AP Macroeconomics Unit 6 Review - All AP Classrooms

An increase in Japan's demand for United States goods would cause the value of the dollar to

A) depreciate because of inflation

B) depreciate because the United States would be selling more dollars to Japan

C) depreciate because the United States money supply would increase as exports rise

D) appreciate because Japan would be buying more United Stated dollars

E) appreciate because Japan would be selling more United States dollars

D

An increase in which of the following would reduce the United States balance-of-trade deficit?

A) United States demand for foreign goods

B) United States rate of inflation compared to other countries

C) The value of foreign currency relative to the United States dollar

D) The federal budget deficit

E) United States interest rates compared to other countries

C

Assume that the inflation rate in Country X is very high relative to the inflation rates in all of its trading partners. Which of the following is likely to happen to Country X's currency on the foreign exchange market?

A) The demand curve for the currency will shift to the right, and the currency will appreciate.

B) The demand curve for the currency will shift to the left, and the currency will depreciate.

C) The supply curve for the currency will shift to the left, and the currency will appreciate.

D) The supply curve for the currency will shift to the left, and the currency will depreciate.

E) There will be no shift in the demand curve for the currency, but the currency will depreciate.

B

In a country that has a flexible exchange rate and a banking system with limited reserves, an open market sale of bonds by the central bank will most likely change the money supply, the interest rate, and the value of the country's currency in which of the following ways?

A) Money Supply: Increase, Interest Rate: Decrease, Value of the Currency: Decrease

B) Money Supply: Increase, Interest Rate: Decrease, Value of the Currency: Increase

C) Money Supply: Decrease, Interest Rate: Decrease, Value of the Currency: Decrease

D) Money Supply: Decrease, Interest Rate: Increase, Value of the Currency: Increase

E) Money Supply: Decrease, Interest Rate: Increase, Value of the Currency: Decrease

D

The United States government is running a budget deficit. What will most likely happen to the United States dollar in the foreign exchange market?

A) Appreciate because interest rates will increase.

B) Depreciate because interest rates will decrease.

C) Appreciate because interest rates will decrease.

D) Depreciate because interest rates will increase.

E) Not change because the budget deficit has no effect on the exchange rate.

A

Which of the following would be a current account transaction?

A) India buys $10 billion of new United States Treasury bonds.

B) A United States firm buys 5 percent of the stock of another United States firm.

C) A United States firm builds a new factory in Kenya.

D) A United States firm sells $500 million of its products to a Chinese company.

E) The United States buys $8 billion worth of euros.

D

Which of the following would cause the United States dollar to increase in value compared to the Japanese yen?

A) An increase in the money supply in the United States

B) An increase in interest rates in the United States

C) An increase in the United States trade deficit with Japan

D) The United States purchase of gold on the open market

E) The sale of $2 billion dollars worth of Japanese television sets to the United States

B

If a country has a current account deficit, which of the following must be true?

A) It must also show a deficit in its capital account.

B) It must show a surplus in its capital account.

C) It must increase the purchases of foreign goods and services.

D) It must increase the domestic interest rates on its bonds.

E) It must limit the flow of foreign capital investment.

B

The price of one nation's currency expressed in terms of another nation's currency is called

A) the world price

B) the exchange rate

C) the law of one price

D) terms of trade

E) purchasing-power parity

B

Which of the following is an example of foreign direct investment?

A) A United States automobile manufacturer building a steel plant in Russia

B) A United States citizen purchasing corporate bonds issued by a French manufacturing firm

C) A Mexican citizen purchasing United States Treasury bills

D) The Federal Reserve purchasing Japanese yen

E) Immigrant workers in the United States sending money to their native country

A

Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds?

A) Demand for Dollars - Decrease, International Value of the Dollar - Decrease

B) Demand for Dollars - Decrease, International Value of the Dollar - Increase

C) Demand for Dollars - Decrease, International Value of the Dollar - No change

D) Demand for Dollars - Increase, International Value of the Dollar - Decrease

E) Demand for Dollars - Increase, International Value of the Dollar - Increase

E

If a French firm buys computers from the United States, there would be an increase in which of the following in the foreign exchange market?

A) Demand for United States dollars and supply of euros

B) Demand for both United States dollars and euros

C) Supply of United States dollars and demand for euros

D) Supply of both United States dollars and euros

E) International value of the euro relative to the United States dollar

A

If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways?

