Foreign Exchange Market and Net Exports - AP Macroeconomics
- What is the impact of a strong domestic currency on tourism?
- Decrease in tourism due to higher costs for foreigners. Expensive destination reduces visitor numbers.
- Which factor could lead to a depreciation of the domestic currency?
- Decrease in foreign demand for domestic goods. Reduced export demand weakens currency.
- State the effect of a decrease in foreign demand for domestic goods on currency.
- Currency depreciates as demand for it falls. Less export revenue reduces currency demand.
- What happens to net exports when domestic currency depreciates?
- Net exports increase as exports rise and imports fall. Weaker currency improves trade competitiveness.
- Identify the primary effect of increased foreign investment on currency.
- Currency appreciates. Capital inflows increase currency demand.
- How do exchange rate changes affect the balance of trade?
- Appreciation worsens it, depreciation improves it. Currency strength affects trade competitiveness.
- What is the effect of a currency appreciation on exports?
- Exports decrease as domestic goods become more expensive abroad. Higher relative prices reduce foreign purchasing power.
- Which policy can a government use to affect exchange rates?
- Monetary policy. Interest rate changes affect currency flows.
- What happens to net exports if domestic currency appreciates?
- Net exports decrease as exports fall and imports rise. Stronger currency hurts trade balance.
- What happens to the currency if the central bank buys foreign assets?
- Currency depreciates as foreign reserves increase. Increases money supply in domestic currency.
- State the impact of increased domestic production costs on exports.
- Exports decrease as domestic goods become less competitive. Higher costs reduce price competitiveness.
- Identify the impact of higher domestic interest rates on currency value.
- Currency value tends to appreciate as foreign investors seek higher returns. Capital flows toward higher-yielding investments.
- Find the effect on exports if a trading partner's currency appreciates.
- Exports increase as domestic goods become cheaper abroad. Relatively cheaper goods boost competitiveness.
- What occurs in the foreign exchange market when interest rates rise?
- Currency appreciates due to higher foreign capital inflow. Higher returns attract foreign investment.
- What is the impact of a domestic recession on currency value?
- Currency depreciates as demand for imports decreases. Economic weakness reduces currency attractiveness.
- Identify the effect of expansionary fiscal policy on net exports.
- Net exports decrease as domestic output rises. Higher income increases import demand.
- Which market factor causes a currency to appreciate?
- Increased demand for the currency. Higher demand relative to supply drives price up.
- How does a government trade surplus affect domestic currency?
- It leads to currency appreciation. Export earnings increase currency demand.
- What is the formula for calculating net exports?
- Net Exports = Exports - Imports. Simple difference between total exports and imports.
- How does a weak domestic currency affect foreign investment?
- Increases foreign investment as assets become cheaper. Lower asset prices attract foreign buyers.
- What causes a supply increase in the foreign exchange market?
- Increased imports or capital outflow. More currency offered in exchange markets.
- What is the effect of a currency depreciation on imports?
- Imports decrease as foreign goods become more expensive domestically. Weaker currency makes foreign goods costlier in domestic terms.
- What is the effect of a trade deficit on currency value?
- Currency tends to depreciate. Import excess creates currency supply pressure.
- What is the relationship between exchange rates and net exports?
- An inverse relationship; higher exchange rates usually lower net exports. Stronger currency hurts export competitiveness.
- Identify the effect of contractionary monetary policy on currency.
- Currency appreciates as interest rates increase. Tighter money policy strengthens currency.
- What is the effect of inflation on currency value?
- Currency value typically depreciates with higher inflation. Reduces purchasing power and competitiveness.
- What is a likely result of increased domestic economic growth on imports?
- Imports increase as domestic demand rises. Higher income drives consumption of foreign goods.
- What is the effect of a decline in foreign demand for exports on GDP?
- GDP decreases as net exports fall. Exports are a component of GDP.
- Identify the result of a domestic interest rate cut on currency value.
- Currency depreciates as capital outflows increase. Lower returns reduce foreign investment appeal.