How to use this guide
This guide is for students revising the whole course for the free-response section. It trains three habits: drawing graphs a reader can check, writing cause-and-effect chains with no missing links, and setting out calculations step by step.
Every example and task here is original Marlbridge practice, not past exam material. The data describe Valdoria, the fictional economy used across these pages (currency: the valda, VD; central bank: the CBV), and its trading partner Kestria (currency: the kesta, KS). Marks shown are a suggested Marlbridge rubric for judging your own answers, not official scoring. For timing and every task verb, see the task verbs guide.
The free-response section at a glance
| Feature | Detail |
|---|---|
| Questions | 3: one long (10 points) and two short (5 points each) |
| Time | 60 minutes, including a 10-minute reading period |
| Share of the exam score | 33.35% |
| Format | Viewed in the Bluebook app; answers handwritten in a paper booklet |
| Calculator | Four-function, allowed |
The course framework names four kinds of free-response task. Drawing and using graphs is the largest, at 30–50% of the section’s points. Explaining is worth 25–35%, numerical analysis 10–25%, and short assertions (such as a direction of change) 10–20%. Drawing graphs is tested only in this section; multiple-choice questions may still give you a graph to read.
Identify, explain or calculate?
| Verb | What to give | Example |
|---|---|---|
| Identify (“What”, “Which”, “Will”) | A direct answer, no reason | “Real GDP increases.” |
| Explain | How or why, as a chain of causes | “Disposable income rises, so consumption increases, so AD shifts right…” |
| Calculate | Formula, numbers, labelled answer | “Multiplier = 1 ÷ 0.2 = 5” |
| Draw, show, label | A labelled graph, with any change and its direction | A new curve AD₂, an arrow and E₂ |
A paragraph in an identify part can contradict your answer; a bare number in a calculate part can lose the point.
Drawing a correctly labelled graph
Every graph needs:
- Both axes labelled with the right variable.
- Every curve labelled with its standard name.
- The starting equilibrium, with dashed lines to both axes (PL₁, Y₁).
- Any shift as a new labelled curve (AD₂) with an arrow.
- The new equilibrium, with its values marked on the axes (PL₂, Y₂).
| Graph | Vertical axis | Horizontal axis | Curves |
|---|---|---|---|
| AD-AS | Price level | Real GDP | AD down; SRAS up; LRAS vertical at full-employment output (Yf) |
| Money market | Nominal interest rate | Quantity of money | MD down; MS vertical |
| Loanable funds | Real interest rate | Quantity of loanable funds | D_LF down; S_LF up |
| Phillips curve | Inflation rate | Unemployment rate | SRPC down; LRPC vertical at the natural rate |
| Foreign exchange (valdas) | Kestas per valda | Quantity of valdas | D for valdas down; S of valdas up |
Two labels cost the most points. The money market uses the nominal interest rate; loanable funds uses the real rate. On a foreign exchange graph, the vertical axis is the price of the currency on the horizontal axis.
For the short run, show where AD meets SRAS, even off the LRAS. For the long run with no policy, show SRAS shifting until the economy is back on LRAS.
Linking two graphs in one answer
The variable that changes on the first graph is the cause on the second. Say the link in words.
| First graph | Link | Second graph |
|---|---|---|
| Money market | Nominal interest rate changes, so investment changes | AD-AS: AD shifts |
| Loanable funds | Government borrowing raises the real interest rate, so private investment falls | Growth: LRAS grows more slowly |
| AD-AS | Output and price level change | Phillips curve |
| Loanable funds or money market | Interest rate changes relative to other countries, so capital flows change | Foreign exchange: demand or supply of the currency shifts |
AD-AS and the Phillips curve mirror each other. A rise in AD moves the economy up along the SRPC (lower unemployment, higher inflation). A fall in SRAS shifts the SRPC right (both higher).
Writing cause-and-effect chains
Each link names a variable and its direction, and the next link follows from it. The commonest weak answer jumps from start to end: “interest rates fall, so the price level rises.” Write it like this:
The CBV buys bonds → the money supply increases → the nominal interest rate falls → investment increases → AD shifts right → real GDP rises, unemployment falls and the price level rises.
- Give every variable a direction: increases, falls, shifts right, appreciates.
- Include the link the question names. “Through the interest rate” means the interest rate must appear.
- Stop at the variable asked for, and say short run or long run when it matters.
Calculations: show every step
Write the formula, substitute the numbers, then give the answer with a unit or %. Round only at the end.
| Calculation | Formula |
|---|---|
| Spending multiplier | 1 ÷ MPS = 1 ÷ (1 − MPC) |
| Tax multiplier | −MPC ÷ MPS |
| Spending change to close a gap | output gap ÷ spending multiplier |
| Money multiplier (maximum) | 1 ÷ required reserve ratio |
| Maximum change in the money supply | initial excess reserves × money multiplier |
| Real GDP | nominal GDP ÷ price index × 100 |
| Real interest rate | nominal interest rate − inflation rate |
| Growth or inflation rate | (new − old) ÷ old × 100 |
Match the multiplier to the change: spending, tax or reserves.
