Question 1

What happens to net capital outflow as the real interest rate falls? Explain your answer.

Accepted Answer

As the real interest rate falls, domestic bonds become less attractive to both domestic and foreign residents and foreign bonds become more attractive. An increase in the purchase of foreign bonds by domestic residents and a decrease in the purchase of domestic bonds by foreign residents both increase net capital outflow.

Question 2

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

Accepted Answer

A)  greater than the quantity demanded and the dollar will appreciate.
B)  greater than the quantity demanded and the dollar will depreciate.
C)  less than the quantity demanded and the dollar will appreciate.
D)  less than the quantity demanded and the dollar will depreciate.E) B) and C)
F) A) and D)

Question 3

Which of the following is the most likely response to an increase in the U.S. real interest rate?

Accepted Answer

A)  a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing
B)  U.S. firms decide to buy more capital goods
C)  a U.S. citizen decides to put less money in his savings account than he had planned.
D)  All of the above are consistent.E) A) and B)
F) B) and C)

Question 4

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

Question 5

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

Question 6

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

Question 7

If the U.S. imposed import quotas on cotton, then which of the following would rise?

Accepted Answer

A)  the U.S. real exchange rate and U.S. net exports
B)  the U.S. real exchange rate but not U.S. net exports
C)  U.S. net exports but not the U.S. real exchange rate
D)  neither the U.S. real exchange rate nor U.S. net exportsE) All of the above
F) C) and D)

Question 8

-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 D)
F) B) and C)

Question 9

Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflow falls because the do...

Question 10

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

Question 11

In equilibrium which of the following happens if the U.S. imposes tariffs on power tools?

Accepted Answer

A)  U.S. net exports rise
B)  the exchange rate falls
C)  U.S. production of power tools rises
D)  All of the above are correct.E) All of the above
F) C) and D)

Question 12

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

Accepted Answer

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

Question 13

If there is a shortage of loanable funds, then

Accepted Answer

A)  the demand for loanable funds will shift right so the real interest rate rises.
B)  the supply of loanable funds will shift left so the real interest rate falls.
C)  there will be no shifts of the curves, but the real interest rate rises.
D)  there will be no shifts of the curves, but the real interest rate falls.E) All of the above
F) B) and C)

Question 14

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

Accepted Answer

A)  U.S. interest rates rise
B)  U.S. net capital outflow falls
C)  the real exchange rate of the U.S. dollar depreciates
D)  the U.S. supply of loanable funds shifts leftE) B) and C)
F) C) and D)

Question 15

If there is a surplus in the U.S. loanable funds market, then

Accepted Answer

A)  NCO > I.
B)  NCO 
C)  NCO + I > S.
D)  NCO + I < S.E) A) and C)
F) B) and D)

Question 16

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Accepted Answer

A)  left, which would make the real exchange rate of the Chinese yuan appreciate.
B)  left, which would make the real exchange rate of the Chinese yuan depreciate.
C)  right, which would make the real exchange rate of the Chinese yuan appreciate.
D)  right, which would make the real exchange rate of the Chinese yuan depreciate.E) B) and D)
F) A) and D)

Question 17

If a government increases its budget deficit, then the real exchange rate

Accepted Answer

A)  and domestic investment rise.
B)  and domestic investment fall.
C)  rises and domestic investment falls.
D)  falls and domestic investment rises.E) A) and D)
F) A) and C)

Question 18

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)  a company in Canada wants to buy oranges from the U.S
B)  a Japanese banks want to buy bonds from the U.S. government
C)  a U.S. citizen wants to buy stock a German company is selling
D)  None of the above is correct.E) A) and B)
F) None of the above

Question 19

If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then

Accepted Answer

A)  U.S. net capital outflow rises which increases the U.S. exchange rate.
B)  U.S. net capital outflow rises which decreases the U.S. exchange rate.
C)  U.S. net capital outflow falls which increases the U.S. exchange rate.
D)  U.S. net capital outflow falls which decreases the U.S. exchange rate.E) A) and B)
F) C) and D)

Question 20

Suppose the U.S. removes an import quota on steel. U.S. exports

Accepted Answer

A)  increase, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow increases.
B)  increase, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow is unchanged.
C)  decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow is unchanged.
D)  decrease, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow decreases.E) C) and D)
F) A) and B) B

Exam 32: A Macroeconomic Theory of the Open Economy

What happens to net capital outflow as the real interest rate falls? Explain your answer.

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

Correct Answer
verified

Which of the following is the most likely response to an increase in the U.S. real interest rate?

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified

Trade policies

Correct Answer
verified
C

If the U.S. imposed import quotas on cotton, then which of the following would rise?

Correct Answer
verified

-Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

Correct Answer
verified

Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Correct Answer
verified
Net capital outflow falls because the do...
View Answer

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

Correct Answer
verified

In equilibrium which of the following happens if the U.S. imposes tariffs on power tools?

Correct Answer
verified

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

Correct Answer
verified

If there is a shortage of loanable funds, then

Correct Answer
verified

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

Correct Answer
verified

If there is a surplus in the U.S. loanable funds market, then

Correct Answer
verified

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Correct Answer
verified

If a government increases its budget deficit, then the real exchange rate

Correct Answer
verified

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct Answer
verified

If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then

Correct Answer
verified

Suppose the U.S. removes an import quota on steel. U.S. exports

Correct Answer
verified
B

Exam 32: A Macroeconomic Theory of the Open Economy

What happens to net capital outflow as the real interest rate falls? Explain your answer.

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

Correct AnswerverifiedShow Answer

Which of the following is the most likely response to an increase in the U.S. real interest rate?

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

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?

Correct AnswerverifiedShow Answer

Trade policies

Correct AnswerverifiedC

If the U.S. imposed import quotas on cotton, then which of the following would rise?

Correct AnswerverifiedShow Answer

-Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

Correct AnswerverifiedShow Answer

Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Correct AnswerverifiedNet capital outflow falls because the do...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In equilibrium which of the following happens if the U.S. imposes tariffs on power tools?

Correct AnswerverifiedShow Answer

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

Correct AnswerverifiedShow Answer

If there is a shortage of loanable funds, then

Correct AnswerverifiedShow Answer

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

Correct AnswerverifiedShow Answer

If there is a surplus in the U.S. loanable funds market, then

Correct AnswerverifiedShow Answer

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, then the real exchange rate

Correct AnswerverifiedShow Answer

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then

Correct AnswerverifiedShow Answer

Suppose the U.S. removes an import quota on steel. U.S. exports

Correct AnswerverifiedB

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C

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Net capital outflow falls because the do...
View Answer

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B