Unit 6: Open Economy
Macro · Unit 6 · Paper 2

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 52 terms and is the same for everyone, so a teacher can assign “Unit 6, Paper 2” 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

Reading a forex graph

2

Capital and financial account

3

The balance of payments identity

4

A capital inflow shifts loanable funds SUPPLY

5

Investment income is current account

6

Floating exchange rate

7

A forex graph is for ONE currency

8

Exports and imports in GDP

9

The full contractionary-policy open-economy chain

10

Why the exchange rate reinforces monetary policy

11

Balance of payments

12

Who gains from appreciation

Short answer 1. Define or explain: Why the current account cannot be read alone

3 pts

Short answer 2. Define or explain: Capital chases the REAL return

3 pts

Short answer 3. Define or explain: The mirror rule

3 pts

Short answer 4. Define or explain: What a trade deficit actually is

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.