Question 1

Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

Accepted Answer

A)  the U.S. government budget deficit increases
B)  capital flight from the United States
C)  the U.S. imposes import quotas
D)  None of the above is correct.E) B) and C)
F) A) and B)

Question 2

When a country imposes an import quota, its exchange rate

Accepted Answer

A)  rises because the supply of dollars in the market for foreign-currency exchange falls.
B)  falls because the supply of dollars in the market for foreign-currency exchange rises.
C)  rises because the demand for dollars in the market for foreign-currency exchange rises.
D)  falls because the demand for dollars in the market for foreign-currency exchange falls.E) B) and C)
F) A) and D)

Question 3

Which of the following would shift the demand for dollars in the market for foreign currency exchange to the right?

Accepted Answer

A)  foreign citizens want to buy more U.S. goods and services at a given exchange rate
B)  foreign citizens want to buy fewer U.S. goods and services at a given exchange rate
C)  foreign citizens want to buy more U.S. bonds
D)  foreign citizens want to by fewer U.S. bondsE) A) and B)
F) B) and C)

Question 4

In the open-economy macroeconomic model, the supply of loanable funds equals

Accepted Answer

A)  national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
B)  national saving. The demand for loanable funds comes only from domestic investment.
C)  private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
D)  private saving. The demand for loanable funds comes only from domestic investment.E) C) and D)
F) All of the above

Question 5

In the open-economy macroeconomic model, a higher U.S. real exchange rate makes

Accepted Answer

A)  U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B)  U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C)  foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars supplied.
D)  foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars demanded.E) A) and B)
F) All of the above

Question 6

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

Accepted Answer

A)  an appreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
B)  an appreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.
C)  a depreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
D)  a depreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.E) A) and D)
F) B) and D)

Question 7

If Kenya experienced capital flight, the supply of Kenyan schillings in the market for foreign-currency exchange would shift

Accepted Answer

A)  left, which would make the real exchange rate of the Kenyan schilling appreciate.
B)  left, which would make the real exchange rate of the Kenyan schilling depreciate.
C)  right, which would make the real exchange rate of the Kenyan schilling appreciate.
D)  right, which would make the real exchange rate of the Kenyan schilling depreciate.E) None of the above
F) B) and D)

Question 8

If the quantity of loanable funds supplied is greater than the quantity demanded, then

Accepted Answer

A)  there is a shortage of loanable funds and the interest rate will fall.
B)  there is a shortage of loanable funds and the interest rate will rise.
C)  there is a surplus of loanable funds and the interest rate will fall.
D)  there is a surplus of loanable funds and the interest rate will rise.E) C) and D)
F) B) and D)

Question 9

An increase in the budget surplus

Accepted Answer

A)  raises net exports and domestic investment.
B)  raises net exports and reduces domestic investment.
C)  reduces net exports and raises domestic investment.
D)  reduces net exports and domestic investment.E) B) and D)
F) A) and D)

Question 10

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following would both make a country's real exchange rate rise?

Accepted Answer

A)  its budget deficit increases and bonds issued in the country become riskier
B)  bonds issued in that country become riskier and it imposes an import quota
C)  it imposes an import quota and the budget deficit increases
D)  None of the above are correct.E) None of the above
F) All of the above

Question 12

In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

Accepted Answer

A) True 
 B)False

Question 13

In the open-economy macroeconomic model, other things the same, when a U.S. resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

Accepted Answer

A) True 
 B)False

Question 14

If a country experiences capital flight, which of the following lists only curves that shift right?

Accepted Answer

A)  the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange
B)  the demand for loanable funds and the supply of dollars in the market for foreign-currrency exchange
C)  the supply of loanable funds and the demand for dollars in the market for foreign-currency exchange
D)  the supply of loanable funds and the supply of dollars in the market for foreign-currency exchangeE) None of the above
F) B) and C)

Question 15

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Accepted Answer

A)  the real exchange rate and the interest rate will rise.
B)  the real exchange rate will rise and the interest rate will fall.
C)  the real exchange rate will fall and the interest rate will rise.
D)  the real exchange rate and the interest rate will fall.E) B) and C)
F) A) and C)

Question 16

In the open-economy macroeconomic model, if the supply of loanable funds shifts right

Accepted Answer

A)  the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.
B)  the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts left.
C)  the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.
D)  the interest rate falls and the supply of dollars in the market for foreign currency exchange shifts left.E) C) and D)
F) B) and D)

Question 17

Other things the same, if the expected return on U.S. assets increased, the

Accepted Answer

A)  supply of dollars in the market for foreign-currency exchange shifts right.
B)  supply of dollars in the market for foreign-currency exchange shifts left.
C)  demand for dollars in the market for foreign-currency exchange shifts right
D)  demand for dollars in the market for foreign-currency exchange shifts left.E) None of the above
F) B) and D)

Question 18

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

Accepted Answer

A)  Americans to buy more foreign assets, which increases U.S. net capital outflow.
B)  Americans to buy more foreign assets, which reduces U.S. net capital outflow.
C)  foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.
D)  foreigners to buy more U.S. assets, which increases U.S. net capital outflow.E) B) and D)
F) C) and D)

Question 19

Figure 19-2 
-Refer to Figure 19-2. What are the equilibrium values of the real exchange rate and net exports?

Accepted Answer

A)  1.4, 100
B)  1, 200
C)  .6, 300
D)  None of the above are correct.E) B) and C)
F) B) and D)

Question 20

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Accepted Answer

A)  surplus of loanable funds, so the interest rate increases.
B)  surplus of loanable funds, so the interest rate decreases.
C)  shortage of loanable funds, so the interest rate increases.
D)  shortage of loanable funds, so the interest rate decreases.E) A) and B)
F) A) and C)

Exam 19: A Macroeconomic Theory of the Open Economy

When a country imposes an import quota, its exchange rate

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If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

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If Kenya experienced capital flight, the supply of Kenyan schillings in the market for foreign-currency exchange would shift

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If a country experiences capital flight, which of the following lists only curves that shift right?

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If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

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Which of the following would shift the demand for dollars in the market for foreign currency exchange to the right?

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Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

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Which of the following would both make a country's real exchange rate rise?

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

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In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

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Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

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If the quantity of loanable funds supplied is greater than the quantity demanded, then

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In the open-economy macroeconomic model, a higher U.S. real exchange rate makes

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In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

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In the open-economy macroeconomic model, the supply of loanable funds equals

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Other things the same, if the expected return on U.S. assets increased, the

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Figure 19-2 -Refer to Figure 19-2. What are the equilibrium values of the real exchange rate and net exports?

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An increase in the budget surplus

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In the open-economy macroeconomic model, other things the same, when a U.S. resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

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In the open-economy macroeconomic model, if the supply of loanable funds shifts right

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