AP Macroeconomics

Test: International Economics

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Directions
Neatly write your responses in the spaces provided. Use a blue or black pen. Dont write
in the margins.
Remember to complete the submission information on every page you turn in.
1. Workers in the country of Andalia can produce either 10 tons of cheese or 20 tons of
yogurt using a certain quantity of resources. With this same quantity of resources,
workers in the country of Barragon can produce either 6 tons of cheese or 18 tons of
yogurt.
A. Which country has an absolute advantage in the production of these goods?
Explain. (3 points)
Andalia has the absolute advantage in making Cheese and Yogurt because it produces more tons of cheese and yogurt than
Barragon. Andalia makes 10 tons of cheese and Barragon makes 6 tons. Andalia makes 20 tons of yogurt while Barragon
makes only 18 tons of yogurt.

B. Which country has a comparative advantage in the production of yogurt?

Explain. (3 points)
Barragon has an comparative advantage in the production of Yogurt because its opportunity cost is
lower than Andalias oppurtunity cost of is .

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Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
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AP Macroeconomics
Test: International Economics

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User Name:_______________ Instructor: _________________ Date:__________

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C. Who benefits most from trade between these countries? Explain. (3 points)
Both of the countries benefit from trade because each country has a comparative advantage in a certain
product. Andalia will benefit in making Cheese while Barragon will benefit in making Yogurt.

D. What policy would benefit yogurt producers in Andalia? Explain. (3 points)

Trade barriers will help the yogurt producers in Andalia because if a tariff was placed on the imported yogurt, the
prices will increase domestically and benefit the producers in Andalia.

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Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
express written permission of Apex Learning Inc.

AP Macroeconomics
Test: International Economics

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User Name:_______________ Instructor: _________________ Date:__________

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2. Trade Policy
A. Explain why countries specialize in a production, and describe the effect this
specialization has on international trade. (3 points)
Countries who specialize in a production have a comparative advantage for certain products. When countries have a
comparative advantage, it increases the wealth of everyone.

B. List the three reasons why a country might impose trade restrictions on
another country. (3 points)
- to eliminate unfair competition from foreign producers
- retaliation
- ideological reasons.

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Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
express written permission of Apex Learning Inc.

AP Macroeconomics
Test: International Economics

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User Name:_______________ Instructor: _________________ Date:__________

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C. Describe the effect(s) of quotas. (3 points)

Quotas, a numerical limit on the quantity of a good or service that may be imported. Quotas can also have unintended effects,
such as firms deciding to build their factories in another country. Trade quotas protect some, such as U.S. cotton growers, at the
expense of others, such as U.S. purchasers of goods made from cotton.

D. Explain how exchange rates are determined in an open-currency regime. (3

points)
Exchange rates are determined in an open currency regime by looking at the foreign exchange market and by allowing the
government to exchange a certain currency.

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Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
express written permission of Apex Learning Inc.

AP Macroeconomics
Test: International Economics

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User Name:_______________ Instructor: _________________ Date:__________

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3. Monetary Policy and U.S. Trade

A. Explain why the value of the U.S. dollar would decline if the United States
pursued an expansionary monetary policy. (5 points)
An expansionary monetary policy would decrease the interest rate and increase the level of the money supply. If there is
more money in an economy the vaule of the money will decline.

B. When the value of the U.S. dollar declines, what effects does this have on the
price of American-made goods, on the U.S. trade balance, and on the U.S.
capital account? (5 points)
The price of the American-made goods will increase because the value of the dollar will decline. The increase in value of
the dollar increases the exports allowing exchange rates to be cheaper. This would decrease imports and cause a capital
account surplus.

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Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
express written permission of Apex Learning Inc.

AP Macroeconomics
Test: International Economics

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User Name:_______________ Instructor: _________________ Date:__________

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4. Government Policy in an Open Economy

A. Describe the effects of an expansionary fiscal policy on trade and the
exchange rate. (3 points)
The expansionary fiscal policy will promote trade because the level of RGDP will increase. This will increase the
exchange rate because the value of money will decline and the currency of other countries will be valued at a higher
rate.

B. Describe arbitrage and explain what is necessary for arbitrage to work. (3

points)
Arbitrage is the act of making money by taking advantage of price differences. Changes in the value of money is required for
arbitrage to work, without changes in price level people cannot take advantage of the slight differences in price.

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Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
express written permission of Apex Learning Inc.

AP Macroeconomics
Test: International Economics

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User Name:_______________ Instructor: _________________ Date:__________

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C. Explain the twin deficits effect. (3 points)

Government spending and taxation policies that increase the national debt crowd out private investment and increase
imports and decrease exports. In a nation with a trade deficit, an increase in the federal budget deficit will increase the trade
deficit. This is called the twin deficits effect.

5. Who would be harmed and who would benefit if the United States imposed a
high tariff on all imported toys? Explain. (2 points)
Consumers in the United States who are purchasing the toys will be harmed and the government will benefit from the tariff
because they would get more ogvernment funding.

_____________
Copyright 2009 Apex Learning Inc. All rights reserved. This material is intended for the exclusive use of
registered users only. No portion of these materials may be reproduced or redistributed in any form without the
express written permission of Apex Learning Inc.