Question 1

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 2

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the budget deficit

Accepted Answer

A)   reduces investment because the interest rate rises.
B)   reduces investment because the interest rate falls.
C)   raises investment because the interest rate rises.
D)   raises investment because the interest rate falls.E) B) and C)
F) B) and D)

Question 4

Figure 32-1 
-Refer to Figure 32-1. The loanable funds market is in equilibrium at

Accepted Answer

A)   2 percent, $20 billion.
B)   4 percent, $40 billion.
C)   6 percent, $60 billion.
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 5

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 6

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Accepted Answer

The supply of dollar...

Question 7

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Accepted Answer

A) True 
 B)False

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

Question 9

If U.S. net exports are negative, then net capital outflow is

Accepted Answer

A)   positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.E) C) and D)
F) A) and D)

Question 10

Figure 32-2 
-Refer to Figure 32-2. At what real exchange rate is the quantity of dollars demanded equal to 500?

Accepted Answer

A)   1
B)   .8
C)   .6
D)   None of the above are correct.E) A) and D)
F) C) and D)

Question 11

If a country's budget deficit increases, then in the market for foreign­currency exchange,

Accepted Answer

A)   the supply of its currency shifts right, so the exchange rate falls.
B)   the demand for its currency shifts right, so the exchange rate rises.
C)   the supply of its currency shifts left, so the exchange rate rises.
D)   the demand for its currency shifts left.so the exchange rate falls.E) C) and D)
F) B) and C)

Question 12

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

Accepted Answer

A)   U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment
B)   U.S. imports, U.S. interest rates, the real exchange rate of the dollar
C)   U.S. interest rates, the real exchange rate of the dollar, U.S. domestic investment
D)   the real exchange rate of the dollar, U.S. net capital outflow, U.S. net exportsE) A) and B)
F) A) and C)

Question 13

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

Accepted Answer

A)   desired net exports and desired net capital outflow
B)   desired net exports but not desired net capital outflow
C)   desired net capital outflow but not desired net exports
D)   neither desired net exports nor desired net capital outflowE) All of the above
F) None of the above

Question 14

Which of the following leads to an increase in net exports in the long run?

Accepted Answer

A)   either a decrease in the budget deficit or imposing an import quota
B)   a decrease in the budget deficit but not imposing an import quota
C)   imposing an import quota but not a decrease in the budget deficit
D)   neither a decrease in the budget deficit nor imposing an import quotaE) A) and B)
F) B) and C)

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

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 17

In the open­economy 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) None of the above
F) All of the above

Question 18

A limit on the quantity of a good produced abroad that can be purchased domestically is called an)

Accepted Answer

A)   tariff.
B)   excise tax.
C)   import quota.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 19

If U.S. net exports are positive, then net capital outflow is

Accepted Answer

A)   positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.E) A) and B)
F) C) and D)

Question 20

If the U.S. government imposes an import quota on beef, U.S. net exports will

Accepted Answer

A)   increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
B)   increase, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change
C)   not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
D)   not change, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change.E) A) and D)
F) All of the above

Exam 14: A Macroeconomic Theory of the Open Economy

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

An increase in the budget deficit

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

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

Which of the following leads to an increase in net exports in the long run?

Correct AnswerverifiedShow Answer

If U.S. net exports are positive, then net capital outflow is

Correct AnswerverifiedShow Answer

If a country's budget deficit increases, then in the market for foreign­currency exchange,

Correct AnswerverifiedShow Answer

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Correct AnswerverifiedShow Answer

If U.S. net exports are negative, then net capital outflow is

Correct AnswerverifiedShow Answer

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Correct AnswerverifiedShow Answer

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Correct AnswerverifiedThe supply of dollar...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Figure 32-2 -Refer to Figure 32-2. At what real exchange rate is the quantity of dollars demanded equal to 500?

Correct AnswerverifiedShow Answer

If the U.S. government imposes an import quota on beef, U.S. net exports will

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

In the open­economy macroeconomic model, if a country's interest rate falls, then its

Correct AnswerverifiedShow Answer

A limit on the quantity of a good produced abroad that can be purchased domestically is called an)

Correct AnswerverifiedShow Answer

Figure 32-1 -Refer to Figure 32-1. The loanable funds market is in equilibrium at

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Such a campaign will increase the demand...
View Answer

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Correct Answer
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The supply of loanable funds curve shift...
View Answer

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If a country's budget deficit increases, then in the market for foreigncurrency exchange,

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The supply of dollar...
View Answer

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The sources of the demand for ...
View Answer

In the openeconomy macroeconomic model, if a country's interest rate falls, then its

Correct Answer
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