Question 1

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A)   and investment to rise.
B)   to rise and investment to fall.
C)   to fall and investment to rise.
D)   and investment to fall.E) B) and D)
F) B) and C)

Question 2

If the government of Canada increased its budget deficit, then domestic investment

Accepted Answer

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

Question 3

The imposition of an import quota shifts

Accepted Answer

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

Question 4

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

Question 5

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 6

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Accepted Answer

The demand curve for loanable ...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

U.S. net capital outflow

Accepted Answer

A)   is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market.
B)   is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market.
C)   is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market.
D)   is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market.E) A) and C)
F) All of the above

Question 9

In the open-economy macroeconomic model, other things the same, which of the following both make the exchange rate fall?

Accepted Answer

A)   U.S. investment demand falls and foreign demand for U.S. goods falls
B)   U.S. investment demand falls and foreign demand for U.S. goods rises
C)   U.S. investment demand rises and foreign demand for U.S. goods falls
D)   U.S. investment demand rises and foreign demand for U.S. goods risesE) A) and C)
F) A) and D)

Question 10

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

Accepted Answer

A)   national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
B)   national saving. The demand for loanable funds comes only from domestic investment.
C)   private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
D)   private saving. The demand for loanable funds comes only from domestic investment.E) B) and C)
F) B) and D)

Question 11

What is the source of the demand for loanable funds in the open-economy macroeconomic model ?

Accepted Answer

investment...

Question 12

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) All of the above
F) None of the above

Question 13

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Accepted Answer

A) True 
 B)False

Question 14

The open-economy macroeconomic model includes

Accepted Answer

A)   only the market for loanable funds.
B)   only the market for foreign-currency exchange.
C)   both the market for loanable funds and the market for foreign-currency exchange.
D)   neither the market for loanable funds nor the market for foreign-currency exchange.E) A) and C)
F) A) and B)

Question 15

Many U.S. business leaders argue that the current state of U.S. net exports is the result of

Accepted Answer

A)   U.S. export subsidies.
B)   free trade policies of foreign governments.
C)   unproductive U.S. workers.
D)   unfair foreign competition.E) A) and B)
F) None of the above

Question 16

Which of the following happens in the market for loanable funds when there is capital flight?

Accepted Answer

A)   the demand curve shifts right.
B)   the demand curve shifts left.
C)   the supply curve shifts right.
D)   the supply curve shifts left.E) B) and D)
F) B) and C)

Question 17

If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

Accepted Answer

A)   less than the quantity demanded and the dollar will appreciate.
B)   less than the quantity demanded and the dollar will depreciate.
C)   greater than the quantity demanded and the dollar will appreciate.
D)   greater than the quantity demanded and the dollar will depreciate.E) All of the above
F) None of the above

Question 18

Which of the following would both make a country's real exchange rate rise?

Accepted Answer

A)   its budget deficit increases and bonds issued in the country become riskier
B)   bonds issued in that country become riskier and it imposes an import quota
C)   it imposes an import quota and the budget deficit increases
D)   None of the above are correct.E) None of the above
F) B) and D)

Question 19

If the budget deficit increases, then

Accepted Answer

A)   an increase in the interest rate increases net capital outflow.
B)   an increase in the interest rate decreases net capital outflow.
C)   a decrease in the interest rate increases net capital outflow.
D)   a decrease in the interest rate decreases net capital outflow.E) A) and D)
F) B) and C)

Question 20

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

Accepted Answer

A)   $50 billion
B)   $70 billion
C)   $90 billion
D)   $120 billionE) None of the above
F) All of the above

Exam 19: A Macroeconomic Theory of the Open Economy

The imposition of an import quota shifts

Correct AnswerverifiedShow Answer

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

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If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

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U.S. net capital outflow

Correct AnswerverifiedShow Answer

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Correct AnswerverifiedThe demand curve for loanable ...View AnswerShow Answer

What is the source of the demand for loanable funds in the open-economy macroeconomic model ?

Correct Answerverifiedinvestment...View AnswerShow Answer

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Correct AnswerverifiedShow Answer

If the government of Canada increased its budget deficit, then domestic investment

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, other things the same, which of the following both make the exchange rate fall?

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the budget deficit increases, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would both make a country's real exchange rate rise?

Correct AnswerverifiedShow Answer

Many U.S. business leaders argue that the current state of U.S. net exports is the result of

Correct AnswerverifiedShow Answer

The open-economy macroeconomic model includes

Correct AnswerverifiedShow Answer

Which of the following happens in the market for loanable funds when there is capital flight?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The demand curve for loanable ...
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investment...
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