Macro · Unit 6 · Paper 1

Open Economy unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1 Paper 2 Paper 3

Each paper is built from this unit’s 52 terms and is the same for everyone, so a teacher can assign “Unit 6, Paper 1” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.

Suggested time 33 min 30 points0/17 attempted

Exports and imports in GDP

Capital flows and growth

Tariff

The consistency checks

Fixed vs floating exchange rates

Current account

Net exports as an AD component

Purchasing power parity in one sentence

Why the differential matters, not the level

The four-graph order

Why an appreciation weakens expansionary fiscal policy

Reading a forex graph

Short answer 1. Define or explain: Net exports (Xn)

3 pts

Short answer 2. Define or explain: Appreciation

3 pts

Short answer 3. Define or explain: The cost of foreign-financed investment

3 pts

Short answer 4. Define or explain: A forex graph is for ONE currency

3 pts

Free response

6 pts

The U.S. and Mexico have flexible exchange rates. Suppose U.S. real interest rates rise relative to Mexico's.

Using a labeled forex market for the U.S. dollar, show the effect on the value of the dollar (in pesos).

Explain the demand/supply change causing this.

What happens to U.S. net exports? Explain.

If instead the U.S. price level rises relative to Mexico, what happens to demand for the dollar? Explain.