AP Macroeconomics Unit 6 practice questions
Try 10 multiple-choice questions from Unit 6 here. Pick an answer to see why it's right or wrong, then take the timed test above for a full AP-style set.
Question 1
A country pegs its currency at units per dollar. At this rate, the quantity of dollars supplied is 10 million and the quantity demanded is 25 million. What does this data indicate?
A shortage of 15 million dollars
A surplus of 15 million dollars
A shortage of 35 million dollars
A surplus of 35 million dollars
An equilibrium of 17.5 million dollars
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Answer: (A)
Comparing quantity demanded ( million) to quantity supplied ( million) reveals that demand exceeds supply by million, creating a shortage of dollars in the foreign exchange market.
Question 2
At an exchange rate of yen per dollar, the quantity of dollars demanded is billion and quantity supplied is billion. What is the situation in the market for dollars?
A shortage of 30 billion dollars
A surplus of 30 billion dollars
A shortage of 50 billion dollars
A surplus of 80 billion dollars
An equilibrium of 65 billion dollars
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Answer: (B)
Quantity supplied () exceeds quantity demanded () by billion, creating a surplus of dollars.
Question 3
A country maintains a fixed exchange rate that is currently below the equilibrium market rate. If foreign demand for the country's exports significantly increases, what will happen to the currency market disequilibrium?
The shortage of the currency will increase as quantity demanded rises
The shortage of the currency will decrease as quantity supplied rises
The surplus of the currency will increase as quantity supplied rises
The surplus of the currency will decrease as quantity demanded rises
The surplus of the currency will increase as quantity demanded rises
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Answer: (A)
Linking export demand to currency demand shows that foreign buyers need more of the currency to buy exports, shifting demand right and widening the shortage caused by the undervalued peg.
Question 4
The country's currency appreciates significantly against its major trading partners. How will this change affect the net exports component of GDP?
Exports will decrease and imports will increase, reducing net exports
Exports will increase and imports will decrease, raising net exports
Exports and imports will both increase, leaving net exports unchanged
Exports and imports will both decrease, leaving net exports unchanged
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Answer: (A)
Applying exchange rate logic shows that appreciation makes domestic goods expensive abroad (lowering exports) and foreign goods cheap domestically (raising imports), causing net exports to fall.
Question 5
Country X experiences an inflation rate of 8% while its trading partners experience an inflation rate of 2%. Assuming fixed exchange rates, how will this differential affect demand for Country X's exports?
Demand decreases as Country X's goods become relatively more expensive
Demand increases because fixed exchange rates prevent Country X's currency from appreciating
Demand remains unchanged as fixed exchange rates insulate Country X's exports from inflation effects
Demand decreases as Country X's higher inflation reduces its money supply and increases real interest rates
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Answer: (A)
Higher inflation in Country X means its domestic prices rise faster than those abroad. With fixed exchange rates, foreign buyers find Country X's goods more expensive relative to their own, reducing export demand.
Question 6
Country A experiences an unexpected surge in inflation relative to its trading partners. How will this most likely affect the demand for Country A's exports?
Demand will decrease because Country A's goods become relatively more expensive
Demand will remain unchanged because inflation affects all trading partners equally
Demand will increase because higher inflation signals economic growth in Country A
Demand will decrease because Country A's trading partners will retaliate with tariffs
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Answer: (A)
Linking domestic inflation to international trade requires analyzing relative prices. When Country A's price level rises faster than its partners', its goods become more expensive for foreign buyers, leading to a decrease in the quantity demanded of exports.
Question 7
A country's major trading partners experience a severe recession while the country's domestic currency simultaneously depreciates. Which of the following describes the combined effect on the country's net exports?
The change in net exports is indeterminate because the factors exert opposing influences on demand
Net exports will definitely increase because depreciation makes domestic goods cheaper abroad
Net exports will definitely decrease because the recession reduces foreign income and spending
Net exports will remain unchanged because exchange rates adjust to offset foreign income changes
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Answer: (A)
Evaluating the forces shows that the partner recession reduces demand for exports (lowering NX), while currency depreciation makes exports cheaper (raising NX), leading to an ambiguous net outcome.
Question 8
The domestic price level rises significantly while the currency of a major trading partner simultaneously depreciates against the domestic currency. What is the combined effect on net exports?
Net exports will decrease because domestic goods become relatively more expensive via both channels
Net exports will increase because the trading partner's currency depreciation boosts their purchasing power
The change in net exports is indeterminate because the price level and exchange rate have opposing effects
Net exports will remain unchanged because purchasing power parity restores equilibrium immediately
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Answer: (A)
Synthesizing the price and exchange rate effects shows that domestic inflation makes exports expensive, and the partner's depreciation makes them even more expensive for foreign buyers, reinforcing the decline.
Question 9
An economy is in a trough. If the government increases spending and the currency depreciates simultaneously, how will these factors influence the recovery?
Both factors increase aggregate demand, accelerating the recovery
Both factors decrease aggregate demand, delaying the recovery
Government spending aids recovery, but currency depreciation hinders it
Currency depreciation aids recovery, but government spending hinders it
Government spending aids recovery, but currency depreciation reduces net exports
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Answer: (A)
Analyzing the components of aggregate demand reveals that increased government spending directly raises demand, while currency depreciation makes exports cheaper and imports more expensive, increasing net exports. Both factors reinforce each other to boost aggregate demand and speed up the recovery.
Question 10
A country's currency depreciates significantly relative to its trading partners. What is the most likely effect on the aggregate demand curve?
Aggregate demand shifts right because net exports increase due to cheaper exports
Aggregate demand shifts left because net exports increase due to cheaper exports
Aggregate demand shifts right because consumption increases due to cheaper imports
Aggregate demand shifts left because consumption increases due to cheaper imports
Aggregate demand shifts left because net exports decrease due to cheaper exports
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Answer: (A)
Analyzing exchange rates: depreciation makes domestic goods cheaper for foreigners (increasing exports) and foreign goods expensive for locals (decreasing imports), raising net exports and AD.
What's on the AP Macroeconomics Unit 6 practice test
The standard version takes about 63 minutes and follows the timing and directions of the AP exam, sized to one unit:
- 20 Multiple Choice Questions (23 minutes)
- 1 FRQ – FRQ 1 – Long (20 minutes)
- 1 FRQ – FRQ 2 – Short (20 minutes)
Questions are drawn from 960 multiple-choice questions and 42 FRQs written for Unit 6, Open Economy – International Trade and Finance.
Practice AP Macroeconomics Unit 6 FRQs
Answer the unit's free-response questions one at a time and get a score on every part.
- FRQ 1 – Long (4 questions)
- FRQ 2 – Short (20 questions)
- FRQ 3 – Short (18 questions)
Review Unit 6 before you start
- 6.1 Balance of Payments Accounts
- 6.2 Exchange Rates
- 6.3 Foreign Exchange Market
- 6.4 Effect of Changes in Policies & Economic Conditions on the Foreign Exchange Market
- 6.5 Changes in the Foreign Exchange Market and Net Exports
- 6.6 Real Interest Rates and International Capital Flows