How to use this guide
This guide is for any student preparing for the free-response section of the Macroeconomics exam. It teaches no new economics; it shows you how to turn what you know into answers a reader can credit. Read the verb table, work through the worked examples, then try the tasks without looking at the answers.
Every question here is original Marlbridge practice set in Valdoria, the fictional country used across these pages (currency: the valda, VD; its trading partner Ostria uses the ostro, OS). None of it is past exam material. The marks shown are a suggested Marlbridge rubric, not official scoring.
The free-response section at a glance
| Feature | Detail |
|---|---|
| Questions | 3: one long question (10 points) and two short questions (5 points each) |
| Time | 60 minutes, including a 10-minute reading period |
| Weight | About one third of the exam score (33.35% in the course description) |
| Within the section | The long question is 50% of the section score; each short question is 25% |
| Format | You read the questions in the Bluebook app and handwrite your answers, graphs included, in a paper booklet |
| Calculator | A four-function calculator is allowed on both sections |
All four course skills are tested here. The course description splits the free-response points by kind of task: making claims about concepts, models, outcomes or effects (10–20%), explaining them (25–35%), numerical analysis or calculation (10–25%), and drawing graphs or visuals and showing changes on them (30–50%). The first three test Skills 1–3; graphs test Skill 4.
The task verbs and what they require
The course description lists five task verbs that free-response questions commonly use. Find the verb in each part first, because it decides what kind of answer earns the point.
| Verb | What your answer must do | How much to write |
|---|---|---|
| Identify, and question words such as What? Which? Will? | Give the fact, direction or name asked for, with no reasons | A word, a phrase or a short sentence |
| Explain | Say how or why something happens, using economic reasoning. A graph or symbols can be part of it | The cause, each link, and the result: one to three sentences |
| Calculate | Do the maths and reach a final number. Work must be shown | Formula, numbers substituted, answer with units |
| Draw a correctly labelled graph | Make the graph yourself, with every label in place | Both axes named, every curve named, equilibrium values marked |
| Show / Label / Plot / Indicate | Mark a scenario or a change on the graph you drew | The new curve or point, its label, and the direction of change |
Two rules follow. A short-answer verb needs no reasons. If a part asks “Will real output increase, decrease or stay the same?”, the answer “Increase” earns the point; a paragraph wastes time and can add an error. A reasoning verb is not answered by a direction alone. If the part says “Explain”, the word “increase” on its own earns nothing.
If a part joins two verbs (“Will … ? Explain.”), give the direction first, then the reason.
Group 1: short-answer verbs (identify, what, which, will)
Example. Valdoria’s banking system has limited reserves, and the economy is in a recession. Identify an open market operation the central bank (CBV) could use to raise real output.
Answer. The CBV should buy government bonds.
That is the whole answer.
Group 2: the reasoning verb (explain)
Example. Household wealth in Valdoria falls after house prices drop. Explain how this affects aggregate demand.
Answer. Households feel poorer, so they spend less on consumption at every price level. Consumption is a component of AD, so AD decreases (shifts left).
A strong explanation is a chain: cause → mechanism → result. The middle link (“consumption falls”) is the one most often left out.
Group 3: the numerical verb (calculate)
Example. Valdoria has 46.0 million employed people and 4.0 million unemployed people. Calculate the unemployment rate.
Answer. Labour force = 46.0 + 4.0 = 50.0 million. Unemployment rate = (unemployed ÷ labour force) × 100 = (4.0 ÷ 50.0) × 100 = 8%.
A bare “8%” may not earn the point: work must be shown.
Group 4: graphing verbs (draw a correctly labelled graph; show, label, plot, indicate)
Example. (i) Draw a correctly labelled graph of Valdoria’s loanable funds market, showing the equilibrium real interest rate r₁. (ii) On your graph, show the effect of firms becoming much more confident about future profits.
Answer. (i) Vertical axis: real interest rate. Horizontal axis: quantity of loanable funds. A downward-sloping D_LF and an upward-sloping S_LF, with their crossing marked and r₁ shown on the vertical axis. (ii) Demand shifts right to D_LF2, with an arrow, and the new rate r₂ is marked above r₁.
