Question 1

When a government increases its budget deficit, then that country's

Accepted Answer

A)   supply of loanable funds shifts right.
B)   supply of loanable funds shifts left.
C)   demand for loanable funds shifts right.
D)   demand for loanable funds shifts left.E) B) and D)
F) All of the above

Question 2

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) All of the above
F) A) and D)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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) B) and D)
F) All of the above

Question 5

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 6

Which of the following decreases if the U.S. imposes an import quota on computer components?

Accepted Answer

A)   U.S. imports and U.S. exports.
B)   U.S. imports but not U.S. exports.
C)   U.S. exports but not U.S. imports.
D)   Neither U.S. exports nor U.S. imports.E) A) and D)
F) A) and C)

Question 7

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) A) and C)
F) All of the above

Question 8

If there is a surplus in the U.S. loanable funds market, then the interest rate

Accepted Answer

A)   rises, which increases quantity of loanable funds demanded.
B)   rises, which decreases the quantity of loanable funds demanded.
C)   falls, which increases the quantity of loanable funds demanded.
D)   falls, which decreases the quantity of loanable funds demanded.E) A) and B)
F) All of the above

Question 9

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 10

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Accepted Answer

A)   and U.S. net capital outflow rose.
B)   and U.S. net capital outflow fell.
C)   fell and U.S. net capital outflow rose.
D)   rose and U.S. net capital outflow fell.E) B) and D)
F) B) and C)

Question 11

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Accepted Answer

A)   an increase in the demand for U.S. currency in the market for foreign-currency exchange
B)   a decrease in the demand for U.S. currency in the market for foreign-currency exchange
C)   an increase in the supply of loanable funds
D)   a decrease in the supply of loanable fundsE) B) and C)
F) A) and B)

Question 12

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Accepted Answer

A) True 
 B)False

Question 13

If the supply of dollars in the market for foreign-currency exchange shifts right, then the exchange rate

Accepted Answer

A)   rises and the quantity of dollars exchanged falls.
B)   rises and the quantity of dollars exchanged does not change.
C)   falls and the quantity of dollars exchanged rises.
D)   falls and the quantity of dollars exchanged does not change.E) None of the above
F) A) and D)

Question 14

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the

Accepted Answer

A)   nominal exchange rate.
B)   nominal interest rate.
C)   real exchange rate.
D)   real interest rate.E) All of the above
F) None of the above

Question 15

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

Accepted Answer

A)   The U.S. trade balance rises.
B)   The U.S. interest rate rises.
C)   Domestic investment in the U.S. falls.
D)   The real exchange rate of the U.S. dollar appreciates.E) A) and B)
F) A) and C)

Question 16

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) A) and C)

Question 17

In equilibrium a country has a net capital outflow of $200 billion and domestic investment of $150 billion. What is the quantity of loanable funds demanded?

Accepted Answer

A)   $50 billion
B)   $150 billion
C)   $200 billion
D)   $350 billionE) A) and B)
F) A) and C)

Question 18

Explain how an increase in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Accepted Answer

An increase in demand for capital goods ...

Question 19

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?

Accepted Answer

A)   the exchange rate falls causing U.S. residents to import more
B)   the exchange rate falls causing U.S. residents to import less
C)   the exchange rate rises causing U.S. residents to import more
D)   the exchange rate rises causing U.S. residents to import lessE) A) and B)
F) A) and C)

Question 20

From 2001 to 2004, the U.S. government went from a budget surplus to a budget deficit. According to the open-economy macroeconomic model, this should have decreased

Accepted Answer

A)   both the supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)   neither the supply of loanable funds nor the supply of dollars in the market for foreign-currency exchange.
C)   the supply of loanable funds but not the supply of dollars in the market for foreign-currency exchange.
D)   the supply of dollars in the market for foreign-currency exchange, but not the supply of loanable funds.E) B) and C)
F) A) and D)

Exam 14: A Macroeconomic Theory of the Open Economy

Explain how an increase in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Correct AnswerverifiedAn increase in demand for capital goods ...View AnswerShow Answer

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Correct AnswerverifiedShow Answer

From 2001 to 2004, the U.S. government went from a budget surplus to a budget deficit. According to the open-economy macroeconomic model, this should have decreased

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

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Correct AnswerverifiedShow Answer

Which of the following decreases if the U.S. imposes an import quota on computer components?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a government increases its budget deficit, then that country's

Correct AnswerverifiedShow Answer

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a country imposes an import quota, its exchange rate

Correct AnswerverifiedShow Answer

If there is a surplus in the U.S. loanable funds market, then the interest rate

Correct AnswerverifiedShow Answer

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

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

If the supply of dollars in the market for foreign-currency exchange shifts right, then the exchange rate

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Correct AnswerverifiedShow Answer

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the

Correct AnswerverifiedShow Answer

In equilibrium a country has a net capital outflow of $200 billion and domestic investment of $150 billion. What is the quantity of loanable funds demanded?

Correct AnswerverifiedShow Answer

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An increase in demand for capital goods ...
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Such a campaign will increase the demand...
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