Winston-Salem/Forsyth County Schools
AP Macroeconomics Section 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
[pic]
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. |
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