MACRO: International Economics Flashcards
7 cards from real AP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 MACRO: International Economics flashcards as text
Under the gold standard, if Country X experiences a balance of payments deficit, what automatic adjustment mechanism would reduce the deficit?
Answer: Gold outflows reduce the money supply, lowering prices and improving competitiveness
Under the gold standard, a BOP deficit causes gold outflows, contracting the money supply, lowering domestic prices, making exports cheaper and imports relatively more expensive.
Which of the following policies would most directly cause the U.S. dollar to appreciate on foreign exchange markets?
Answer: The Federal Reserve raises the federal funds rate
Higher U.S. interest rates attract foreign capital seeking better returns, increasing demand for dollars and causing the dollar to appreciate.
Country B imposes a specific tariff of $5 per unit on imported shoes. If the world price of shoes is $20, what is the domestic price after the tariff?
Answer: $25
A specific tariff adds a fixed amount to the world price, so domestic consumers pay $20 + $5 = $25 per pair of shoes.
Which of the following best describes the J-curve effect?
Answer: A currency depreciation initially worsens the trade balance before improving it
After depreciation, the trade balance initially worsens because import/export quantities adjust slowly while import prices rise immediately, then improves as volumes respond.
In a small open economy with a flexible exchange rate, expansionary fiscal policy leads primarily to which of the following?
Answer: Currency appreciation and crowding out of net exports
Higher government spending raises interest rates, attracting foreign capital, appreciating the currency, making exports less competitive and imports cheaper, crowding out net exports.
Which of the following is the primary argument economists make AGAINST protectionist trade policies?
Answer: Trade barriers prevent gains from specialization and raise consumer prices
Protectionism prevents countries from exploiting comparative advantage, leading to inefficient production and higher prices for domestic consumers.
If China pegs its currency (yuan) to the U.S. dollar at a rate below the free-market equilibrium, what is the most likely result?
Answer: China accumulates U.S. dollar reserves to maintain the peg
An undervalued yuan means excess demand for yuan, so China must sell yuan and buy dollars to maintain the artificially low exchange rate, accumulating dollar reserves.