“Draw” earns the labelling point; “show” earns the change. Wrong axis labels can cost the first; a missing r₂ can cost the second.
Reading a multi-part question
The long question usually opens with a short scenario and then runs through lettered parts, often moving from one model to another, such as from AD–AS to the money market. Short questions are built around one or two ideas.
- Read the stem slowly. Note the starting position (recession, inflationary gap or full employment), any numbers, and the labels you must use.
- Read every part before you write. A later part often shows what an earlier graph needs.
- Find the verb in each part and give the kind of answer it asks for.
- Use the labels the question gives you. If it says “label current output Y₁”, write Y₁, not Q₁.
- Follow the links. “Using your answer to part (B)” means use it, even if you are unsure of it.
- Answer exactly what is asked: real output is not the price level.
Planning your time
About 50 minutes are left for writing after the reading period. The long question is worth half the section, so give it about half the writing time.
| Stage | Suggested time |
|---|---|
| Reading period: read all three questions, circle the verbs, plan each graph | 10 minutes |
| Question 1 (long, 10 points) | about 23 minutes |
| Question 2 (short, 5 points) | about 12 minutes |
| Question 3 (short, 5 points) | about 12 minutes |
| Final check: labels, directions, every part answered | about 3 minutes |
Follow the instructions on the day about what you may write in the reading period. If a part is stuck after two minutes, move on and come back.
Showing work on calculations
- Write the formula first, for example “spending multiplier = 1 ÷ (1 − MPC)”.
- Substitute the numbers you used.
- Give the answer with units and a direction: “a VD 10 billion increase”, not “10”.
- Round only at the end.
If an earlier value was wrong, a clear method can still show sound economics.
What earns and loses credit
| Earns credit | Loses credit |
|---|---|
| Axes named with the right variable: price level and real GDP; nominal interest rate and quantity of money | “P” and “Q” on a macro graph, or the wrong rate (nominal versus real) |
| New curves given new labels (AD₂, MS₂) and new equilibrium values marked | An unlabelled shift with no new equilibrium |
| A full chain: money supply rises → interest rate falls → investment rises → AD rises | Skipping a link (“money supply rises, so output rises”) |
| The direction asked for, in the question’s words | Vague words such as “changes” or “is affected” |
| Formula, numbers and answer with units | A bare number, or the wrong multiplier |
Worked example 1: identify, calculate and explain (Unit 3)
Question. Valdoria’s real GDP is VD 620 billion and its full-employment output is VD 650 billion. The marginal propensity to consume (MPC) is 0.8. Assume the price level does not change. (A) Identify a fiscal policy action involving government spending that would close the output gap. (B) Calculate the minimum change in government spending needed. Show your work. (C) Will the tax cut needed to close the same gap be larger, smaller or the same as your answer to (B)? Explain.
Weak answer. “(A) Expansionary policy. (B) 30 × 0.8 = 24. (C) Larger, because taxes are different.”
What it misses. (A) names a type of policy, not an action. (B) multiplies by the MPC instead of dividing by the multiplier. (C) has the right direction but no reasoning.
Strong answer.
- (A) Increase government spending on goods and services.
- (B) Output gap = 650 − 620 = VD 30 billion. Spending multiplier = 1 ÷ (1 − 0.8) = 5. Change in government spending = 30 ÷ 5 = VD 6 billion increase.
- (C) Larger. Households save part of a tax cut (MPS = 0.2), so only 80% of it is spent in the first round, while government spending is spent in full. Tax multiplier = 0.8 ÷ 0.2 = 4, so the tax cut must be 30 ÷ 4 = VD 7.5 billion.
