Question 1

In the open-economy macroeconomic model, if investment demand increases, then

Accepted Answer

A)  net exports and the real exchange rate rise.
B)  net exports rise and the real exchange rate falls.
C)  net exports fall and the real exchange rate rises.
D)  net exports and the real exchange rate fall.E) B) and C)
F) C) and D)

Question 2

When a country imposes an import quota, its exchange rate

Accepted Answer

A)  rises because the supply of dollars in the market for foreign-currency exchange falls.
B)  falls because the supply of dollars in the market for foreign-currency exchange rises.
C)  rises because the demand for dollars in the market for foreign-currency exchange rises.
D)  falls because the demand for dollars in the market for foreign-currency exchange falls.E) A) and B)
F) A) and D)

Question 3

Capital flight shifts the demand for loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 4

An increase in national saving reduces the interest rate and so reduces net capital outflow.

Accepted Answer

A) True 
 B)False

Question 5

State what, if anything, each of the following does to the supply or demand of loanable funds.
a.net capital outflow increases at each interest rate
b.domestic investment increases at each interest rate
c.the government deficit increases
d.private saving increases

Accepted Answer

a.the demand for loanable fund...

Question 6

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Question 7

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Accepted Answer

A) True 
 B)False

Question 8

If the French government increases its expenditures and reduces taxes, then France's interest rate

Accepted Answer

A)  and its exchange rate rise.
B)  rises and its exchange rate falls.
C)  falls and its exchange rate rises.
D)  and its exchange rate fall.E) A) and B)
F) B) and D)

Question 9

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 10

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Accepted Answer

A) True 
 B)False

Question 11

An increase in the budget surplus

Accepted Answer

A)  raises net exports and domestic investment.
B)  raises net exports and reduces domestic investment.
C)  reduces net exports and raises domestic investment.
D)  reduces net exports and domestic investment.E) None of the above
F) B) and D)

Question 12

If the supply of loanable funds shifts left, then

Accepted Answer

A)  the real interest rate and the equilibrium quantity of loanable funds both fall.
B)  the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)  the real interest rate and the equilibrium quantity of loanable funds both rise.
D)  the real interest rate rises and the equilibrium quantity of loanable funds falls.E) B) and D)
F) A) and B)

Question 13

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 D)
F) C) and D)

Question 14

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 15

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Accepted Answer

A) True 
 B)False

Question 16

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) C) and D)
F) All of the above

Question 17

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

Question 18

A government budget deficit

Accepted Answer

A)  increases both net capital outflow and net exports.
B)  decreases both net capital outflow and net exports.
C)  increases net capital outflow and decreases net exports.
D)  decreases net capital outflow and increases net exports.E) A) and B)
F) B) and C)

Question 19

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 20

In the open-economy macroeconomic model, if net capital outflow increases then

Accepted Answer

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

Exam 32: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts left, then

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An increase in national saving reduces the interest rate and so reduces net capital outflow.

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State what, if anything, each of the following does to the supply or demand of loanable funds. a.net capital outflow increases at each interest rate b.domestic investment increases at each interest rate c.the government deficit increases d.private saving increases

Correct Answerverifieda.the demand for loanable fund...View AnswerShow Answer

Capital flight shifts the demand for loanable funds to the left.

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In the open-economy macroeconomic model, if net capital outflow increases then

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In an open economy, the supply of loanable funds comes from national saving.

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

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An increase in the government budget deficit shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

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

A government budget deficit

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If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

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In the open-economy macroeconomic model, if investment demand increases, then

Correct AnswerverifiedShow Answer

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Correct AnswerverifiedShow Answer

An increase in the budget surplus

Correct AnswerverifiedShow Answer

When a country imposes an import quota, its exchange rate

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the French government increases its expenditures and reduces taxes, then France's interest rate

Correct AnswerverifiedShow Answer

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a.the demand for loanable fund...
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Desired net exports rise. The ...
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