Question 1

Refer to U.S. Investment Tax Credit. What happens to the exchange rate, U.S. net exports, and the net exports of foreign countries?

Accepted Answer

The exchange rate ri...

Question 2

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

Accepted Answer

A)  real interest rate to rise.
B)  real exchange rate to rise.
C)  net exports to rise.
D)  None of the above is likely.E) A) and D)
F) All of the above

Question 3

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

Question 4

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

Accepted Answer

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

Question 5

If the United States imposes an import quota on clothing, then U.S. exports

Accepted Answer

A)  increase, U.S. imports increase, and U.S. net exports will not change.
B)  increase, U.S. imports decrease, and U.S. net exports increase.
C)  decrease, U.S. imports increase, and U.S. net exports decrease.
D)  decrease, U.S. imports decrease, and U.S. net exports will not change.E) B) and D)
F) A) and C)

Question 6

Which of the following would cause the real exchange rate of the U.S. dollar to appreciate?

Accepted Answer

A)  the U.S. government budget deficit decreases
B)  capital flight from the U.S.
C)  the U.S. imposes import quotas
D)  None of the above is correct.E) All of the above
F) A) and B)

Question 7

Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below.   
 
-Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

Accepted Answer

A)  r2 and e3
B)  r3 and e2
C)  r3 and e1
D)  None of the above is correct.E) C) and D)
F) B) and D)

Question 8

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

Accepted Answer

A)  increased Russian interest rates and net exports.
B)  reduced Russian interest rates and net exports.
C)  increased Russian interest rates and reduced Russian net exports.
D)  reduced Russian interest rates and increased Russian net exports.E) B) and C)
F) A) and C)

Question 9

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Accepted Answer

A)  downward sloping.
B)  upward sloping.
C)  horizontal.
D)  vertical.E) B) and C)
F) B) and D)

Question 10

In the open-economy macroeconomic model, if the supply of loanable funds shifts left

Accepted Answer

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

Question 11

If a government increases its budget deficit, then domestic interest rates

Accepted Answer

A)  and net exports rise.
B)  rise and net exports fall.
C)  fall and net exports rise.
D)  and net exports fall.E) A) and B)
F) C) and D)

Question 12

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Accepted Answer

A) True 
 B)False

Question 13

If a country repeals an investment tax credit that, subsidizes domestic investment,

Accepted Answer

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

Question 14

If the quantity of loanable funds supplied is greater 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) All of the above
F) A) and D)

Question 15

Suppose that the United States imposes an import quota on televisions. In the open-economy macroeconomic model this quota shifts the

Accepted Answer

A)  U.S. supply of loanable funds left.
B)  U.S. demand for loanable funds left.
C)  demand for U.S. dollars in the market for foreign-currency exchange right.
D)  supply of U.S. dollars in the market for foreign-currency exchange left.E) C) and D)
F) None of the above

Question 16

If interest rates rose more in Japan than in the U.S., then other things the same

Accepted Answer

A)  U.S. citizens would buy more Japanese bonds and Japanese citizens would buy more U.S. bonds.
B)  U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds.
C)  U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy more U.S. bonds.
D)  U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy fewer U.S. bonds.E) A) and B)
F) A) and C)

Question 17

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

Accepted Answer

300 billio...

Question 18

An increase in the budget deficit

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

Question 19

Refer to Depositors Move Funds Out of Greek Banks. What happened to domestic investment? Why?

Accepted Answer

Domestic investment ...

Question 20

In the open-economy macroeconomic model, a higher U.S. real exchange rate makes

Accepted Answer

A)  U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B)  U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C)  foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars supplied.
D)  foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars demanded.E) A) and B)
F) C) and D)

Exam 32: A Macroeconomic Theory of the Open Economy

An increase in the budget deficit

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the supply of loanable funds shifts left

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, a higher U.S. real exchange rate makes

Correct AnswerverifiedShow Answer

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

Correct Answerverified300 billio...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

Correct AnswerverifiedShow Answer

If interest rates rose more in Japan than in the U.S., then other things the same

Correct AnswerverifiedShow Answer

Refer to U.S. Investment Tax Credit. What happens to the exchange rate, U.S. net exports, and the net exports of foreign countries?

Correct AnswerverifiedThe exchange rate ri...View AnswerShow Answer

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Correct AnswerverifiedShow Answer

Which of the following would cause the real exchange rate of the U.S. dollar to appreciate?

Correct AnswerverifiedShow Answer

If the United States imposes an import quota on clothing, then U.S. exports

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, then domestic interest rates

Correct AnswerverifiedShow Answer

Refer to Depositors Move Funds Out of Greek Banks. What happened to domestic investment? Why?

Correct AnswerverifiedDomestic investment ...View AnswerShow Answer

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Correct AnswerverifiedShow Answer

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

Correct AnswerverifiedShow Answer

If a country repeals an investment tax credit that, subsidizes domestic investment,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 32-7 Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. -Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that the United States imposes an import quota on televisions. In the open-economy macroeconomic model this quota shifts the

Correct AnswerverifiedShow Answer

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300 billio...
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The exchange rate ri...
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Domestic investment ...
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