AP Macro MACRO: International Economics 2

Question 1

If the U.S. dollar appreciates relative to the euro, what happens to U.S. exports to Europe?

Accepted Answer

U.S. exports become more expensive for Europeans, decreasing exports

Answer

A stronger dollar makes U.S. goods more expensive in foreign currency terms, reducing demand for U.S. exports abroad.

Question 2

Country A has a current account surplus. Which of the following must be true?

Accepted Answer

Country A has a capital and financial account deficit

Answer

The balance of payments must sum to zero, so a current account surplus is offset by a capital and financial account deficit of equal size.

Question 3

Which scenario best illustrates the concept of comparative advantage?

Accepted Answer

A country produces a good at a lower opportunity cost than its trading partner

Answer

Comparative advantage is determined by opportunity cost, not absolute productivity — a country specializes where its opportunity cost is lowest.

Question 4

A quota on imported steel would most likely result in which of the following in the domestic steel market?

Accepted Answer

Higher domestic steel prices and higher domestic steel output

Answer

Restricting imports reduces supply available domestically, raising the price while incentivizing domestic producers to increase output.

Question 5

If a nation runs a persistent trade deficit, which of the following is the most likely long-run consequence for its currency under a flexible exchange rate system?

Accepted Answer

The currency will depreciate as supply of domestic currency on forex markets increases

Answer

Persistent trade deficits mean more domestic currency is supplied to pay for imports, increasing supply on forex markets and depreciating the currency over time.

AP Practice Test

AP Practice Test

AP Macro MACRO: International Economics 2