Question 1

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 2

If a country institutes policies that lead domestic firms to desire more capital stock

Accepted Answer

A)  net capital outflows rise and the real exchange rate rises.
B)  net capital outflows rise and the real exchange rate falls.
C)  net capital outflows fall and the real exchange rate rises.
D)  net capital outflows and the real exchange rate falls.E) All of the above
F) A) and B)

Question 3

A country has domestic investment of $100 billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

Accepted Answer

A)  -$100 billion
B)  $100 billion
C)  $300 billion
D)  $600 billionE) None of the above
F) A) and D)

Question 4

If the government of Peru increased its budget deficit, then domestic investment

Accepted Answer

A)  and net exports would rise.
B)  would rise and net exports would fall.
C)  would fall and net exports would rise.
D)  and net exports would fall.E) All of the above
F) B) and C)

Question 5

If a country removed an import quota on cotton, then overall that country's

Accepted Answer

A)  exports and imports would rise.
B)  exports would rise and imports would fall.
C)  exports would fall and imports would rise.
D)  exports and imports would fall.E) A) and C)
F) A) and D)

Question 6

If a government increases its budget deficit, then the real exchange rate

Accepted Answer

A)  and domestic investment rise.
B)  and domestic investment fall.
C)  rises and domestic investment falls.
D)  falls and domestic investment rises.E) B) and C)
F) A) and D)

Question 7

In which case(s)  does(do)  a country's supply of loanable funds shift right?

Accepted Answer

A)  both an increase in the budget deficit and capital flight
B)  an increase in the budget deficit, but not capital flight
C)  capital flight, but not an increase in the budget deficit
D)  neither an increase in the budget deficit nor capital flightE) A) and B)
F) B) and C)

Question 8

State what, if anything, each of the following does to the supply or demand of loanable funds.
a.net capital outflow increases at each interest rate
b.domestic investment increases at each interest rate
c.the government deficit increases
d.private saving increases

Accepted Answer

a.the demand for loanable fund...

Question 9

If the U.S. government imposed a quota on toy imports, then

Accepted Answer

A)  imports and exports would both fall.
B)  imports would fall and exports would rise.
C)  imports would rise and exports would fall.
D)  None of the above is correct.E) B) and D)
F) B) and C)

Question 10

The key determinant of net capital outflow is the real interest rate.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the U.S. supply of loanable funds shifts left. This will

Accepted Answer

A)  increase U.S. net capital outflow and increase the quantity of loanable funds demanded.
B)  increase U.S. net capital outflow and decrease the quantity of loanable funds demanded.
C)  decrease U.S. net capital outflow and increase the quantity of loanable funds demanded.
D)  decrease U.S. net capital outflow and decrease the quantity of loanable funds demanded.E) A) and D)
F) C) and D)

Question 12

Figure 19-4 
-Refer to Figure 19-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

Accepted Answer

A)  shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)  shifting the demand curve in panel a to the left and the supply curve in panel c to the left.
C)  shifting the supply curve in panel a to the right and the demand curve in panel c to the right.
D)  shifting the supply curve in panel a to the left and the supply curve in panel c to the left.E) B) and C)
F) A) and D)

Question 13

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A)  and net capital outflow to rise.
B)  to rise and net capital outflow to fall.
C)  to fall and net capital outflow to rise.
D)  and net capital outflow to fall.E) None of the above
F) B) and D)

Question 14

When a country's government budget deficit increases,

Accepted Answer

A)  the real exchange rate of its currency and its net exports increase.
B)  the real exchange rate of its currency and its net exports decrease.
C)  the real exchange rate of its currency increases and its net exports decrease.
D)  the real exchange rate of its currency decreases and its net exports increase.E) All of the above
F) B) and C)

Question 15

Capital flight refers to

Accepted Answer

A)  the movement of workers across international borders in response to exchange rate changes.
B)  the movement of funds between financial intermediaries when interest rates change.
C)  the ability of foreign direct investment to lift a country out of poverty.
D)  a large and sudden movement of funds out of a country.E) A) and B)
F) C) and D)