Worked example 1: closing a recessionary gap (Unit 3)
Question. Valdoria’s real GDP is VD 760 bn and full-employment output is VD 800 bn. The MPC is 0.8. (a) Identify the type of output gap. (b) Assuming the price level does not change, calculate the minimum increase in government spending that would close the gap. (c) Draw a correctly labelled AD-AS graph showing the current equilibrium and the effect of the spending increase. (5 points)
Weak answer. “(a) Negative. (b) 40 × 0.8 = 32. (c) D and S cross; D shifts right.”
What it misses. (a) does not name the gap. (b) multiplies by the MPC instead of dividing by the multiplier. (c) uses market labels, has no LRAS and marks no equilibrium.
Strong answer.
(a) A recessionary gap of 800 − 760 = VD 40 bn.
(b) Spending multiplier = 1 ÷ (1 − 0.8) = 1 ÷ 0.2 = 5. Increase in G = 40 ÷ 5 = VD 8 bn.
(c) Axes: price level and real GDP. LRAS vertical at Yf = 800. AD₁ meets SRAS at E₁, left of LRAS, with PL₁ and Y₁ = 760 marked. AD₂ lies to the right, with an arrow, and meets SRAS at E₂, with higher PL₂ and Y₂.
| Suggested Marlbridge rubric | Point |
|---|---|
| Recessionary gap | 1 |
| Multiplier of 5 shown | 1 |
| VD 8 bn | 1 |
| Labelled AD-AS with LRAS and E₁ left of it | 1 |
| AD shifts right; higher PL₂ and Y₂ marked | 1 |
Worked example 2: money creation and two linked graphs (Unit 4)
Question. Valdoria’s banking system has limited reserves and a required reserve ratio of 20%. The economy is in recession. The CBV buys VD 15 bn of government bonds from commercial banks. (a) Calculate the maximum change in the money supply. (b) Show the effect on a correctly labelled money market graph. (c) Show the effect on real GDP and the price level on a correctly labelled AD-AS graph, and explain the link. (6 points)
Weak answer. “(a) 15 × 0.2 = 3 bn. (b) [axis ‘interest rate’; MS shifts right] (c) Interest rates fall so AD and GDP go up.”
What it misses. (a) multiplies by the ratio, not the money multiplier. (b) does not say nominal and marks no i₁ or i₂. (c) skips investment, which is the link, and ignores the price level.
Strong answer.
(a) The CBV adds VD 15 bn to bank reserves. Deposits are unchanged, so it is all excess reserves. Money multiplier = 1 ÷ 0.20 = 5. Maximum change = 15 × 5 = VD 75 bn increase.
(b) and (c), shown in Figure 1: MS shifts right, so the nominal interest rate falls from i₁ to i₂. Borrowing is cheaper, so investment increases. AD shifts right, so real GDP rises from Y₁ to Y₂ and the price level rises from PL₁ to PL₂.
| Suggested Marlbridge rubric | Point |
|---|---|
| Money multiplier of 5 | 1 |
| VD 75 bn increase | 1 |
| Money market labelled: nominal interest rate, quantity of money, vertical MS, MD | 1 |
| MS shifts right; i₂ below i₁ | 1 |
| Labelled AD-AS; AD shifts right; PL₂ and Y₂ marked | 1 |
| Link: lower interest rate, so investment increases | 1 |
Worked example 3: a supply shock on the Phillips curve (Unit 5)
Question. Valdoria is in long-run equilibrium with unemployment at its natural rate of 5% and inflation of 2%. World energy prices then rise sharply. (a) Draw a correctly labelled Phillips curve graph showing the long-run equilibrium as point A and the short-run effect of the shock as point B. (b) Explain why inflation and unemployment change. (c) With no policy action, identify what happens to the SRPC in the long run. (5 points)
Weak answer. “(a) B is up and to the left of A on the SRPC. (b) Inflation rises, so unemployment falls because of the trade-off.”
What it misses. A supply shock shifts the SRPC; it is not a movement along it. Part (b) gives no causes.
Strong answer.
(a) Axes: inflation rate and unemployment rate. LRPC vertical at 5%. SRPC₁ passes through A (5%, 2%). SRPC₂ lies to the right, and B (for example 7%, 5%) is on it, up and to the right of A.
(b) Higher energy prices raise firms’ costs, so SRAS shifts left. The price level rises faster, so inflation increases. Real GDP falls, so firms need fewer workers and unemployment increases.
