Question 1

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A)  foreign residents want to buy more U.S. goods and services.
B)  U.S. residents want to buy fewer foreign goods and services.
C)  Both A and B are correct.
D)  None of the above is correct.E) All of the above
F) None of the above

Question 2

In the open-economy macroeconomic model, net capital outflow rises if

Accepted Answer

A)  either the exchange rate rises or the real interest rate falls.
B)  either the exchange rate falls or the real interest rate rises.
C)  the real interest rate rises. Net capital outflow does not depend on the exchange rate.
D)  the real interest rate falls. Net capital outflow does not depend on the exchange rate.E) All of the above
F) C) and D)

Question 3

If after a country experiences capital flight, people become more confident about the safety of its assets, then in that country

Accepted Answer

A)  the real exchange rate and the real interest rate will rise.
B)  the real exchange rate will rise and the real interest rate will fall.
C)  the real exchange rate will fall and the real interest rate will rise.
D)  the real exchange rate and the real interest rate will fall.E) None of the above
F) A) and B)

Question 4

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) All of the above
F) None of the above

Question 5

What happens to each of the following if investment becomes more desirable at each interest rate?
A. the interest rate
B. net capital outflow
C. the exchange rate

Accepted Answer

The interest rate ri...

Question 6

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s)  is included in the demand for loanable funds in the U.S.?

Accepted Answer

A)  both the one in Ohio and the one in Italy
B)  only the one in Ohio
C)  only the one in Italy
D)  neither the one in Ohio nor the one in ItalyE) B) and C)
F) A) and B)

Question 7

-Refer to Figure 32-6. If the interest rate were initially at r2 and an import quota were imposed, the interest rate would

Accepted Answer

A)  stay at r2.
B)  decrease because supply would shift right.
C)  increase because supply would shift left.
D)  decrease because demand would shift left.E) A) and B)
F) C) and D)

Question 8

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Accepted Answer

A)  rise and exports of other industries would increase.
B)  rise and exports of other industries would decrease.
C)  not change, exports of other industries would increase.
D)  not change, exports of other industries would decrease.E) A) and B)
F) A) and C)

Question 9

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Accepted Answer

A)  $40 billion
B)  $60 billion
C)  $90 billion
D)  $130 billionE) A) and B)
F) A) and C)

Question 10

An increase in a country's real interest rate reduces that country's net capital outflow.

Accepted Answer

A) True 
 B)False

Question 11

What happens to each of the following if the supply of loanable funds shifts right?
A. the interest rate
B. net capital outflow
C. the exchange rate

Accepted Answer

The interest rate fa...

Question 12

Other things the same, if foreign companies desired to buy more U.S. medical equipment and U.S. residents desired to buy more foreign bonds

Accepted Answer

A)  net exports and the exchange rate would rise.
B)  net exports would rise, but what would happen to the exchange rate is uncertain.
C)  net exports would fall, but what would happen to the exchange rate is uncertain.
D)  net exports and the exchange rate would fall.E) A) and C)
F) A) and B)

Question 13

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

Accepted Answer

The exchange rate ri...

Question 14

Define net capital outflow.

Accepted Answer

Net capital outflow equals the...

Question 15

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget surplus can be illustrated as a move to

Accepted Answer

A)  4% and 1
B)  4% and .5
C)  2% and 1
D)  2% and .5E) A) and C)
F) C) and D)

Question 16

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

Question 17

Figure 32-1 
-Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a

Accepted Answer

A)  surplus of $20 billion.
B)  surplus of $40 billion.
C)  shortage of $20 billion.
D)  shortage of $40 billion.E) A) and C)
F) A) and B)

Question 18

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 19

Refer to Figure 32-3. Domestic investment plus net capital outflow 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)   None of the above is correct.E) B) and C)
F) A) and B)

Question 20

When a country suffers from capital flight, the exchange rate

Accepted Answer

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

Exam 32: A Macroeconomic Theory of the Open Economy

What happens to each of the following if the supply of loanable funds shifts right? A. the interest rate B. net capital outflow C. the exchange rate

Correct AnswerverifiedThe interest rate fa...View AnswerShow Answer

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

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An increase in a country's real interest rate reduces that country's net capital outflow.

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When a country suffers from capital flight, the exchange rate

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net capital outflow rises if

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Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget surplus can be illustrated as a move to

Correct AnswerverifiedShow Answer

Refer to Figure 32-3. Domestic investment plus net capital outflow is represented by the

Correct AnswerverifiedShow Answer

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

What happens to each of the following if investment becomes more desirable at each interest rate? A. the interest rate B. net capital outflow C. the exchange rate

Correct AnswerverifiedThe interest rate ri...View AnswerShow Answer

Define net capital outflow.

Correct AnswerverifiedNet capital outflow equals the...View AnswerShow Answer

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a

Correct AnswerverifiedShow Answer

Other things the same, if foreign companies desired to buy more U.S. medical equipment and U.S. residents desired to buy more foreign bonds

Correct AnswerverifiedShow Answer

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

-Refer to Figure 32-6. If the interest rate were initially at r2 and an import quota were imposed, the interest rate would

Correct AnswerverifiedShow Answer

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Correct AnswerverifiedShow Answer

If after a country experiences capital flight, people become more confident about the safety of its assets, then in that country

Correct AnswerverifiedShow Answer

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

Correct AnswerverifiedThe exchange rate ri...View AnswerShow Answer

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the U.S.?

Correct AnswerverifiedShow Answer

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The interest rate fa...
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S is national saving, which is the sourc...
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The interest rate ri...
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Net capital outflow equals the...
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The exchange rate ri...
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