Question 1

A country produces two goods, soda and chips. It currently exports soda and imports chips. If it were to impose a tariff on chips,

Accepted Answer

A)   both imports of chips and exports of sodas would rise.
B)   imports of chips would rise, but exports of sodas would fall.
C)   imports of chips would fall, but exports of sodas would rise.
D)   both imports of chips and exports of sodas would fall.E) B) and D)
F) B) and C)

Question 2

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) A) and B)
F) A) and D)

Question 3

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

Accepted Answer

300 billio...

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

Question 5

If a country removed an import quota on cotton, then overall that country's

Accepted Answer

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

Question 6

An increase in the budget deficit

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

Question 7

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

Accepted Answer

A)   net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts right.
B)   net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right.
C)   net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
D)   net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right.E) A) and D)
F) B) and C)

Question 8

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Accepted Answer

A)   net capital outflow and the real exchange rate will rise.
B)   net capital outflow will rise and the real exchange rate will fall.
C)   net capital outflow will fall and the real exchange rate will rise.
D)   net capital outflow and the exchange rate will fall.E) A) and B)
F) All of the above

Question 9

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

Accepted Answer

A)   the supply of dollars in the market for foreign-currency exchange shifts left.
B)   the supply of dollars in the market for foreign-currency exchange shifts right.
C)   the demand for dollars in the market for foreign-currency exchange shifts left.
D)   the demand for dollars in the market for foreign-currency exchange shifts right.E) A) and D)
F) A) and C)

Question 10

Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

Accepted Answer

Desired net exports rise. The ...

Question 11

Because depreciation of the real exchange rate of the dollar increases U.S. net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

Accepted Answer

A) True 
 B)False

Question 12

If a country makes political reforms so that people now believe this country's assets are less risky, what happens to its interest rate, its exchange rate, and its net exports?

Accepted Answer

Its interest rate fa...

Question 13

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 14

A German company wants to buy dollars to purchase U.S. bonds. In the open-economy macroeconomic model of the U.S., this transaction would be accounted for in

Accepted Answer

A)   the supply of currency in the foreign exchange market, and the supply of loanable funds.
B)   the supply of currency in the foreign exchange market, and the demand for loanable funds.
C)   the demand for currency in the foreign exchange market, and the supply of loanable funds.
D)   the demand for currency in the foreign exchange market, and the demand for loanable funds.E) A) and D)
F) A) and C)

Question 15

Figure 32-6
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
 
-Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

Accepted Answer

A)   g
B)   h
C)   i
D)   None of the above is correct.E) B) and C)
F) A) and B)

Question 16

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
 
-Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

Accepted Answer

A)   shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)   shifting the demand curve in panel a to the left and the supply curve in panel c to the left.
C)   shifting the supply curve in panel a to the right and the demand curve in panel c to the right.
D)   shifting the supply curve in panel a to the left and the supply curve in panel c to the left.E) C) and D)
F) B) and D)

Question 17

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people including government) want to save equals desired quantities of domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 18

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Accepted Answer

A)   the interest rate
B)   net exports
C)   the exchange rate
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 19

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Accepted Answer

A)   rise because national saving rises.
B)   rise because domestic investment rises.
C)   fall because national saving falls.
D)   fall because domestic investment falls.E) None of the above
F) B) and C)

Question 20

If the people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's real exchange rate

Accepted Answer

A)   and net exports would rise.
B)   would rise and its net exports would fall.
C)   would fall and its net exports would rise.
D)   and its net exports would fall.E) All of the above
F) A) and B)

Exam 19: A Macroeconomic Theory of the Open Economy

A German company wants to buy dollars to purchase U.S. bonds. In the open-economy macroeconomic model of the U.S., this transaction would be accounted for in

Correct AnswerverifiedShow Answer

If a country removed an import quota on cotton, then overall that country's

Correct AnswerverifiedShow Answer

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

Correct Answerverified300 billio...View AnswerShow Answer

Figure 32-6 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Correct AnswerverifiedShow Answer

Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

Correct AnswerverifiedDesired net exports rise. The ...View AnswerShow Answer

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Correct AnswerverifiedShow Answer

Because depreciation of the real exchange rate of the dollar increases U.S. net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

Correct AnswerverifiedShow Answer

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

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

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Correct AnswerverifiedShow Answer

A country produces two goods, soda and chips. It currently exports soda and imports chips. If it were to impose a tariff on chips,

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

Correct AnswerverifiedShow Answer

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

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

If a country makes political reforms so that people now believe this country's assets are less risky, what happens to its interest rate, its exchange rate, and its net exports?

Correct AnswerverifiedIts interest rate fa...View AnswerShow Answer

If the people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's real exchange rate

Correct AnswerverifiedShow Answer

An increase in the budget deficit

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people including government) want to save equals desired quantities of domestic investment and net capital outflow.

Correct AnswerverifiedShow Answer

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300 billio...
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Desired net exports rise. The ...
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Its interest rate fa...
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