Question 1

Capital flight refers to

Accepted Answer

A)   the movement of workers across international borders in response to exchange rate changes.
B)   the movement of funds between financial intermediaries when interest rates change.
C)   the ability of foreign direct investment to lift a country out of poverty.
D)   a large and sudden movement of funds out of a country.E) A) and D)
F) All of the above

Question 2

Other things the same, a higher real interest rate raises the quantity of

Accepted Answer

A)   domestic investment.
B)   net capital outflow.
C)   loanable funds demanded.
D)   loanable funds supplied.E) A) and D)
F) A) and C)

Question 3

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Accepted Answer

When the U.S. real exchange rate appreci...

Question 4

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more attractive to U.S. residents, but less attractive to foreign residents.

Accepted Answer

A) True 
 B)False

Question 5

When the U.S. real interest rate falls

Accepted Answer

A)   U.S. purchases of foreign assets and foreign purchases of U.S. assets rise
B)   U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall
C)   U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise
D)   U.S. purchases of foreign assets and foreign purchases of U.S. assets fallE) A) and D)
F) All of the above

Question 6

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

Accepted Answer

A)   supplied for the purpose of selling assets domestically.
B)   supplied for the purpose of buying foreign assets.
C)   demanded for the purpose of buying U.S. net exports of goods and services.
D)   demanded for the purpose of importing foreign goods and services.E) All of the above
F) A) and B)

Question 7

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

Accepted Answer

A)   appreciates and there is a trade surplus.
B)   appreciates and there is a trade deficit.
C)   depreciates and there is a trade surplus.
D)   depreciates and there is a trade deficit.E) A) and D)
F) B) and C)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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) B) and D)
F) None of the above

Question 10

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

Question 11

Figure 14-2
 
-Refer to Figure 14-2. If the real exchange rate is .6, then there is a

Accepted Answer

A)   surplus of 100 so the real exchange rate will fall.
B)   surplus of 100 so the real exchange rate will rise.
C)   shortage of 100 so the real exchange rate will fall.
D)   shortage of 100 so the real exchange rate will rise.E) None of the above
F) A) and B)

Question 12

If the U.S. imposed an import quota on construction equipment, then the sales of U.S. construction equipment producers would

Accepted Answer

A)   rise and the exports of other U.S. industries would rise.
B)   rise and the exports of other U.S. industries would fall.
C)   fall and the exports of other U.S. industries would rise.
D)   fall and the exports of other U.S. industries would fall.E) None of the above
F) B) and C)

Question 13

Figure 14-4
 
-Refer to Figure 14-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this 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 right 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 left.
D)   shifting the supply curve in panel a to the right and the supply curve in panel c to the right.E) A) and D)
F) B) and C)

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

Accepted Answer

A)   tariff.
B)   excise tax.
C)   import quota.
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 17

In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy should have

Accepted Answer

A)   reduced imports into the United States and made U.S. net exports rise.
B)   reduced imports into the United States and made the net supply of dollars in the foreign exchange market shift right.
C)   reduced imports of steel into the United States, but reduced U.S. exports of other goods by an equal amount.
D)   reduced imports of steel into the United States and increased U.S. exports of other goods by an equal amount.E) B) and D)
F) A) and B)

Question 18

Because depreciation of the real exchange rate of the dollar increases U.S. net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)   increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. wine will increase.
B)   not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. wine will increase.
C)   not change, the dollar will depreciate, and domestic sales of U.S. wine will not change.
D)   None of the above is correct.E) C) and D)
F) B) and C)

Question 20

If the demand for net exports rises, which of the following happens in the open-economy macroeconomic model?

Accepted Answer

A)   the exchange rate rises
B)   the interest rate falls
C)   net capital outflow rises
D)   All of the above are correct.E) A) and B)
F) A) and C)

Exam 14: A Macroeconomic Theory of the Open Economy

When the U.S. real interest rate falls

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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.

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

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

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If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

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In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

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Because depreciation of the real exchange rate of the dollar increases U.S. net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

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If the demand for net exports rises, which of the following happens in the open-economy macroeconomic model?

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

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

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A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

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Figure 14-4 -Refer to Figure 14-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

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Figure 14-2 -Refer to Figure 14-2. If the real exchange rate is .6, then there is a

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Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Correct AnswerverifiedWhen the U.S. real exchange rate appreci...View AnswerShow Answer

Other things the same, a higher real interest rate raises the quantity of

Correct AnswerverifiedShow Answer

In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy should have

Correct AnswerverifiedShow Answer

If the U.S. imposed an import quota on construction equipment, then the sales of U.S. construction equipment producers would

Correct AnswerverifiedShow Answer

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more attractive to U.S. residents, but less attractive to foreign residents.

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When a country's government budget deficit increases,

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Capital flight refers to

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When the U.S. real exchange rate appreci...
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