Download AP Macroeconomics Section 8 Practice Test 1. An open economy is

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.
Chinese manufacturers sell t-shirts to L.L. Bean
The Bill Gates Foundation contributes to UNICEF’s anti-polio fund
A German car collector buys a Kentucky-made Corvette
Microsoft pays dividends to European stock holders
A Japanese student enrolls at Princeton and pays tuition
A U.S. mutual fund receives dividends from its European stock holdings
American Express Co. acquires the Banco de Lisboa
Table 41-1: International Transactions
$21,000
2,000
80,000
50,000
2,000
3,000
2,000
30,000
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.