Suggested Marlbridge rubric (4 points).
| Point | Earned for |
|---|---|
| 1 | (A) Increase government spending |
| 2 | (B) VD 6 billion, with the gap and the multiplier shown |
| 3 | (C) “Larger” |
| 4 | (C) Part of a tax cut is saved, so each valda of tax cut adds less spending than a valda of government purchases |
Worked example 2: draw, show, calculate and explain (Unit 4)
Question. Valdoria’s banking system has limited reserves and a required reserve ratio of 10%. The economy is in a recession, and the CBV buys VD 2 billion of government bonds from commercial banks. (A) Draw a correctly labelled graph of the money market, showing the equilibrium nominal interest rate i₁. (B) On your graph, show the effect of the bond purchase. Label the new nominal interest rate i₂. (C) Calculate the maximum change in the money supply. Show your work. (D) Explain how the change in the interest rate affects real GDP in the short run.
Weak answer. Axes “i” and “Q”, an unlabelled downward curve and an unlabelled vertical line, redrawn further right. “(C) 2 × 10 = 20. (D) Interest rates fall, so real GDP rises.”
What it misses. The horizontal axis must say quantity of money, the curves need names, and there is no i₂. (C) has no formula or units. (D) skips investment and AD.
Strong answer.
- (A) Vertical axis: nominal interest rate. Horizontal axis: quantity of money. A vertical MS₁ and a downward-sloping MD, crossing at i₁.
- (B) The money supply shifts right to a vertical MS₂, with an arrow from MS₁ to MS₂. The new rate i₂ is marked below i₁.
- (C) Bank reserves rise by VD 2 billion, all of it excess reserves. Money multiplier = 1 ÷ rr = 1 ÷ 0.10 = 10. Maximum change in the money supply = 2 × 10 = VD 20 billion increase.
- (D) The lower interest rate makes borrowing cheaper, so investment rises. Investment is a component of AD, so AD increases and real GDP rises in the short run.
Suggested Marlbridge rubric (5 points).
| Point | Earned for |
|---|---|
| 1 | (A) Correctly labelled money market: both axes, vertical MS, downward MD, i₁ marked |
| 2 | (B) MS shifts right with a new label, and i₂ is below i₁ |
| 3 | (C) VD 20 billion, with the multiplier shown |
| 4 | (D) Real GDP increases |
| 5 | (D) Explanation through investment and AD |
Worked example 3: draw, calculate, will … explain (Unit 6)
Question. Valdorian households start buying many more Ostrian phones. Treat Valdoria and Ostria as the only two countries. (A) Draw a correctly labelled graph of the foreign exchange market for valdas and show the effect on the value of the valda. (B) The exchange rate falls from OS 2.0 per valda to OS 1.6 per valda. A Valdorian bicycle sells for VD 500. Calculate its price in ostros before and after the change. (C) Using your answer to (B), will Valdoria’s exports to Ostria increase, decrease or stay the same? Explain.
Weak answer. A graph with “Price” and “Quantity” on the axes and demand shifted left. “(B) 500 ÷ 2.0 = 250 and 500 ÷ 1.6 = 312.5. (C) Decrease, because the valda is weaker.”
What it misses. To pay for the phones, Valdorians sell valdas for ostros, so the supply of valdas changes. The axes must name the currency. The rate is ostros per valda, so multiply. (C) has the wrong direction and no price link.
Strong answer.
- (A) Vertical axis: exchange rate (OS per VD). Horizontal axis: quantity of valdas. Downward-sloping D_VD, upward-sloping S_VD₁, equilibrium rate ER₁. Supply shifts right to S_VD₂, and the new rate ER₂ is below ER₁: the valda depreciates.
- (B) Price in ostros = price in valdas × (OS per VD). Before: 500 × 2.0 = OS 1,000. After: 500 × 1.6 = OS 800.
- (C) Increase. The bicycle now costs Ostrian buyers OS 800 instead of OS 1,000. Valdorian goods are cheaper for Ostrians, so they buy more of them.
Suggested Marlbridge rubric (5 points).
| Point | Earned for |
|---|---|
| 1 | (A) Correctly labelled foreign exchange graph for valdas, equilibrium rate marked |
| 2 | (A) Supply of valdas shifts right and the new rate is lower |
| 3 | (B) OS 1,000 and OS 800, with work shown |
| 4 | (C) Exports increase |
| 5 | (C) Valdorian goods are cheaper in ostros |
Common mistakes
- Answering a different verb: a paragraph for an identify question, or only a direction for an explain question.
