Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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) C) and D)
F) B) and C)

Question 3

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 4

If the Japanese government raised its budget deficit, then the yen would

Accepted Answer

A)   depreciate and Japanese net exports would rise.
B)   depreciate and Japanese net exports would fall.
C)   appreciate and Japanese net exports would rise.
D)   appreciate and Japanese net exports would fall.E) A) and B)
F) A) and C)

Question 5

If government policy encouraged households to save more at each interest rate, then

Accepted Answer

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

Question 6

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Accepted Answer

A)   rise and the trade balance moves to a surplus.
B)   rise and the trade balance moves to a deficit.
C)   fall and the trade balance moves to a surplus.
D)   fall and the trade balance moves to a deficit.E) A) and D)
F) B) and C)

Question 7

Which of the following would make the equilibrium real interest rate increase and the equilibrium quantity of funds decrease?

Accepted Answer

A)   The demand for loanable funds shifts right.
B)   The demand for loanable funds shifts left.
C)   The supply of loanable funds shifts right.
D)   The supply of loanable funds shifts left.E) B) and C)
F) None of the above

Question 8

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) B) and C)
F) A) and B)

Question 9

When the U.S. real interest rate falls

Accepted Answer

A)   U.S. purchases of foreign assets and foreign purchases of U.S. assets rise
B)   U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall
C)   U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise
D)   U.S. purchases of foreign assets and foreign purchases of U.S. assets fallE) All of the above
F) C) and D)

Question 10

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds

Accepted Answer

A)   only if the asset is located at home.
B)   only if the asset is located abroad.
C)   whether the asset is located at home or abroad.
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 11

At the equilibrium real interest rate in the open-economy macroeconomic model

Accepted Answer

A)   saving = domestic investment
B)   saving = net capital outflow
C)   net capital outflow = domestic investment
D)   net capital outflow + domestic investment = savingE) B) and C)
F) A) and D)

Question 12

Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below.
 
-Refer to Figure 32-7. Suppose that the Mexican economy starts at r2 and e3. Which of the following is consistent with the effects of capital flight?

Accepted Answer

A)   a shift from D2 to D1 in Panel A
B)   a shift from NCO1 to NCO2 in Panel B
C)   a shift from D2 to D1 in Panel C
D)   All of the above shifts are consistent with the effects of capital flight.E) None of the above
F) A) and B)

Question 13

If the U.S. imposed an import quota on furniture, U.S. net exports of furniture

Accepted Answer

A)   and net exports of other U.S. goods and services would rise.
B)   would rise but net exports of other goods and services would fall.
C)   would fall but net exports of other goods and services would rise.
D)   and net exports of other U.S. goods and services would fall.E) A) and B)
F) B) and C)

Question 14

Which of the following is the correct way to show the effects of a newly imposed import quota?

Accepted Answer

A)   shift the demand for loanable funds left, the supply of dollars in the market for foreign- currency exchange left, and the demand for dollars in the market for foreign-currency exchange right
B)   shift the demand for loanable funds left, the supply of dollars in the market for foreign- currency exchange right, and the demand for dollars in the market for foreign-currency exchange left
C)   shift the demand for dollars in the market for foreign-currency exchange to the right
D)   shift the supply of dollars in the market for foreign-currency exchange to the leftE) B) and D)
F) All of the above

Question 15

Which of the following contains a list only of things that decrease when the budget deficit of the U.S. increases?

Accepted Answer

A)   U.S. net exports, U.S. domestic investment, U.S. net capital outflow
B)   U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment
C)   U.S. imports, U.S. interest rates, the real exchange rate of the dollar
D)   None of the above is correct.E) None of the above
F) A) and D)

Question 16

In the long run, import quotas increase net exports.

Accepted Answer

A) True 
 B)False

Question 17

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 18

What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?

Accepted Answer

The sources of the demand for ...

Question 19

If a country's budget deficit rises, then its exchange rate

Accepted Answer

A)   rises, so its imports rise.
B)   rises, so its imports fall.
C)   falls, so its imports rise.
D)   falls so its imports fall.E) A) and D)
F) A) and B)

Question 20

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Exam 19: A Macroeconomic Theory of the Open Economy

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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If the U.S. imposed an import quota on furniture, U.S. net exports of furniture

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When the U.S. real interest rate falls

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In an open economy, the supply of loanable funds comes from national saving.

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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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If the Japanese government raised its budget deficit, then the yen would

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At the equilibrium real interest rate in the open-economy macroeconomic model

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Which of the following would make the equilibrium real interest rate increase and the equilibrium quantity of funds decrease?

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In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

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In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds

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Figure 32-7 Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. -Refer to Figure 32-7. Suppose that the Mexican economy starts at r2 and e3. Which of the following is consistent with the effects of capital flight?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If government policy encouraged households to save more at each interest rate, then

Correct AnswerverifiedShow Answer

What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?

Correct AnswerverifiedThe sources of the demand for ...View AnswerShow Answer

Which of the following contains a list only of things that decrease when the budget deficit of the U.S. increases?

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If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Correct AnswerverifiedShow Answer

Which of the following is the correct way to show the effects of a newly imposed import quota?

Correct AnswerverifiedShow Answer

In the long run, import quotas increase net exports.

Correct AnswerverifiedShow Answer

If a country's budget deficit rises, then its exchange rate

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

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The sources of the demand for ...
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