AP Macro Unit 6 Review: Open Economy, International Trade and Finance
AP Macro Unit 6 covers the balance of payments, exchange rates, the foreign exchange market, and international capital flows. Worth 10–13% of the exam, it is the unit students study least, and the foreign exchange graph has appeared on almost every recent FRQ set.
What's in Unit 6
- 16.1 Balance of Payments Accounts
- 26.2 Exchange Rates
- 36.3 The Foreign Exchange Market
- 46.4 Effect of Changes in Policies and Economic Conditions on the Foreign Exchange Market
- 56.5 Changes in the Foreign Exchange Market and Net Exports
- 66.6 Real Interest Rates and International Capital Flows
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Comparative advantage, tariffs, quotas, and trade effects.
Full lesson, practice questions & flashcards →Foreign exchange markets, appreciation, and depreciation.
Full lesson, practice questions & flashcards →What to master for the exam
- Draw the FOREX graph: demand and supply for a currency, with the exchange rate on the vertical axis.
- Trace the chain: higher U.S. interest rates → foreign capital inflows → dollar demand rises → dollar appreciates → U.S. net exports fall.
- Remember appreciation makes exports more expensive to foreigners; depreciation boosts net exports.
- Know that the current account and the capital/financial account mirror each other.
AP Macro Unit 6: common questions
What is on AP Macro Unit 6?
The balance of payments (current vs capital/financial accounts), exchange rate determination in the foreign exchange market, how policy and interest-rate changes move exchange rates, and how exchange rates feed back into net exports and aggregate demand. It is worth 10–13% of the AP Macro exam.
What makes a currency appreciate or depreciate?
A currency appreciates when demand for it rises or its supply falls: higher domestic interest rates attracting foreign capital, stronger foreign demand for the country's exports, or expectations of future strength. It depreciates in the reverse cases, including when the central bank cuts rates or domestic buyers demand more imports.