Question 1

An increase in the budget deficit causes net capital outflow to

Accepted Answer

A)   rise, because the supply of loanable funds shifts right.
B)   rise, because the demand for loanable funds shifts right.
C)   fall, because the supply of loanable funds shifts left.
D)   fall, because the demand for loanable funds shifts right.E) A) and C)
F) All of the above

Question 2

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

Accepted Answer

A)   the real exchange rate. When the real exchange rate rises, net capital outflow rises.
B)   the real exchange rate. When the real exchange rate rises, net capital outflow falls.
C)   the real interest rate. When the real interest rate rises, net capital outflow rises.
D)   the real interest rate. When the real interest rate rises, net capital outflow falls.E) None of the above
F) A) and C)

Question 3

If at a given real interest rate desired national saving is $60 billion, domestic investment is $30 billion, and net capital outflow is $20 billion, then at that real interest rate in the loanable funds market there is a

Accepted Answer

A)   surplus. The real interest rate will rise.
B)   surplus. The real interest rate will fall.
C)   shortage. The real interest rate will rise.
D)   shortage. The real interest rate will fall.E) B) and C)
F) A) and D)

Question 4

If the U.S. government went from a budget deficit to a budget surplus then

Accepted Answer

A)   the interest rate and the real exchange rate would increase.
B)   the interest rate and the real exchange rate would decrease.
C)   the interest rate would increase and the real exchange rate would decrease.
D)   the interest rate would decrease and the real exchange rate would increase.E) None of the above
F) A) and C)

Question 5

Which curve in the market for foreign-currency exchange shifts and which direction does it shift if the government budget deficit increases? Explain why an increase in the budget deficit shifts this curve.

Accepted Answer

The supply curve in the market for forei...

Question 6

Refer to Budget Reform. This policy change causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Accepted Answer

The supply of dollars in the m...

Question 7

In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

Since the budget def...

Question 9

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

Accepted Answer

A)   decreased.
B)   did not change.
C)   increased.
D)   decreased until the peso appreciated, then increased.E) A) and B)
F) A) and C)

Question 10

If a country's budget deficit increases, then in the market for foreign­currency exchange,

Accepted Answer

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

Question 11

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

Accepted Answer

A)   interest rate and level of net capital outflows rise.
B)   interest rate rises and the equilibrium level of net capital outflow falls.
C)   interest rate falls and the equilibrium level of net capital outflow rises.
D)   interest rate and level of net capital outflows fall.E) B) and D)
F) B) and C)

Question 12

If there is capital flight from the United States, then the demand for loanable funds

Accepted Answer

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

Question 13

In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital outflow decreased. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

Accepted Answer

A)   the U.S. trade deficit grew
B)   the real exchange rate of the dollar appreciated
C)   U.S. net capital outflow fell
D)   None of the above is contrary to the predictions of the model.E) A) and D)
F) B) and C)

Question 14

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Accepted Answer

A)   raise both the interest rate and the real exchange rate.
B)   raise the interest rate and reduce the real exchange rate.
C)   reduce the interest rate and raise the real exchange rate.
D)   reduce both the interest rate and the real exchange rate.E) A) and C)
F) B) and C)

Question 15

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Accepted Answer

A)   fell. The increased saving would increase the quantity of loanable funds demanded.
B)   fell. The increased saving would increase the quantity of loanable funds supplied.
C)   rose. The increased saving would increase the quantity of loanable funds demanded.
D)   rose. The increased saving would increase the quantity of loanable funds supplied.E) C) and D)
F) B) and D)

Question 16

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 17

An increase in a country's budget deficit

Accepted Answer

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

Question 18

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

Accepted Answer

A)   surplus in the market for foreign-currency exchange, so the real exchange rate would appreciate.
B)   surplus in the market for foreign-currency exchange, so the real exchange rate would depreciate.
C)   shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate.
D)   shortage in the market for foreign-currency exchange, so the real exchange rate would depreciate.E) B) and D)
F) A) and D)

Question 19

When a country's government budget deficit increases,

Accepted Answer

A)   the real exchange rate of its currency and its net exports increase.
B)   the real exchange rate of its currency and its net exports decrease.
C)   the real exchange rate of its currency increases and its net exports decrease.
D)   the real exchange rate of its currency decreases and its net exports increase.E) B) and D)
F) B) and C)

Question 20

If the U.S. government imposes an import quota on beef, U.S. net exports will

Accepted Answer

A)   increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
B)   increase, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change
C)   not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
D)   not change, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change.E) A) and C)
F) B) and D)

Exam 19: A Macroeconomic Theory of the Open Economy

When a country's government budget deficit increases,

Correct Answer
verified

If the U.S. government imposes an import quota on beef, U.S. net exports will

Correct Answer
verified

Refer to Budget Reform. This policy change causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Correct Answer
verified
The supply of dollars in the m...
View Answer

Which curve in the market for foreign-currency exchange shifts and which direction does it shift if the government budget deficit increases? Explain why an increase in the budget deficit shifts this curve.

Correct Answer
verified
The supply curve in the market for forei...
View Answer

If the U.S. government went from a budget deficit to a budget surplus then

Correct Answer
verified

If a country's budget deficit increases, then in the market for foreigncurrency exchange,

Correct Answer
verified

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Correct Answer
verified

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

Correct Answer
verified

In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

Correct Answer
verified

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 Answer
verified
A decrease in demand for capital goods i...
View Answer

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

Correct Answer
verified

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

Correct Answer
verified

If at a given real interest rate desired national saving is $60 billion, domestic investment is $30 billion, and net capital outflow is $20 billion, then at that real interest rate in the loanable funds market there is a

Correct Answer
verified

An increase in a country's budget deficit

Correct Answer
verified

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

Correct Answer
verified

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

Correct Answer
verified
Since the budget def...
View Answer

If there is capital flight from the United States, then the demand for loanable funds

Correct Answer
verified

Correct Answer
verified

An increase in the budget deficit causes net capital outflow to

Correct Answer
verified

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Correct Answer
verified

Exam 19: A Macroeconomic Theory of the Open Economy

When a country's government budget deficit increases,

Correct AnswerverifiedShow Answer

If the U.S. government imposes an import quota on beef, U.S. net exports will

Correct AnswerverifiedShow Answer

Refer to Budget Reform. This policy change causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Correct AnswerverifiedThe supply of dollars in the m...View AnswerShow Answer

Which curve in the market for foreign-currency exchange shifts and which direction does it shift if the government budget deficit increases? Explain why an increase in the budget deficit shifts this curve.

Correct AnswerverifiedThe supply curve in the market for forei...View AnswerShow Answer

If the U.S. government went from a budget deficit to a budget surplus then

Correct AnswerverifiedShow Answer

If a country's budget deficit increases, then in the market for foreign­currency exchange,

Correct AnswerverifiedShow Answer

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If at a given real interest rate desired national saving is $60 billion, domestic investment is $30 billion, and net capital outflow is $20 billion, then at that real interest rate in the loanable funds market there is a

Correct AnswerverifiedShow Answer

An increase in a country's budget deficit

Correct AnswerverifiedShow Answer

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedSince the budget def...View AnswerShow Answer

If there is capital flight from the United States, then the demand for loanable funds

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes net capital outflow to

Correct AnswerverifiedShow Answer

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The supply of dollars in the m...
View Answer

Correct Answer
verified
The supply curve in the market for forei...
View Answer

Correct Answer
verified

If a country's budget deficit increases, then in the market for foreigncurrency exchange,

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A decrease in demand for capital goods i...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Since the budget def...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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