A) Supply of Pesos - Increase, Dollar Price of Peso - Increase

B) Supply of Pesos - Increase, Dollar Price of Peso - Decrease

C) Supply of Pesos - Decrease, Dollar Price of Peso - Increase

D) Supply of Pesos - Decrease, Dollar Price of Peso - Decrease

E) Supply of Pesos - Decrease, Dollar Price of Peso - No Change

B

If other things are held constant, an increase in United States imports will

A) tend to cause the dollar to appreciate because the world supply of dollars will rise

B) tend to cause the dollar to appreciate because the world demand for dollars will rise

C) have no effect on the exchange rate for the dollar because exports will also increase

D) tend to cause the dollar to depreciate because the world supply of dollars will rise

E) tend to cause the dollar to depreciate because the world demand for dollars will rise

D

With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following?

A) Capital Stock in United States - Increase, International Value of the Dollar - Decrease

B) Capital Stock in United States - Increase, International Value of the Dollar - No change

C) Capital Stock in United States - Increase, International Value of the Dollar - Increase

D) Capital Stock in United States - Decrease, International Value of the Dollar - Increase

E) Capital Stock in United States - No change, International Value of the Dollar - Decrease

C

Which of the following is recorded in a country's balance of payments accounts?

A) The monthly payments by the country's residents on domestic loans

B) Financial capital flows between the country and the rest of the world

C) The value added by each industry in the country at each stage of production

D) The aggregate spending of the country's residents on consumer goods

E) Changes in the required reserve ratio determined by the country's central bank

B

Which of the following transactions is recorded as a credit entry in the country's current account?

A) Imports of capital goods

B) Exports of consumer goods

C) Purchases of foreign government bonds

D) Sales of domestic financial assets to foreign investors

E) Income transfers from the country's residents to recipients abroad

B

Country X's International Transactions, 2018: In Millions of Dollars

Exports: 235

Imports: 300

Net Income from Abroad: 20

Net Unilateral Transfers: -15

The table shows some of Country X's balance of payments data for 2018. Which of the following is true about Country X's current account balance and financial capital flows?

A) Country X has a current account deficit of $65 million and has net financial capital inflows.

B) Country X has a current account surplus of $65 million and has net financial capital outflows.

C) Country X has a current account deficit of $60 million and has net financial capital inflows.

D) Country X has a current account surplus of $60 million and has net financial capital outflows.

E) Country X has a current account surplus of $5 million and has net financial capital inflows.

C

Suppose that the exchange rate between the United States dollar ($) and the Thai currency, baht ฿(฿), is ฿฿1=$0.05. Leticia wants to buy a ฿฿600 souvenir from Thailand. What is the souvenir's price in dollars?

A) $0.05

B) $1

C) $30

D) $600

E) $12,000

C

Year - 2015, $/£ = 1.52, €/£ = 0.72

Year - 2018, $/£ = 1.36, €/£ = 0.87

The table shows the exchange rate for the British pound (£) against the dollar ($) and the euro (€) in 2015 and 2018. Which of the following is true?

A) The dollar has depreciated against the British pound.

B) The British pound has depreciated against the dollar.

C) The British pound has appreciated against the dollar.

D) The British pound has depreciated against the euro.

E) The euro has appreciated against the British pound.

B

The exchange rate for one Qatari riyal was 0.5 Turkish lira in 2012, and it increased to 1.25 Turkish lira in 2018. Which of the following is true about the value of the Turkish lira in 2018 ?

A) 1 Turkish lira = 2 Qatari riyal, and the Turkish lira appreciated.

B) 1 Turkish lira = 1.75 Qatari riyal, and the Turkish lira appreciated.

C) 1 Turkish lira = 1.25 Qatari riyal, and the Turkish lira depreciated.

D) 1 Turkish lira = 0.8 Qatari riyal, and the Turkish lira depreciated.

E) 1 Turkish lira = 0.75 Qatari riyal, and the Turkish lira depreciated.

D

If the current exchange rate for one Swiss franc is 0.84 euro and the equilibrium exchange rate for one Swiss franc is 0.88 euro, which of the following will occur in the flexible exchange market for the Swiss franc?

A) There will be a shortage of euros.

B) There will be a surplus of Swiss francs.

C) The euro will appreciate.

D) The Swiss franc will depreciate.

E) The Swiss franc will appreciate.

E

The graph shows the foreign exchange market for the British pound (GBP). If the exchange rate is $1.70, which of the following is true?