(c) Unemployment above the natural rate eventually pushes nominal wages down, so SRAS shifts back right and the SRPC shifts back left towards SRPC₁, returning unemployment to 5%.
| Suggested Marlbridge rubric | Point |
|---|---|
| Labelled axes; LRPC at 5% with A on it | 1 |
| SRPC shifts right; B up and right of A | 1 |
| Higher costs shift SRAS left, so inflation increases | 1 |
| Lower real GDP, so unemployment increases | 1 |
| SRPC shifts back left | 1 |
Worked example 4: interest rates and the exchange rate (Unit 6)
Question. The CBV raises its policy rate, so Valdoria’s real interest rate rises compared with Kestria’s. (a) Draw a correctly labelled graph of the foreign exchange market for the valda and show the effect. (b) Explain the effect on Valdoria’s net exports. (c) Identify the effect on Valdoria’s AD. (4 points)
Weak answer. “(a) [axes ‘Price’ and ‘Quantity’; D shifts right] (b) The valda gets stronger, so Valdoria exports more.”
What it misses. No currencies on the axes, no reason for the rise in demand, and the export effect is reversed.
Strong answer.
(a) Axes: kestas per valda and quantity of valdas. D₁ for valdas shifts right to D₂ along the S of valdas curve; the equilibrium exchange rate rises, so the valda appreciates.
(b) Kestrian savers earn a higher real return in Valdoria, so financial capital flows in. They need valdas to buy Valdorian assets, so demand for valdas increases and the valda appreciates. Valdorian goods cost more kestas, so exports fall; Kestrian goods cost fewer valdas, so imports rise. Net exports decrease.
(c) AD decreases.
| Suggested Marlbridge rubric | Point |
|---|---|
| Currency axes; D for valdas shifts right; higher exchange rate | 1 |
| Capital inflow raises demand for valdas | 1 |
| Exports dearer, imports cheaper, so net exports fall | 1 |
| AD decreases | 1 |
Common mistakes
- Putting the real interest rate on the money market, or the nominal rate on loanable funds.
- Leaving out LRAS, so no output gap can be seen.
- Showing a shift with no new label (AD₂) or no new equilibrium values.
- Treating a supply shock as a movement along the SRPC.
- A foreign exchange axis with no currencies, or pricing the wrong currency.
- Skipping the middle link: interest rate to AD with no investment.
- Writing “affects” or “changes” instead of a direction.
- Multiplying a gap by the MPC, or using the spending multiplier for a tax change.
Practise it
Task 1 (Unit 2). Valdoria’s nominal GDP was VD 960 bn in 2025 (GDP deflator 100) and VD 1,100 bn in 2026 (deflator 110). (a) Calculate real GDP in 2026. (b) Calculate the real growth rate. (c) Identify whether nominal growth overstates or understates real growth.
Model answer
(a) 1,100 ÷ 110 × 100 = VD 1,000 bn.
(b) 2025 real GDP = VD 960 bn. Growth = (1,000 − 960) ÷ 960 × 100 = 4.17%.
(c) Overstates: nominal growth is 14.58% because it includes rising prices.
Task 2 (Unit 3). The MPC is 0.75 and the government cuts taxes by VD 12 bn. (a) Identify the direction of the AD shift. (b) Calculate the maximum change in AD. (c) Explain why a VD 12 bn rise in government spending would change AD by more.
Model answer
(a) Right.
(b) Tax multiplier = −0.75 ÷ 0.25 = −3. Change in AD = −3 × (−12) = +VD 36 bn.
(c) Government spending adds the full VD 12 bn in the first round. After the tax cut, households spend only 0.75 × 12 = VD 9 bn at first and save VD 3 bn. The spending rise gives 12 × 4 = VD 48 bn.
Task 3 (Unit 5). Valdoria’s government borrows to finance a larger budget deficit. Explain, using the loanable funds market, the effect on private investment and long-run growth.
Model answer
Axes: real interest rate and quantity of loanable funds. Government borrowing shifts D_LF right, so the real interest rate rises. Borrowing costs firms more, so private investment falls (crowding out). A smaller future capital stock means slower long-run growth.
Task 4 (Unit 6). Incomes in Kestria rise and Kestrians buy more Valdorian goods. (a) Identify the axis labels for the foreign exchange market for valdas. (b) Explain the effect on the value of the valda. (c) Identify what happens to the kesta relative to the valda.
Model answer
(a) Kestas per valda; quantity of valdas.
(b) Kestrians need valdas to pay for Valdorian exports, so demand for valdas increases and the valda appreciates.
(c) The kesta depreciates: one kesta buys fewer valdas.
Where to practise next
- Multipliers practice: spending and tax multipliers.
- Changes in the AD-AS model practice: drawing shifts.
- Banking and money creation practice: the money multiplier.
- Monetary policy practice: money market to AD-AS.
- Phillips curve practice: shifts and movements.
- Real interest rates and capital flows practice: exchange rates and net exports.
Quick questions
Do I need to put numbers on my graphs?
Only when the question gives numbers or asks you to show a value. Otherwise use labels such as PL₁, PL₂, Y₁ and Y₂ on the axes, with dashed lines from each equilibrium to the axes.
Can a graph replace a written explanation?
A graph can support an explanation, but when the question says explain, write the chain in words as well. The graph shows the result; the words show the reason.
How long should a cause-and-effect chain be?
Long enough to reach the variable the question asks about, with no gaps. Most chains have three to five links. Stop when you reach the outcome asked for.