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United StatesEconomics

Unit 6: Open Economy - International Trade and Finance

6 dot points across 6 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do the balance of payments accounts record a country's transactions with the world?

Topic 6.1 Balance of Payments Accounts: describe the current account and the capital (financial) account, and explain why the two must offset each other.
A focused answer to AP Macroeconomics Topic 6.1, covering the balance of payments, the current account and the capital (financial) account, what each records, and why the two accounts must offset so the overall balance is zero, with a worked classification question.
11 min answer →

How do exchange-rate changes feed through to net exports and aggregate demand?

Topic 6.5 Changes in the Foreign Exchange Market and Net Exports: explain how appreciation and depreciation change net exports, and trace the effect on aggregate demand.
A focused answer to AP Macroeconomics Topic 6.5, covering how currency appreciation and depreciation change exports and imports, the effect on net exports, and how this feeds through the foreign exchange market into aggregate demand and the AD-AS model, with a worked chained question.
11 min answer →

What shifts the supply of and demand for a currency in the foreign exchange market?

Topic 6.4 Effect of Changes in Policies and Economic Conditions on the Foreign Exchange Market: identify the determinants that shift currency supply and demand, including interest rates, income, prices, and tastes.
A focused answer to AP Macroeconomics Topic 6.4, covering the determinants that shift currency supply and demand in the foreign exchange market, including relative interest rates, relative income, relative price levels, tastes, and speculation, and how monetary policy moves exchange rates, with a worked graphing question.
12 min answer →

What is an exchange rate, and what do appreciation and depreciation mean?

Topic 6.2 Exchange Rates: define the nominal exchange rate, distinguish appreciation from depreciation, and calculate exchange rates between two currencies.
A focused answer to AP Macroeconomics Topic 6.2, covering the definition of the exchange rate, currency appreciation and depreciation, how to convert between currencies, and the effect of exchange-rate changes on the relative price of goods, with full worked calculations.
11 min answer →

How do differences in real interest rates drive capital flows and exchange rates?

Topic 6.6 Real Interest Rates and International Capital Flows: explain how differences in real interest rates between countries drive international capital flows, exchange rates, and net exports.
A focused answer to AP Macroeconomics Topic 6.6, covering how relative real interest rates drive international capital flows, how those flows change the exchange rate and net exports, and how this links the loanable funds market, the foreign exchange market, and the AD-AS model, with a worked chained question.
12 min answer →

How does the foreign exchange market determine the exchange rate?

Topic 6.3 The Foreign Exchange Market: draw the foreign exchange market for a currency, explain the supply of and demand for it, and find the equilibrium exchange rate.
A focused answer to AP Macroeconomics Topic 6.3, covering the supply of and demand for a currency in the foreign exchange market, the equilibrium exchange rate, what each curve represents, and how to read appreciation and depreciation off the graph, with a worked graphing question.
11 min answer →