The first portion of the first image is the example provided.

International trade is often tested in the free response section of the AP exam as well as the multiple choice section. Learning to draw and label the graphs correctly and then explaining the changes in the economy is key to scoring high. This assignment will aid you in learning how to answer these questions on the AP Exam. Example A reboot of the Lord of the Rings movie franchise, being filmed in New Zealand, dramatically increases American tourism to New Zealand and demand for merchandise from the country. A. How will this affect the GDP of New Zealand? Explain. Answer: The GDP will increase, as private consumption (by tourists) and net exports increase. B. Show and explain how this will affect the markets for the U.S. dollar and for the New Zealand dollar. Answer: P (US$) S1 Pez Pel D2 D1 Qe1 Qe2 Q of N.Z. $ Qe1 Qez Q of U.S. $ The GDP increase in New Zealand will raise interest rates, increasing demand for the New Zealand dollar and causing it to appreciate. To acquire New Zealand dollars in the Foreign Exchange market, U.S. dollars must be supplied. The increase in the supply of American dollars will cause the value of the U.S. dollar to depreciate. Now it's your turn. Respond to each of the scenarios below as directed to complete your assignment. Scenario 1 The United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing. A. Draw correctly labeled graphs to show how the increase in inflation will affect the supply of the U.S. dollar and demand for the British pound in the foreign exchange market. B. Based on the scenario, what will happen to the value of the U.S. dollar? Explain. (Make sure you use the costs of foreign and domestic goods in your explanation.) C. Based on the changing value of the U.S. dollar in part (B), how will U.S. net exports be affected? Explain.Scenario 2 The Federal Reserve decreases the money supply in the United States causing interest rates to increase. A. Draw correctly labeled graphs to show how the increased interest rates in the scenario will affect the demand for the U.S. dollar and supply of the EU euro in the foreign exchange market. B. Based on the scenario, what will happen to the value of the EU euro? Explain. (Make sure you use the concept of foreign financial investment in your explanation.) C. Based on the changing value of the EU euro in part (B), how would U.S. aggregate demand be affected? Explain