AP®︎ Macroeconomics: Unit 6 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Unit 6 of AP Macroeconomics – Open Economy – International Trade and Finance.
Questions List
Unit 6 (All Topics)
Question 1 Topic 6.1Easy
This question tests the following: MEA-4.A.5
What does the balance of payments account measure?
What You’re Being Tested On:
Explore the learning objectives taken directly from the College Board’s AP® Macroeconomics Curriculum. Ensure you’re prepared for the exact topics covered on the AP® exam, in-class tests, and quizzes, and gain confidence in your mastery of the material.
Unit 6: Open Economy – International Trade and Finance
This unit introduces international trade and finance, explaining exchange rates, balance of payments, and how global interactions affect the domestic economy.
Topic 6.1: Balance of Payments Accounts
Learning Objective: MEA-4.A
a. Define the current account (CA), the capital and financial account (CFA), and the balance of payments (BOP). b. Explain how changes in the components of the CA and CFA affect a country's BOP. c. Calculate the CA, the CFA, and the BOP.
Essential Knowledge: MEA-4.A.1
The current account (CA) records net exports, net income from abroad, and net unilateral transfers.
Essential Knowledge: MEA-4.A.2
The CA is not always balanced; it may show a surplus or a deficit. A nation's balance of trade (i.e., net exports) is part of the current account and may also show a surplus or a deficit.
Essential Knowledge: MEA-4.A.3
The capital and financial account (CFA) records financial capital transfers and purchases and sales of assets between countries.
Essential Knowledge: MEA-4.A.4
The CFA is not always balanced; it may show a surplus (financial capital inflow) or a deficit (financial capital outflow).
Essential Knowledge: MEA-4.A.5
The balance of payments (BOP) is an accounting system that records a country's international transactions for a particular time period. It consists of the CA and the CFA.
Essential Knowledge: MEA-4.A.6
Any transaction that causes money to flow into a country is a credit to its BOP account, and any transaction that causes money to flow out is a debit. The sum of all credit entries should match the sum of all debit entries (CA+CFA=0).
Topic 6.2: Exchange Rates
Learning Objective: MKT-5.A
a. Define the exchange rate, currency appreciation, and currency depreciation. b. Explain how currencies are valued relative to one another. c. Calculate the value of one currency relative to another.
Essential Knowledge: MKT-5.A.1
In the foreign exchange market, one currency is exchanged for another; the price of one currency in terms of the other is the exchange rate.
Essential Knowledge: MKT-5.A.2
If one currency becomes more valuable in terms of the other, it is said to appreciate. If one currency becomes less valuable in terms of the other, it is said to depreciate.
Topic 6.3: The Foreign Exchange Market
Learning Objective: MKT-5.B
a. Define the foreign exchange market, demand for currency, and supply of currency. b. Explain (using graphs as appropriate) the relationship between the exchange rate and the quantity of currency demanded (supplied).
Essential Knowledge: MKT-5.B.1
The demand for a currency in a foreign exchange market arises from the demand for the country’s goods, services, and financial assets and shows the inverse relationship between the exchange rate and the quantity demanded of a currency.
Essential Knowledge: MKT-5.B.2
The supply of a currency in a foreign exchange market arises from making payments in other currencies and shows the positive relationship between the exchange rate and the quantity supplied of a currency.
Learning Objective: MKT-5.C
Define (using graphs as appropriate) the equilibrium exchange rate.
Essential Knowledge: MKT-5.C.1
In the foreign exchange market, equilibrium is achieved when the exchange rate is such that the quantities demanded and supplied of the currency are equal.
Learning Objective: MKT-5.D
Explain (using graphs as appropriate) how exchange rates adjust to restore equilibrium in the foreign exchange market.
Essential Knowledge: MKT-5.D.1
Disequilibrium exchange rates create surpluses and shortages in the foreign exchange market. Market forces drive exchange rates toward equilibrium.
Topic 6.4: Effect of Changes in Policies and Economic Conditions on the Foreign Exchange Market
Learning Objective: MKT-5.E
a. Explain (using graphs as appropriate) the determinants of currency demand and supply. b. Explain (using graphs as appropriate) how changes in demand and supply in the foreign exchange market affect the equilibrium exchange rate.
Essential Knowledge: MKT-5.E.1
Factors that shift the demand for a currency (such as the demand for that country’s goods, services, or assets) and the supply of a currency (such as tariffs or quotas on the other country’s goods and services) change the equilibrium exchange rate.
Essential Knowledge: MKT-5.E.2
Fiscal policy can influence aggregate demand, real output, the price level, and exchange rates.
Essential Knowledge: MKT-5.E.3
Monetary policy can influence aggregate demand, real output, the price level, and interest rates, and thereby affect exchange rates.
Topic 6.5: Changes In The Foreign Exchange Market And Net Exports
Learning Objective: MKT-5.F
Explain (using graphs as appropriate) how changes in the value of a currency can lead to changes in a country’s net exports and aggregate demand.
Essential Knowledge: MKT-5.F.1
Factors that cause a currency to appreciate cause that country’s exports to decrease and its imports to increase. As a result, net exports will decrease.
Essential Knowledge: MKT-5.F.2
Factors that cause a currency to depreciate cause that country’s exports to increase and its imports to decrease. As a result, net exports will increase. [See EK MOD-2.A.3 and EK MOD-2.H.1 for explanations of the effect of changes in net exports on aggregate demand and the resulting effects on output, employment, and the price level.]
Topic 6.6: Real Interest Rates and International Capital Flows
Learning Objective: MKT-5.G
Explain (using graphs as appropriate) how differences in real interest rates across countries affect financial capital flows, foreign exchange markets, and loanable funds markets.
Essential Knowledge: MKT-5.G.1
In an open economy, differences in real interest rates across countries change the relative values of domestic and foreign assets. Financial capital will flow toward the country with the relatively higher interest rate. [See EK MKT-4.E.2 and EK MEA-4.A.6 for explanations of the impact on the loanable funds market and on net exports.]
Essential Knowledge: MKT-5.G.2
Central banks can influence the domestic interest rate in the short run, which in turn will affect net capital inflows.