Question 16

Other things the same, if the U.S. interest rate falls, then U.S. residents will want to purchase

Accepted Answer

A)  more foreign assets, which increases the quantity of loanable funds demanded.
B)  fewer foreign assets, which decreases the quantity of loanable funds demanded.
C)  more foreign assets, which increase the quantity of loanable funds supplied.
D)  fewer foreign assets, which decreases the quantity of loanable funds supplied.E) A) and D)
F) B) and C)

Question 17

If a quota on lumber were implemented, then at the original exchange rate there would be a

Accepted Answer

A)  surplus in the market for foreign-currency exchange, so the real exchange rate appreciates.
B)  surplus in the market for foreign-currency exchange, so the real exchange rate depreciates.
C)  shortage in the market for foreign-currency exchange, so the real exchange rate appreciates.
D)  shortage in the market for foreign-currency exchange, so the real exchange rate depreciates.E) B) and C)
F) A) and B)

Question 18

Other things the same, an increase in the U.S. interest rate

Accepted Answer

A)  raises net capital outflow which decreases the quantity of loanable funds demanded.
B)  raises net capital outflow which increases the quantity of loanable funds demanded.
C)  lowers net capital outflow which decreases the quantity of loanable funds demanded.
D)  lowers net capital outflow which increases the quantity of loanable funds demanded.E) A) and C)
F) B) and C)

Question 19

In the open-economy macroeconomic model, if investment demand increases, then

Accepted Answer

A)  net exports and the real exchange rate rise.
B)  net exports rise and the real exchange rate falls.
C)  net exports fall and the real exchange rate rises.
D)  net exports and the real exchange rate fall.E) B) and D)
F) C) and D)

Question 20

If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate

Accepted Answer

A)  and the quantity of dollars traded rises.
B)  rises and the quantity of dollars traded falls.
C)  falls and the quantity of dollars traded rises.
D)  and the quantity of dollars traded falls.E) B) and D)
F) B) and C)

Exam 19: A Macroeconomic Theory of the Open Economy

In which case(s) does(do) a country's supply of loanable funds shift right?

Correct AnswerverifiedShow Answer

State what, if anything, each of the following does to the supply or demand of loanable funds. a.net capital outflow increases at each interest rate b.domestic investment increases at each interest rate c.the government deficit increases d.private saving increases

Correct Answerverifieda.the demand for loanable fund...View AnswerShow Answer

If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate

Correct AnswerverifiedShow Answer

A country has domestic investment of $100 billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

Correct AnswerverifiedShow Answer

Figure 19-4 -Refer to Figure 19-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

Correct AnswerverifiedShow Answer

The key determinant of net capital outflow is the real interest rate.

Correct AnswerverifiedShow Answer

Suppose the U.S. supply of loanable funds shifts left. This will

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, then the real exchange rate

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if investment demand increases, then

Correct AnswerverifiedShow Answer

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Correct AnswerverifiedShow Answer

When a country's government budget deficit increases,

Correct AnswerverifiedShow Answer

If the government of Peru increased its budget deficit, then domestic investment

Correct AnswerverifiedShow Answer

Capital flight refers to

Correct AnswerverifiedShow Answer

If a quota on lumber were implemented, then at the original exchange rate there would be a

Correct AnswerverifiedShow Answer

If a country institutes policies that lead domestic firms to desire more capital stock

Correct AnswerverifiedShow Answer

Other things the same, if the U.S. interest rate falls, then U.S. residents will want to purchase

Correct AnswerverifiedShow Answer

If the U.S. government imposed a quota on toy imports, then

Correct AnswerverifiedShow Answer

If a country removed an import quota on cotton, then overall that country's

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

Other things the same, an increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

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a.the demand for loanable fund...
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