A) The British pound is in equilibrium.

B) The surplus of British pounds will cause the British pound to depreciate.

C) The shortage of British pounds will cause the British pound to depreciate.

D) The surplus of British pounds will cause the British pound to appreciate.

E) The shortage of British pounds will cause the British pound to appreciate.

B

Assuming the government of a country imposes a tariff on its imports of foreign goods, what is the likely effect on the country's currency in foreign exchange markets?

A) The supply of the currency will increase and the currency will depreciate.

B) The supply of the currency will increase and the currency will appreciate.

C) The supply of the currency will decrease and the currency will appreciate.

D) The demand for the currency will decrease and the currency will appreciate.

E) The demand for the currency will increase and the currency will depreciate.

C

Assume Country X's economy is experiencing high rates of inflation. Which of the following policies will control the problem of inflation, and what is the consequent effect on the value of Country X's currency in foreign exchange markets?

A) A contractionary monetary policy will increase interest rates, which will cause the currency to depreciate.

B) A contractionary monetary policy will increase interest rates, which will cause the currency to appreciate.

C) An expansionary monetary policy will decrease interest rates, which will cause the currency to appreciate.

D) An expansionary monetary policy will decrease interest rates, which will cause the currency to depreciate.

E) An expansionary monetary policy will increase interest rates, which will cause the currency to depreciate.

B

Assume that a nation's government uses an expansionary fiscal policy to restore full employment. What effect will the resulting change in the price level have on the supply and demand of the nation's currency in the foreign exchange market?

A) The supply and demand will both increase.

B) The supply and demand will both decrease.

C) The supply will increase and the demand will decrease.

D) The supply will decrease and the demand will increase.

E) The supply will not change and the demand will decrease.

C

Which of the following will happen to aggregate demand in the United States if the United States dollar appreciates in foreign exchange markets?

A) Aggregate demand will decrease because net exports will decrease.

B) Aggregate demand will decrease because imports will decrease.

C) Aggregate demand will increase because exports will increase.

D) Aggregate demand will increase because imports will decrease.

E) Aggregate demand will increase because exports will decrease.

A

Japan and the United States are trading partners with flexible exchange rates. The currency of the United States is the dollar, and the currency of Japan is the yen. Which of the following changes in the United States will most likely increase aggregate demand in Japan?

A) A decrease in the United States real gross domestic product

B) A decrease in the United States price level

C) A quota imposed by the United States on goods imported from Japan

D) An appreciation of the United States dollar relative to the yen

E) An increase in the demand for Japanese financial assets by American investors

D

Suppose that Angola's economy is booming, resulting in an increase in the income of domestic residents. How will the increase in income most likely affect Angolan net exports and the foreign exchange value of the Angolan currency, the kwanza?

A) Net exports will increase and the kwanza will appreciate.

B) Net exports will decrease and the kwanza will appreciate.

C) Net exports will increase and the kwanza will depreciate.

D) Net exports will decrease and the kwanza will depreciate.

E) Net exports will not change and the kwanza will depreciate.

D

How will an increase in private savings in the United States most likely affect financial capital flows and the value of the dollar in foreign exchange markets?

A) The United States will experience financial capital inflows, and the dollar will appreciate.

B) The United States will experience financial capital inflows, and the dollar will depreciate.

C) The United States will experience financial capital outflows, and the dollar will appreciate.

D) The United States will experience financial capital outflows, and the dollar will depreciate.

E) The United States will experience no change in financial capital flows, and the value of the dollar will not change.

D

The loanable funds markets in Japan and Australia are in equilibrium, as shown in the graphs above. Which of the following is most likely to happen?

A) There will be financial capital outflows from Australia to Japan, and the Japanese yen will depreciate.

B) There will be financial capital outflows from Australia to Japan, and the Japanese yen will appreciate.

C) There will be financial capital outflows from Japan to Australia, and the Australian dollar will depreciate.

D) There will be financial capital outflows from Japan to Australia, and the Australian dollar will appreciate.

E) There will be no change in financial capital flows between Australia and Japan, keeping the foreign exchange rate unchanged.

D

Which of the following will most likely cause an inflow of financial capital to Canada?

A) An increase in the Canadian federal budget deficit

B) An increase in the Canadian money supply

C) An increase in private savings in Canada

D) An increase in taxes on investment in plant and equipment

E) An increase in the real interest rates of Canada's trading partners

A