Question 1

Refer to Figure 32-3. At an interest rate of 4 percent, the diagram indicates that

Accepted Answer

A)  there is a surplus in the market for foreign-currency exchange.
B)  national saving equals domestic investment.
C)  net capital outflow + domestic investment = national saving.
D)  in the market for foreign-currency exchange the quantity of dollars supplied equals the quantity of dollars demanded.E) All of the above
F) B) and D)

Question 2

Other things the same an increase in the interest rate

Accepted Answer

A)  increases national saving, this is shown by moving along the demand for loanable funds curve.
B)  increases national saving, this is shown by moving along the supply of loanable funds curve.
C)  decreases national saving, this is shown by moving along the demand for loanable funds curve.
D)  decreases national saving, this is shown by moving along the supply of loanable funds curve.E) C) and D)
F) A) and C)

Question 3

Capital flight raises both a country's exchange rate and its interest rate.

Accepted Answer

A) True 
 B)False

Question 4

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 5

When a country's government budget deficit decreases,

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) None of the above
F) A) and B)

Question 6

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

Accepted Answer

A)  the sum of domestic investment and net capital outflow.
B)  net capital outflow alone.
C)  domestic investment alone.
D)  None of the above is correct.E) C) and D)
F) B) and D)

Question 7

Which of the following is always correct in an open economy?

Accepted Answer

A)  S = I
B)  S = NX + NCO
C)  S = NCO
D)  S = I + NCOE) C) and D)
F) None of the above

Question 8

If the supply of loanable funds shifts right, then

Accepted Answer

A)  the real interest rate and the equilibrium quantity of loanable funds both fall.
B)  the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)  the real interest rate and the equilibrium quantity of loanable funds both rise.
D)  the real interest rate rises and the equilibrium quantity of loanable funds falls.E) None of the above
F) A) and D)

Question 9

In the open-economy macroeconomic model, if a country's interest rate falls, then its

Accepted Answer

A)  net capital outflow and its net exports rise.
B)  net capital outflow rises and its net exports fall.
C)  net capital outflow falls and its net exports rise.
D)  net capital outflow and its net exports fall.E) A) and B)
F) All of the above

Question 10

If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate

Accepted Answer

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

Question 11

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Accepted Answer

A)  rise and there would be a trade surplus.
B)  rise and there would be a trade deficit.
C)  fall and there would be a trade surplus.
D)  fall and there would be a trade deficit.E) A) and B)
F) A) and C)

Question 12

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Accepted Answer

A)  $350 billion
B)  $250 billion
C)  $200 billion
D)  $150 billionE) A) and D)
F) All of the above

Question 13

-Refer to Figure 32-3. National saving is represented by the

Accepted Answer

A)   demand curve in panel a.
B)   demand curve in panel c.
C)   supply curve in panel a.
D)   supply curve in panel c.E) All of the above
F) None of the above

Question 14

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

Accepted Answer

A)  more capital goods and more foreign bonds.
B)  more capital goods but fewer foreign bonds.
C)  more foreign bonds but fewer capital goods.
D)  fewer capital goods and fewer foreign bonds.E) B) and D)
F) C) and D)

Question 15

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Accepted Answer

The supply of loanable funds curve shift...

Question 16

When a country imposes an import quota, its

Accepted Answer

A)  imports fall and its net exports rise.
B)  imports fall and its net exports are unchanged.
C)  imports rise and its net exports are unchanged.
D)  imports and exports are unchanged.E) A) and B)
F) A) and C)

Question 17

In the market for foreign-currency exchange, capital flight shifts

Accepted Answer

A)  the demand curve right.
B)  the demand curve left.
C)  the supply curve right.
D)  the supply curve left.E) A) and D)
F) C) and D)

Question 18

Other things the same, as the real interest rate rises

Accepted Answer

A)  domestic investment and net capital outflow both rise.
B)  domestic investment and net capital outflow both fall.
C)  domestic investment rises and net capital outflow falls.
D)  domestic investment falls and net capital outflow rises.E) All of the above
F) B) and D)

Question 19

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

Accepted Answer

Such a campaign will increase the demand...

Question 20

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 ...

Exam 32: A Macroeconomic Theory of the Open Economy

Refer to Figure 32-3. At an interest rate of 4 percent, the diagram indicates that

Correct AnswerverifiedShow Answer

Other things the same an increase in the interest rate

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Other things the same, as the real interest rate rises

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if a country's interest rate falls, then its

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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

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

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If the supply of loanable funds shifts right, then

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A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

Which of the following is always correct in an open economy?

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When a country's government budget deficit decreases,

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Correct AnswerverifiedShow Answer

Capital flight raises both a country's exchange rate and its interest rate.

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange, capital flight shifts

Correct AnswerverifiedShow Answer

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

Correct AnswerverifiedSuch a campaign will increase the demand...View AnswerShow Answer

When a country imposes an import quota, its

Correct AnswerverifiedShow Answer

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Correct AnswerverifiedThe supply of loanable funds curve shift...View AnswerShow Answer

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Correct AnswerverifiedShow Answer

-Refer to Figure 32-3. National saving is represented by the

Correct AnswerverifiedShow Answer

If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate

Correct AnswerverifiedShow Answer

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

Correct AnswerverifiedShow Answer

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The sources of the demand for ...
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Such a campaign will increase the demand...
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The supply of loanable funds curve shift...
View Answer

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