Question 1

If a country has a positive net capital outflow, then

Accepted Answer

A)   on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.
B)   on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds.
C)   on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
D)   on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.E) A) and D)
F) All of the above

Question 2

Refer to Depositors Move Funds Out of Greek Banks. What happened to the domestic equilibrium interest rate and quantity of loanable funds supplied?

Accepted Answer

Both the equilibrium...

Question 3

If a country raises its budget deficit then

Accepted Answer

A)   both its supply of and demand for loanable funds shift.
B)   its supply of but not its demand for loanable funds shifts.
C)   its demand for but not its supply of loanable funds shifts.
D)   neither its supply nor its demand for loanable funds shift.E) B) and C)
F) A) and D)

Question 4

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

Question 5

A tax on imported goods is called an)

Accepted Answer

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

Question 6

If the demand for net exports rises, which of the following happens in the open-economy macroeconomic model?

Accepted Answer

A)   the exchange rate rises
B)   the interest rate falls
C)   net capital outflow rises
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 7

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

Question 8

Refer to Shoe Quota. As a result of the quota, is there initially a surplus or a shortage in the market for foreign- currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

Accepted Answer

Since the demand for dollars increases, ...

Question 9

If the exchange rate rises, foreign residents want to purchase ______ domestic goods and domestic residents want to purchase _____ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _______ in the quantity of dollars ______.

Accepted Answer

fewer, mor...

Question 10

Other things the same, if the U.S. interest rate rises, U.S. assets become ____ attractive. So, desired net capital outflow _____. This change in net capital outflow shifts the __________ curve in the market for foreign-currency exchange to the ______.

Accepted Answer

more, falls, supply, left

Question 11

In the United States in the early 1980s, there was a government budget

Accepted Answer

A)   surplus and a trade surplus.
B)   deficit and a trade deficit.
C)   surplus and a trade deficit.
D)   deficit and a trade surplus.E) All of the above
F) None of the above

Question 12

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

Accepted Answer

A)   U.S. interest rates rise
B)   U.S. net capital outflow falls
C)   the real exchange rate of the U.S. dollar depreciates
D)   the U.S. supply of loanable funds shifts leftE) B) and D)
F) None of the above

Question 13

Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?

Accepted Answer

A)   the exchange rate rises
B)   the exchange rate falls
C)   the expected rate of return on U.S. assets rises
D)   the expected rate of return on U.S. assets fallsE) A) and D)
F) A) and C) D

Question 14

Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflows rise because a lower interest rate in the U.S. makes U.S. assets less desirable. So, U.S. residents will purchase more foreign assets and foreign residents will purchase fewer U.S. assets.

Question 15

Other things the same, a higher real interest rate raises the quantity of

Accepted Answer

A)   domestic investment.
B)   net capital outflow.
C)   loanable funds demanded.
D)   loanable funds supplied.E) All of the above
F) B) and C)

Question 16

If a government increases its budget deficit, then domestic interest rates

Accepted Answer

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

Question 17

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Accepted Answer

A) True 
 B)False

Question 18

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 19

In an open economy, the demand for loanable funds comes from

Accepted Answer

A)   only those who want to buy domestic capital goods.
B)   only those who want to buy foreign assets.
C)   those who want to buy either domestic capital goods or foreign assets.
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 20

Other things the same, if the interest rate falls, then

Accepted Answer

A)   firms will want to borrow more, which increases the quantity of loanable funds demanded.
B)   firms will want to borrow less, which decreases the quantity of loanable funds demanded.
C)   firms will want to borrow more, which increase the quantity of loanable funds supplied.
D)   firms will want to borrow less, which decreases the quantity of loanable funds supplied.E) C) and D)
F) A) and B)

Exam 19: A Macroeconomic Theory of the Open Economy

If a country has a positive net capital outflow, then

Correct AnswerverifiedShow Answer

Refer to Depositors Move Funds Out of Greek Banks. What happened to the domestic equilibrium interest rate and quantity of loanable funds supplied?

Correct AnswerverifiedBoth the equilibrium...View AnswerShow Answer

If a country raises its budget deficit then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A tax on imported goods is called an)

Correct AnswerverifiedShow Answer

If the demand for net exports rises, which of the following happens in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to Shoe Quota. As a result of the quota, is there initially a surplus or a shortage in the market for foreign- currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

Correct AnswerverifiedSince the demand for dollars increases, ...View AnswerShow Answer

If the exchange rate rises, foreign residents want to purchase ______ domestic goods and domestic residents want to purchase _____ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _______ in the quantity of dollars ______.

Correct Answerverifiedfewer, mor...View AnswerShow Answer

Other things the same, if the U.S. interest rate rises, U.S. assets become ____ attractive. So, desired net capital outflow _____. This change in net capital outflow shifts the __________ curve in the market for foreign-currency exchange to the ______.

Correct Answerverifiedmore, falls, supply, left

In the United States in the early 1980s, there was a government budget

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

Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?

Correct AnswerverifiedD

Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Correct AnswerverifiedNet capital outflows rise because a lower interest rate in the U.S. makes U.S. assets less desirable. So, U.S. residents will purchase more foreign assets and foreign residents will purchase fewer U.S. assets.

Other things the same, a higher real interest rate raises the quantity of

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, then domestic interest rates

Correct AnswerverifiedShow Answer

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Correct AnswerverifiedShow 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

In an open economy, the demand for loanable funds comes from

Correct AnswerverifiedShow Answer

Other things the same, if the interest rate falls, then

Correct AnswerverifiedShow Answer

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Both the equilibrium...
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Since the demand for dollars increases, ...
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If the exchange rate rises, foreign residents want to purchase ____ domestic goods and domestic residents want to purchase _ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _ in the quantity of dollars __.

Correct Answer
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fewer, mor...
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Other things the same, if the U.S. interest rate rises, U.S. assets become __ attractive. So, desired net capital outflow _. This change in net capital outflow shifts the __ curve in the market for foreign-currency exchange to the .

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more, falls, supply, left

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D

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Net capital outflows rise because a lower interest rate in the U.S. makes U.S. assets less desirable. So, U.S. residents will purchase more foreign assets and foreign residents will purchase fewer U.S. assets.

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The interest rate ri...
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