Question 1

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Accepted Answer

A)   surplus of loanable funds, so the interest rate increases.
B)   surplus of loanable funds, so the interest rate decreases.
C)   shortage of loanable funds, so the interest rate increases.
D)   shortage of loanable funds, so the interest rate decreases.E) B) and C)
F) All of the above

Question 2

Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

Accepted Answer

A)   fall and the quantity of dollars demanded in the market for foreign-currency exchange would fall.
B)   fall and the quantity of dollars demanded in the market for foreign-currency exchange would rise.
C)   rise and the quantity of dollars demanded in the market for foreign-currency exchange would fall.
D)   rise and the quantity of dollars demanded in the market for foreign-currency exchange would rise.E) A) and D)
F) A) and C)

Question 3

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) A) and D)
F) A) and C)

Question 4

If there is a surplus in the market for loanable funds, then the interest rate

Accepted Answer

A)   rises, so national saving rises.
B)   rises, so national saving falls.
C)   falls, so national saving rises.
D)   falls, so national saving falls.E) All of the above
F) None of the above

Question 5

Refer to Budget in Recession. In the market for loanable funds which curve(s) does this change in the deficit shift? Which direction does it shift?

Accepted Answer

Since the budget def...

Question 6

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Accepted Answer

A decrease in demand for capital goods i...

Question 7

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 8

If interest rates rise in the U.S., then other things the same

Accepted Answer

A)   foreigners would buy more U.S. bonds which increases the quantity of loanable funds demanded in the U.S.
B)   foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.
C)   foreigners would buy fewer U.S. bonds which increases the quantity of loanable funds demanded in the U.S.
D)   foreigners would buy fewer U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.E) B) and C)
F) A) and B)

Question 9

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 10

Which of the following would shift the demand for dollars in the market for foreign currency exchange to the right?

Accepted Answer

A)   foreign citizens want to buy more U.S. goods and services at a given exchange rate
B)   foreign citizens want to buy fewer U.S. goods and services at a given exchange rate
C)   foreign citizens want to buy more U.S. bonds
D)   foreign citizens want to by fewer U.S. bondsE) A) and B)
F) All of the above

Question 11

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S. foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 12

An increase in real interest rates in the United States

Accepted Answer

A)   discourages both U.S. and foreign residents from buying U.S. assets.
B)   encourages both U.S. and foreign residents to buy U.S. assets.
C)   encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets.
D)   encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets.E) A) and B)
F) All of the above

Question 13

Refer to Budget Reform. In the market for loanable funds which curve(s) does this policy change shift? Which direction does it shift?

Accepted Answer

Since the budget def...

Question 14

If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

Accepted Answer

A)   shortage of loanable funds and the interest rate will fall.
B)   shortage of loanable funds and the interest rate will rise.
C)   surplus of loanable funds and the interest rate will fall.
D)   surplus of loanable funds and the interest rate will rise.E) A) and B)
F) None of the above

Question 15

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 16

Trade policies

Accepted Answer

A)   alter the trade balance because they alter imports of the country that implemented them.
B)   alter the trade balance because they alter net capital outflow of the country that implemented them.
C)   do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them.
D)   do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.E) None of the above
F) C) and D)

Question 17

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 18

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 C)
F) C) and D)

Question 19

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Accepted Answer

A)   $40 billion
B)   $60 billion
C)   $90 billion
D)   $130 billionE) A) and B)
F) A) and C)

Question 20

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this candidate's promise.

Accepted Answer

An increase in the government budget sur...

Exam 32: A Macroeconomic Theory of the Open Economy

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S. foreign-currency exchange market.

Correct AnswerverifiedShow Answer

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Correct AnswerverifiedShow Answer

Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

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

Refer to Budget Reform. In the market for loanable funds which curve(s) does this policy change shift? Which direction does it shift?

Correct AnswerverifiedSince the budget def...View AnswerShow Answer

Which of the following would shift the demand for dollars in the market for foreign currency exchange to the right?

Correct AnswerverifiedShow Answer

If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

Correct AnswerverifiedShow Answer

Refer to Budget in Recession. In the market for loanable funds which curve(s) does this change in the deficit shift? Which direction does it shift?

Correct AnswerverifiedSince the budget def...View AnswerShow Answer

An increase in real interest rates in the United States

Correct AnswerverifiedShow Answer

If there is a surplus in the market for loanable funds, then the interest rate

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

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

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

If interest rates rise in the U.S., then other things the same

Correct AnswerverifiedShow Answer

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this candidate's promise.

Correct AnswerverifiedAn increase in the government budget sur...View AnswerShow Answer

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Trade policies

Correct AnswerverifiedShow Answer

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Correct AnswerverifiedA decrease in demand for capital goods i...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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Desired net exports rise. The ...
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Since the budget def...
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Since the budget def...
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Such a campaign will increase the demand...
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S is national saving, which is the sourc...
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An increase in the government budget sur...
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Correct Answer
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A decrease in demand for capital goods i...
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Correct Answer
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