Macro 2012 FRQ #1: PPC, OMO, Money Market, and Balance of Payments

The video tutorial discusses a macroeconomic question from 2012, focusing on a fictional country, Rankinland, which is in a recession. It covers drawing the production possibilities curve, the use of expansionary monetary policy through open market operations, and the effects on the money market graph. The tutorial explains how these policies impact the real interest rate, GDP, current account deficit, and currency value. The video also provides a point breakdown for each part of the question.

What does the production possibilities curve represent for Rankinland?

• The number of banks in Rankinland.

• The amount of money in circulation.

• The total population of Rankinland.

• The maximum possible production of clothing and food.

Which action is part of expansionary monetary policy?

• Reducing government spending.

• Raising taxes.

• Decreasing the discount rate.

• Increasing the reserve ratio.

What happens to the nominal interest rate when the central bank buys bonds?

• It increases.

• It decreases.

• It fluctuates randomly.

• It remains unchanged.

How does an increase in real GDP affect the current account deficit?

• It eliminates the deficit.

• It decreases the deficit.

• It has no effect on the deficit.

• It increases the deficit.

What is the effect on the currency when imports increase due to higher GDP?

• The currency becomes obsolete.

• The currency remains stable.

• The currency depreciates.

• The currency appreciates.