to your answer to part (c), will the long-run aggregate supply curve shift to the right, shift to the left, or remain the same? Explain.

Question 5

Country X and Country Y are trading partners, and both produce furnaces and solar panels. The countries can produce the following amounts using equal amounts of resources. Country X: 6 furnaces or 8 solar panels Country Y: 6 furnaces or 12 solar panels 

(a) Which country has an absolute advantage in producing solar panels? 

(b) Calculate the opportunity cost of a furnace in Country Y. 

(c) Which country has the comparative advantage in producing furnaces? Explain. 

(d) If the terms of trade were that 2 furnaces are exchanged for 1 solar panel, should Country X produce solar panels domestically or import solar panels from Country Y?

Answer Key

Question 1

Question 2

Question 3

Question 4

Question 5