- Labelling macro graphs “P” and “Q”, or putting the real interest rate on a money market graph.
- Drawing a shift with no new label and no new equilibrium marked.
- Skipping the middle of a chain: “interest rates fall, so real GDP rises” with no investment or AD.
- In the foreign exchange market, shifting demand when the change is in supply. Ask who is buying the currency and who is selling it.
- Using 1 ÷ MPC instead of 1 ÷ (1 − MPC), or the spending multiplier for a tax change.
- Running out of time and leaving a short question blank.
Practise it
Task 1 (Unit 1: calculate, identify). In a year, a Valdorian worker can make 40 tonnes of rice or 20 machines; an Ostrian worker can make 30 tonnes of rice or 10 machines. (i) Calculate the opportunity cost of one machine in each country. (ii) Identify the country with the comparative advantage in machines.
Model answer
(i) Valdoria: 40 ÷ 20 = 2 tonnes of rice per machine. Ostria: 30 ÷ 10 = 3 tonnes of rice per machine. (ii) Valdoria, because its opportunity cost of a machine is lower.
Task 2 (Unit 2: calculate, explain). Use the Group 3 data (46.0 million employed, 4.0 million unemployed). Then 0.5 million of the unemployed stop looking for work because they believe no jobs are available. (i) Calculate the new unemployment rate. (ii) Explain why the rate falls even though no one found a job.
Model answer
(i) Unemployed = 4.0 − 0.5 = 3.5 million. Labour force = 50.0 − 0.5 = 49.5 million. Rate = (3.5 ÷ 49.5) × 100 = 7.07%. (ii) People who stop looking are no longer counted as unemployed or in the labour force. The number unemployed falls by a larger proportion than the labour force, so the rate falls with no change in employment.
Task 3 (Unit 4: calculate, explain). The required reserve ratio is 25%. A customer deposits VD 8,000 of cash in Bank X, which had no excess reserves. (i) Calculate Bank X’s new excess reserves. (ii) Calculate the maximum change in the money supply. (iii) Explain why the answer to (ii) is not 8,000 × 4.
Model answer
(i) Required reserves = 0.25 × 8,000 = 2,000. Excess reserves = 8,000 − 2,000 = VD 6,000. (ii) Money multiplier = 1 ÷ 0.25 = 4. Maximum change = 6,000 × 4 = VD 24,000. (iii) The VD 8,000 was already money: depositing it only turned currency into a demand deposit. Only the VD 6,000 of excess reserves can be lent to create new money. (VD 32,000 is the maximum change in demand deposits.)
Task 4 (Unit 5: draw, show). Valdoria’s natural rate of unemployment is 4%, and the economy is in long-run equilibrium with 3% inflation. Then the price of imported energy falls sharply. (i) Draw a correctly labelled Phillips curve graph and label the current position A. (ii) Show the effect of the energy price rise, labelling the new short-run position B.
Model answer
(i) Vertical axis: inflation rate (%). Horizontal axis: unemployment rate (%). A vertical LRPC at 4%. A downward-sloping SRPC₁ crossing the LRPC at A, at 3% inflation. (ii) This positive supply shock shifts the short-run curve left to SRPC₂ (labelled, with an arrow). B lies on SRPC₂ with lower inflation than 3% and lower unemployment than 4%. The LRPC does not move.
Where to practise next
Quick questions
How long should an answer be?
As long as the verb needs. For identify, a word or a short phrase is enough. For explain, write the cause, the link and the result, usually one to three sentences. Extra writing can add a wrong statement that cancels a right one.
What if I get an early part wrong?
Keep going and stay consistent. Use your own earlier answer in later parts and say so, for example 'using my answer to part (B)'. A later part can still show correct economics even if the earlier value was wrong.
Can I use arrows instead of sentences when I explain?
Yes, graphs and symbols can be part of an explanation. Each link must still be clear: name what changes and in which direction, for example 'money supply rises, so the nominal interest rate falls, so investment rises'.