AP®︎ Macroeconomics: Topic 6.4 Flashcards

Master key terms and definitions for Topic 6.4 of AP Macroeconomics – Effect of Changes in Policies and Economic Conditions on the Foreign Exchange Market to help you prep for quizzes and the AP exam.

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Term

Determinants Of Currency Demand And Supply

Definition

Demand shifts with foreign demand for goods, services, and assets; supply shifts with imports and trade barriers.

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Determinants Of Currency Demand And Supply
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Demand shifts with foreign demand for goods, services, and assets; supply shifts with imports and trade barriers.

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Currency Appreciation And Depreciation
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Appreciation means a currency gains value; depreciation means it loses value relative to another currency.

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Demand For Exports And Currency Demand
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Greater foreign demand for a country's exports increases demand for its currency.

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Domestic Price Level And Currency Demand
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Higher domestic prices reduce export demand and currency demand; lower prices increase both.

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Foreign Income And Currency Demand
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Higher foreign income increases demand for imports and for the exporting country's currency.

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Real Interest Rates And Currency Demand
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Higher real interest rates attract financial capital, increasing demand for that currency.

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Demand Shifts And Exchange Rates
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Higher currency demand causes appreciation, while lower currency demand causes depreciation.

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Supply Shifts And Exchange Rates
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Higher currency supply causes depreciation, while lower currency supply causes appreciation.

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Fiscal Policy And Exchange Rates
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Expansionary fiscal policy tends to depreciate a currency, while contractionary fiscal policy tends to appreciate it.

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Monetary Policy And Exchange Rates
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Expansionary monetary policy tends to depreciate a currency, while contractionary monetary policy tends to appreciate it.

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Trade Barriers And Exchange Rates
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Tariffs and quotas reduce currency supply in foreign exchange markets, causing appreciation.

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