Question 1

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

Accepted Answer

A)   appreciates and there is a trade surplus.
B)   appreciates and there is a trade deficit.
C)   depreciates and there is a trade surplus.
D)   depreciates and there is a trade deficit.E) A) and B)
F) A) and C)

Question 2

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Accepted Answer

A)   fell. The increased saving would increase the quantity of loanable funds demanded.
B)   fell. The increased saving would increase the quantity of loanable funds supplied.
C)   rose. The increased saving would increase the quantity of loanable funds demanded.
D)   rose. The increased saving would increase the quantity of loanable funds supplied.E) None of the above
F) B) and C)

Question 3

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

Question 4

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States?

Accepted Answer

A)   U.S. net exports will fall
B)   U.S. net capital outflow will rise
C)   U.S. domestic investment will rise
D)   the dollar will appreciateE) None of the above
F) A) and B)

Question 5

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

Accepted Answer

A)   increased U.S. interest rates and increased the real exchange rate of the dollar.
B)   increased U.S. interest rates and decreased the real exchange rate of the dollar.
C)   decreased U.S. interest rates and increased the real exchange rate of the dollar.
D)   decreased U.S. interest rates and decreased the real exchange rate of the dollar.E) None of the above
F) B) and C)

Question 6

A trade policy is a government policy

Accepted Answer

A)   directed toward the goal of improving the tradeoff between equity and efficiency.
B)   that directly influences the quantity of goods and services that a country imports or exports.
C)   intended to exploit the tradeoff between inflation and unemployment by altering the budget deficit.
D)   concerning employment laws.E) All of the above
F) A) and B)

Question 7

Trade policies

Accepted Answer

A)   affect a country's overall trade balance, but affect all firms and industries the same.
B)   affect a country's overall trade balance, but affect some firms or industries differently than others.
C)   do not affect a country's overall trade balance, but affect some firms or industries differently than others.
D)   do not affect either a country's overall trade balance or specific firms or industries.E) A) and B)
F) A) and C)

Question 8

If a country went from a government budget deficit to a surplus, national saving would

Accepted Answer

A)   increase, shifting the supply of loanable funds right.
B)   increase, shifting the supply of loanable funds left.
C)   decrease, shifting the demand for loanable funds right.
D)   decrease, shifting the demand for loanable funds left.E) A) and D)
F) A) and C)

Question 9

If the government of India implemented a policy that decreased national saving, its real exchange rate would

Accepted Answer

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

Question 10

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

Accepted Answer

A)   U.S. exports and U.S. imports both increase
B)   U.S. exports increase but U.S. imports are unchanged
C)   U.S. imports increase but U.S. exports are unchanged
D)   None of the above is correct.E) B) and D)
F) B) and C)

Question 11

In the open-economy macroeconomic model, the key determinant of net capital outflow is

Accepted Answer

A)   the real exchange rate. When the real exchange rate rises, net capital outflow rises.
B)   the real exchange rate. When the real exchange rate rises, net capital outflow falls.
C)   the real interest rate. When the real interest rate rises, net capital outflow rises.
D)   the real interest rate. When the real interest rate rises, net capital outflow falls.E) B) and C)
F) B) and D)

Question 12

Capital flight raises a country's interest rate.

Accepted Answer

A) True 
 B)False

Question 13

When Mexico suffered from capital flight in 1994, Mexico's net capital outflow

Accepted Answer

A)   and net exports decreased.
B)   and net exports increased.
C)   increased while net exports decreased.
D)   decreased while net exports increased.E) None of the above
F) All of the above

Question 14

If the supply of dollars in the market for foreign-currency exchange shifts left, 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)   rises 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 B)

Question 15

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 D)
F) C) and D)

Question 16

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

Accepted Answer

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

Question 17

If the supply of loanable funds shifts right, then the equilibrium

Accepted Answer

A)   interest rate falls, so domestic residents will want to purchase more foreign assets.
B)   interest rate falls, so domestic residents will want to purchase fewer foreign assets.
C)   interest rate rises, so domestic residents will want to purchase more foreign assets.
D)   interest rate rises, so domestic residents will want to purchase fewer foreign assets.E) C) and D)
F) B) and C)

Question 18

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Accepted Answer

The supply...

Question 19

Which of the following is the most likely result from an increase in a country's government budget surplus?

Accepted Answer

A)   higher interest rates
B)   lower imports
C)   lower net capital outflows
D)   lower domestic investmentE) C) and D)
F) B) and D)

Question 20

When a country experiences capital flight its

Accepted Answer

A)   net capital outflow increases and its real exchange rate rises.
B)   net capital outflow increases and its real exchange rate falls.
C)   net capital outflow decreases and its real exchange rate rises.
D)   net capital outflow decreases and its real exchange rate falls.E) A) and B)
F) B) and D)

Exam 14: A Macroeconomic Theory of the Open Economy

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a country experiences capital flight its

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts right, then the equilibrium

Correct AnswerverifiedShow Answer

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States?

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

Capital flight raises a country's interest rate.

Correct AnswerverifiedShow Answer

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Correct AnswerverifiedShow Answer

If the government of India implemented a policy that decreased national saving, its real exchange rate would

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Trade policies

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If a country went from a government budget deficit to a surplus, national saving would

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A trade policy is a government policy

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In the open-economy macroeconomic model, the key determinant of net capital outflow is

Correct AnswerverifiedShow Answer

Which of the following is the most likely result from an increase in a country's government budget surplus?

Correct AnswerverifiedShow Answer

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Correct AnswerverifiedThe supply...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, Mexico's net capital outflow

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the budget surplus

Correct AnswerverifiedShow Answer

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

Correct AnswerverifiedShow Answer

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The supply...
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