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AP Macro

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Unit 6

6.7 MC Answers and Review

5 min read•december 7, 2021

AP Macroeconomics 💶

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Answers and Review for Multiple Choice Practice on Open Economy-International Trade and Finance

⛔STOP ! ⛔ Before you look at the answers, make sure you gave this practice quiz a try so you can assess your understanding of the concepts covered in Unit 6. Click here for the practice questions: AP Macro Unit 6 Multiple Choice Questions.

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Facts about the test: The AP Macroeconomics exam has 70 multiple choice questions and you will be given 1 hour to complete the section. That means it should take you around 8 minutes to complete 10 questions.

*The following questions were not written by College Board and, although they cover information outlined in the AP Macroeconomics Course and Exam Description, the formatting on the exam may be different.

1. When a country has a trade deficit . . .

A. the value of the country's imports exceeds the value of its exports

B. the supply exceeds demand

C. monetary policy exceeds the fiscal policy

D. unemployment exceeds the inflation rate

Answer: Trade deficit: when a country is importing more than it exports

📄 Study AP Macroeconomics, Unit 6.1: Balance of Payments Accounts

2. This records the value of exports and imports of both goods and services and international transfers of capital.

A. fiscal account

B. deficit account

C. government spending account

D. current account

Answer: The current account is part of the balance of payments, along with the capital account and financial account.

📄 Study AP Macroeconomics, Unit 6.1: Balance of Payments Accounts

3. This records the net flow of investment transactions into an economy.

A. discal account

B. deficit account

C. capital account

D. current account

Answer: The capital account is one of the balances of payments accounts.

📄 Study AP Macroeconomics, Unit 6.1: Balance of Payments Accounts

4. This occurs when a currency becomes less valuable in terms of other currencies:

A. inflation

B. depreciation

C. hyperinflation

D. unemployment

Answer: If the US dollar is now less valuable than the Canadian dollar, we can say that the US dollar depreciated.

📄 Study AP Macroeconomics, Unit 6.2: Exchange Rates

5. If a nation's exports total $100,000 and its imports total $40,000, what is the nation's trade balance?

A. -$60,000

B. $60,000

C. $100,000

D. $140,000

Answer: trade balance = exports - imports

📄 Study AP Macroeconomics, Unit 6.1: Balance of Payments Accounts

6. If French investors purchase US bonds totaling $1 million, the purchase would be included in France's:

A. inflation rate

B. financial account

C. unemployment rate

D. open market operations

Answer: The financial account can track international ownership of assets, and refers to the net inflow of investment of an economy.

📄 Study AP Macroeconomics, Unit 6.1: Balance of Payments Accounts

7. If fewer units of dollars are needed to buy a single unit of the other currency, this would have occured:

A. depreciation

B. investment

C. appreciation

D. fiscal policy

Answer: Appreciation is when there is an increase in the value of a country's currency with respect to a foreign currency.

📄 Study AP Macroeconomics, Unit 6.2: Exchange Rates

8. In the FOREX market, what type of relationship exists between the exchange rate and quantity demanded of a currency?

A. direct

B. inverse

C. exponential

D. none

Answer: When the exchange rate (price) is high, quantity demanded is low.

📄 Study AP Macroeconomics, Unit 6.3: Foreign Exchange Market

9. What will occur if there is a surplus of dollars in the FOREX market?

A. unemployment

B. the exchange rate will rise

C. hyperinflation

D. the exchange rate will fall

Answer: Supply of the currency will decrease until it reaches equilibrium.

📄 Study AP Macroeconomics, Unit 6.4: Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market

10. A country's currency will usually appreciate if . . .

A. demand for the country's exports decreases

B. demand for the country's exports increases

C. demand for the country's exports disappears completely

D. trade ceases

Answer: If more foreigners want goods from that particular country, then those foreigners will need to demand more of that country's currency first, so they can be used for payment.

📄 Study AP Macroeconomics, Unit 6.4: Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market

11. If country J experiences higher inflation than country Oke over the course of a year, usually J's currency will:

A. increase relative to Oke's

B. appreciate relative to Oke's

C. depreciate relative to Oke's

D. decrease relative to Oke's

Answer: Relatively higher inflation will cause currency depreciation. Inflation can lead to higher input costs for exports, which then makes a nation's exports less competitive in the global markets. This will widen the trade deficit and cause the currency to depreciate.

📄 Study AP Macroeconomics, Unit 6.4: Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market

12. If the market determines a country's exchange rate, than that country has a:

A. negative exchange rate

B. fixed exchange rate

C. floating exchange rate

D. trade deficit

Answer: A floating exchange rate is a type of exchange rate regime in which a currency's value is allowed to fluctuate in response to foreign exchange market events.

📄 Study AP Macroeconomics, Unit 6.4: Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market

13. A tax on imports is known as a(n):

A. quota

B. appreciation

C. investment

D. tariff

Answer: A tariff is a tax on imports designed to help regulate foreign trade and support domestic production.

📄 Study AP Macroeconomics, Unit 6.5: Changes in the Foreign Exchange Market and Net Exports

14. A limit on the quantity of imports into a specific country is known as a(n):

A. quota

B. appreciation

C. investment

D. tariff

Answer: An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. Quotas, like other trade restrictions, are typically used to benefit the producers of a good in that economy.

15. If the real interest rate in the US increases, foreign capital investment will:

A. decrease

B. increase

C. remain unchanged

D. not occur

Answer: Higher interest rates will attract foreign currency.

📄 Study AP Macroeconomics, Unit 6.4: Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market

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