Unit 6: Open Economy
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 1Paper 2Paper 3
Each paper is built from this unit’s 22 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
1

Quota

2

What raises demand for a currency

3

Why an appreciation weakens expansionary fiscal policy

4

Purchasing power parity

5

Fixed (pegged) exchange rate

6

What raises supply of a currency

7

Capital flows and growth

8

Real vs nominal exchange rate

9

Why the accounts offset

10

Depreciation

11

Trade deficit

12

Net exports (Xn)

Short answer 1. Define or explain: Interest rates and exchange rates

3 pts

Short answer 2. Define or explain: Current account

3 pts

Short answer 3. Define or explain: Reading a forex graph

3 pts

Short answer 4. Define or explain: Appreciation

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.