Download AP Macroeconomics Study Guide for Unit 7, The

AP Macroeconomics
Study Guide for Unit 7, The Open Economy: International Trade and Finance
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What do economists mean when they refer to the “open economy?”
What does a country’s balance of payments account summarize?
What is the difference between a trade surplus and a trade deficit?
What is the difference between the balance of payments on goods and services and the
merchandise trade balance?
Given a table, be able to determine which entries would be part of the balance of payments on
the current account and or the balance of payments on the financial account. You might also be
expected to calculate these balances or other balances, like the balance of payments on goods
and services.
Which transactions, those falling under the current account or those falling under the financial
account, create liabilities that must be paid in the future?
What is the basic rule of balance of payments accounting?
Given side-by-side graphs of the loanable funds markets for two countries, be able to explain
how capital inflow/capital outflow results in an international equilibrium interest rate (Hint:
Review Figure 41.4 in the textbook).
What is the difference between GDP and Gross National Product (GNP)?
What is the foreign exchange market?
What is an exchange rate?
Given an exchange rate expressed in US dollars per Euro, be able to calculate the exchange rate
expressed in Euros per US dollar.
What is the difference between appreciation and depreciation?
Understand the effects that appreciation or depreciation of a country’s currency will have on
international trade (i.e., imports to or exports from that country).
Understand the effects that appreciation or depreciation of a country’s currency will have on
inflows and outflows of capital.
What is the difference between nominal and real exchange rates?
What is purchasing power parity?
What is an exchange rate regime?
What is the difference between a fixed exchange rate system and floating exchange rate
system? What are the advantages and disadvantages associated with each system?
What are foreign exchange controls?
What is the difference between devaluation of a currency and revaluation of a currency? How
does each of these changes in the value of currency affect imports and exports?
What effect would expansionary monetary policy, which reduces the interest rate, have on the
value of the dollar? What effect does it have on aggregate demand?
For the FRQ, be prepared to show the effect of a change in one country (e.g., a rise in interest rate) on
the foreign exchange market. Also, be able to show how changes in the value of a country’s currency
might affect other economic models we have studied.