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
- 1Balance of payments accounts (current account and capital/financial account)
- 2Exchange rates (appreciation and depreciation)
- 3The foreign exchange market
- 4Effects of policy and economic changes on exchange rates
- 5Changes in exchange rates and net exports
- 6Real 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.