AP Macroeconmics Unit 6 Practice

Who has the absolute advantage in apples?

• Billy

• Freddy

• Both

• Neither

Who has the absolute advantage in bananas?

• Billy

• Freddy

• Both

• Neither

Who has the comparative advantage in apples?

• Billy

• Freddy

• Both

• Neither

What should the terms for trade be to benefit BOTH Billy and Freddy?

• 8 Apples for 8 Bananas

• 8 Bananas for 6 Apples

• 7 Apples for 6 Bananas

• None of the Above

If Billy and Freddy trade according to a mutual beneficial terms of trade, then which of the following must be true?

• Nothing, Billy and Freddy would be better off by themselves.

• Both Billy and Freddy would suffer from the trade.

• Both Billy and Freddy can consume what they can produce.

• If a PPC is produced for Apples and Bananas, this graph would shift right.

Based on the table, the nation's balance of payments is

• $150 Million

• $50 Million

• $850 Million

• $950 Million

Answer explanation

Although a negative import is technically counted as a positive export, the nation's balance of payments is exports - imports + net income from abroad + net unillateral transfers. (Different from balance of trade since that is just exports - imports).

Based on the table, the nation's Capital and Financial Account is in

• Surplus

• Deficit

• Appreciation

• Capital Outflow

Answer explanation

200 - (-400) + 300 - 50 = +850. So CFA = negative since CA + CFA = 0.

If the price of the Dollar changes from 6 Yen per Dollar to 7 Yen per Dollar, describe the change to DOLLARS

• Dollar: Appreciates

• Dollar: Depreciates

• Yen: Appreciates

• Yen: Depreciates

With the change described in the table, what would happen to the value of the Yen (Japanese currency)?

• Increases

• Decreases

Answer explanation

U.S. currency appreciates, so there is an increase in demand for Japanese goods, so the Yen appreciates

Which of the following must be true given the following table?

• Goods are cheaper in the U.S. than in European Nations.

• The Yen has depreciated

• It takes more Euros to buy 1 Yen than Dollars

• One Euro is worth 8/6 Dollars