AP MacroeconomicsSection 8 Practice Test
1.An open economy is an economy:A. / which trades goods and services with other countries.
B. / which does not regulate its industries.
C. / which does not impose taxes on its citizens.
D. / where freedom of speech and religion can be practiced freely.
E. / which does not engage in trade with other countries.
2.Open-economy macroeconomics is the branch of economics that deals with:A. / reducing regulations on business.
B. / the relationships between economies of different nations.
C. / reducing employment discrimination.
D. / the provision of financial information to investors.
E. / productivity and growth.
Chevrolet Motor Co. expands its operations by acquiring Hyundai Co. / $21,000
Chinese manufacturers sell t-shirts to L.L. Bean / 2,000
The Bill Gates Foundation contributes to UNICEF’s anti-polio fund / 80,000
A German car collector buys a Kentucky-made Corvette / 50,000
Microsoft pays dividends to European stock holders / 2,000
A Japanese student enrolls at Princeton and pays tuition / 3,000
A U.S. mutual fund receives dividends from its European stock holdings / 2,000
American Express Co. acquires the Banco de Lisboa / 30,000
Table 41-1: International Transactions
3.Use Table 41-1. The balance of payments on goods and services is:A. / $51,000.
B. / $48,000.
C. / $3,000.
D. / –$29,000.
E. / $55,000.
4.If the United States exports $100 billion of goods and services and imports $150 billion of goods and services and there is no other factor income or transfers, the balance on the financial account is:A. / $250 billion.
B. / –$250 billion.
C. / $50 billion.
D. / –$50 billion.
E. / zero.
5.A country's balance of payments on financial account is the:A. / difference between the dollar value of a country's exports and imports of goods and services.
B. / difference between the dollar value of a country's exports and imports of goods only.
C. / difference between the country's sale of assets to foreigners and the purchases of assets from foreigners.
D. / same value as the country's merchandise trade balance.
E. / difference between the country’s government spending and tax revenue.
6.Suppose that the value of the euro fell from $1.47 on January 1, 2009 to $1.40 on January 12, 2009. This implies that:A. / The euro depreciated and the dollar appreciated during this period of time.
B. / The dollar depreciated and the euro appreciated during this period of time.
C. / The euro depreciated and there is insufficient information about the dollar's value during this period of time.
D. / The euro appreciated and there is insufficient information about the dollar's value during this period of time.
E. / Both the euro and dollar appreciated during this period of time.
Scenario 42-1: Exchange Rates
The value of a euro, the currency for most of Europe, goes from 1€ = US$1.25 to 1€ = US$1.50.
7.Use Scenario 42-1. The dollar has:A. / depreciated.
B. / appreciated.
C. / been revalued.
D. / not been affected for use in international trade.
E. / risen in value relative to the euro.
8.If the exchange rate is $1 = ¥110, a $20,000 Ford truck costs ______in Japan.A. / ¥20,000
B. / ¥18,182
C. / ¥2,200,000
D. / ¥3,000,000
E. / ¥4.400,000
9.Suppose that the U.S. and European Union (EU) are the only trading partners in the world. If the U.S. lowers import restrictions from the EU, we would expect:A. / the demand for euros to increase, appreciating the euro.
B. / the demand for the dollar to increase, appreciating the dollar.
C. / the supply of dollars to increase, appreciating the dollar.
D. / the supply of euros to increase, depreciating the euro.
E. / the demand for euros to decrease, depreciating the euro.
Figure 42-1: Change in the Demand for U.S. Dollars
10.Use the “Change in the Demand for U.S. Dollars” Figure 42-1. A flow of capital from Europe to the United States would cause a movement in this foreign exchange market that is best represented by the shift from:A. / D2 to D1.
B. / E2 to E1.
C. / D1 to D2.
D. / There would be no shift in the foreign exchange market.
E. / X2 to X1.
11.The rule that governs a country's policy toward its exchange rate is known as:A. / the fixed exchange rate system.
B. / the floating exchange rate system.
C. / an exchange rate regime.
D. / the rules of exchange.
E. / the purchasing power parity system.
12.Fixed exchange rates are determined by the:A. / policies of the domestic government.
B. / forces of demand and supply in the developed countries.
C. / forces of demand and supply in the foreign exchange market.
D. / forces of demand and supply in the domestic money market.
E. / policies of the World Bank.
13.One of the advantages of adopting a fixed exchange rate system is that:A. / it reduces uncertainty.
B. / it reduces the need for fiscal policy.
C. / it increases the strength of monetary policy.
D. / it does not require the country to maintain any large foreign exchange reserve.
E. / it eliminates the role of monetary policy.
14.A major drawback of adopting a floating exchange rate is the:A. / opportunity cost associated with the accumulation of foreign exchange reserves.
B. / uncertainty about the value of goods traded internationally.
C. / increased discipline brought on monetary policy.
D. / distorted incentives imposed on the normal flow of imports and exports.
E. / inability of domestic citizens to afford international travel.
15.When a government wishes to target its exchange rate, it can do so only if:A. / the country is willing to give up its use of monetary policy for stabilization purposes.
B. / it continues to actively use monetary policy for exchange market intervention and stabilization purposes.
C. / it increases the amount of uncertainty in the foreign exchange markets.
D. / pursues policies that tend to be inflationary.
E. / the country is willing to give up its use of fiscal policy for stabilization purposes.
16.Devaluation of a currency occurs under _____ exchange rates when the price of the domestic currency in terms of foreign currency _____.A. / flexible; falls
B. / flexible; rises
C. / fixed; falls
D. / fixed; rises
E. / flexible; remains constant
17.A decrease in U.S. interest rates causes the dollar to _____ and aggregate demand to ______.A. / depreciate; increase
B. / depreciate; decrease
C. / appreciate; increase
D. / appreciate; decrease
E. / depreciate; remain constant
18.Under fixed exchange rates, a devaluation:A. / decreases aggregate demand.
B. / increases aggregate demand.
C. / decreases short-run aggregate supply.
D. / increases short-run aggregate supply.
E. / increases long-run aggregate supply.
19.Devaluation is the:A. / reduction in the value of a currency due to inflation.
B. / reduction in the value of a currency that is determined in a floating exchange rate system.
C. / reduction in the value of a currency due to increased interest rates.
D. / reduction in the rate of inflation of a country.
E. / reduction in the value of a currency that is set under a fixed exchange rate regime.
20.Countries A and B are important trading partners. Country A is experiencing a recession. Country B will be better insulated from the recession originating in country A, if:A. / Country B has a fixed exchange rate system.
B. / Country B has a floating exchange rate system.
C. / Country A has a fixed exchange rate system.
D. / Country A has a floating exchange rate system.
E. / Country B moves to the gold standard.