Question 1

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

Accepted Answer

A)   nominal exchange rate.
B)   nominal interest rate.
C)   real exchange rate.
D)   real interest rate.E) All of the above
F) C) and D)

Question 2

If a government increases its budget deficit, then interest rates

Accepted Answer

A)   rise and the real exchange rate appreciates.
B)   fall and the real exchange rate depreciates.
C)   rise and the real exchange rate depreciates.
D)   fall and the real exchange rate appreciates.E) A) and B)
F) A) and C)

Question 3

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 or the market for foreign-currency exchange.E) A) and D)
F) A) and C)

Question 4

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

Accepted Answer

A)   the exchange rate falls so foreign residents want to buy more U.S. goods and services
B)   the exchange rate falls so foreign residents want to buy fewer U.S. goods and services
C)   the exchange rate rises so foreign residents want to buy more U.S. goods and services
D)   the exchange rate rises so foreign residents want to buy fewer U.S. goods and servicesE) A) and D)
F) B) and D)

Question 5

Over the past two decades, the United States has persistently exported more goods and services than it has imported.

Accepted Answer

A) True 
 B)False

Question 6

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

Accepted Answer

A)   net capital outflow.
B)   domestic investment.
C)   net capital outflow plus domestic investment.
D)   foreign currency supplied.E) A) and C)
F) A) and B)

Question 7

A firm produces manufacturing equipment, some of which it exports. Which of the following effects of a budget deficit would likely reduce the quantity of equipment it sells?

Accepted Answer

A)   the change in the interest rate and the change in the exchange rate
B)   the change in the interest rate but not the change in the exchange rate
C)   the change in the exchange rate but not the change in the interest rate
D)   neither the change in the interest rate nor the change in the exchange rateE) B) and C)
F) A) and C)

Question 8

In the open-economy macroeconomic model, which of the following increases net capital outflow?

Accepted Answer

A)   a fall in the real exchange rate, but not a fall in the real interest rate
B)   a fall in the real interest rate, but not a fall in the real exchange rate
C)   both a fall in the real exchange rate and a fall in the real interest rate
D)   neither a fall in the real exchange rate nor a fall in the real interest rateE) A) and B)
F) A) and C)

Question 9

Other things the same, if the Swedish real interest rate were to decrease, Swedish net capital outflow

Accepted Answer

A)   and net capital outflow of other countries would rise.
B)   and net capital outflow of other countries would fall.
C)   would rise, while net capital outflow of other countries would fall.
D)   would fall, while net capital outflow of other countries would rise.E) B) and D)
F) All of the above

Question 10

Other things the same, if the U.S. interest rate falls, then U.S. residents will want to purchase

Accepted Answer

A)   more foreign assets, which increases the quantity of loanable funds demanded.
B)   fewer foreign assets, which decreases the quantity of loanable funds demanded.
C)   more foreign assets, which increase the quantity of loanable funds supplied.
D)   fewer foreign assets, which decreases the quantity of loanable funds supplied.E) A) and C)
F) A) and D)

Question 11

Suppose the U.S. supply of loanable funds shifts left. This will

Accepted Answer

A)   increase U.S. net capital outflow and increase the quantity of loanable funds demanded.
B)   increase U.S. net capital outflow and decrease the quantity of loanable funds demanded.
C)   decrease U.S. net capital outflow and increase the quantity of loanable funds demanded.
D)   decrease U.S. net capital outflow and decrease the quantity of loanable funds demanded.E) B) and C)
F) C) and D)

Question 12

If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would

Accepted Answer

A)   depreciate and Colombian net exports would rise.
B)   depreciate and Colombian net exports would fall.
C)   appreciate and Colombian net exports would rise.
D)   appreciate and Colombian net exports would fall.E) A) and B)
F) C) and D)

Question 13

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) All of the above
F) A) and B)

Question 14

If there is a surplus of loanable funds, the quantity demanded is

Accepted Answer

A)   greater than the quantity supplied and the interest rate will rise.
B)   greater than the quantity supplied and the interest rate will fall.
C)   less than the quantity supplied and the interest rate will rise.
D)   less than the quantity supplied and the interest rate will fall.E) A) and B)
F) B) and C)

Question 15

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)   the real exchange rate and the interest rate will rise.
B)   the real exchange rate will rise and the interest rate will fall.
C)   the real exchange rate will fall and the interest rate will rise.
D)   the real exchange rate and the interest rate will fall.E) B) and D)
F) B) and C)

Question 16

When the U.S. real interest rate falls, owning U.S. assets becomes

Accepted Answer

A)   more attractive to both U.S. and foreign residents.
B)   more attractive to U.S. residents and less attractive to foreign residents.
C)   less attractive to U.S. residents and more attractive to foreign residents.
D)   less attractive to both U.S. residents and foreign residents.E) A) and D)
F) B) and C)

Question 17

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 D)
F) A) and B)

Question 18

What effect do protectionist policies have on the trade deficit?

Accepted Answer

Protectionist policies increase the dema...

Question 19

Because a government budget deficit represents

Accepted Answer

A)   negative public saving, it increases national saving.
B)   negative public saving, it decreases national saving.
C)   positive public saving, it increases national saving.
D)   positive public saving, it decreases national saving.E) None of the above
F) B) and D)

Question 20

Figure 14-4
 
-Refer to Figure 14-4. 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) B) and D)
F) None of the above

Exam 14: A Macroeconomic Theory of the Open Economy

If there is a surplus of loanable funds, the quantity demanded is

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Other things the same, if the Swedish real interest rate were to decrease, Swedish net capital outflow

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Suppose the U.S. supply of loanable funds shifts left. This will

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What effect do protectionist policies have on the trade deficit?

Correct AnswerverifiedProtectionist policies increase the dema...View AnswerShow Answer

If a government increases its budget deficit, then interest rates

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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

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A firm produces manufacturing equipment, some of which it exports. Which of the following effects of a budget deficit would likely reduce the quantity of equipment it sells?

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Figure 14-4 -Refer to Figure 14-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

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Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

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Because a government budget deficit represents

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The open-economy macroeconomic model includes

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

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In the open-economy macroeconomic model, which of the following increases net capital outflow?

Correct AnswerverifiedShow Answer

If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

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, if the U.S. interest rate falls, then U.S. residents will want to purchase

Correct AnswerverifiedShow Answer

When the U.S. real interest rate falls, owning U.S. assets becomes

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

Correct AnswerverifiedShow Answer

Over the past two decades, the United States has persistently exported more goods and services than it has imported.

Correct AnswerverifiedShow Answer

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Protectionist policies increase the dema...
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