Question 1

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)   both a U.S. bank wanting to lend money to a Canadian company and a U.S. firm wanting to buy computers made in South Korea
B)   a U.S. bank wanting to lend money to a Canadian company, but not a U.S. firm wanting to buy computers made in South Korea
C)   a U.S. firm wanting to buy computers made in South Korea, but not a U.S.bank wanting to lend money to a Canadian company
D)   neither a U.S. bank wanting to lend money to a Canadian company nor a U.S. firm wanting to buy computers made in South KoreaE) B) and D)
F) B) and C)

Question 2

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

Accepted Answer

A)   rises and the real exchange rate rises.
B)   falls and the real exchange rate falls.
C)   rises and the real exchange rate falls.
D)   falls and the real exchange rate rises.E) B) and C)
F) All of the above

Question 3

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

Question 4

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 5

In the open-economy macroeconomic model, other things the same, when a U.S. resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

Accepted Answer

A) True 
 B)False

Question 6

A large and sudden movement of funds out of a country is called

Accepted Answer

A)   arbitrage.
B)   capital flight.
C)   crowding out.
D)   capital mobility.E) A) and C)
F) None of the above

Question 7

When the U.S. real exchange rate appreciates, U.S. goods become

Accepted Answer

A)   more attractive to consumers in the U.S. and abroad.
B)   more attractive to consumers in the U.S. and less attractive to consumers abroad.
C)   less attractive to consumers in the U.S. and abroad.
D)   less attractive to consumers in the U.S. and more attractive to consumers abroad.E) B) and D)
F) All of the above

Question 8

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

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 D)
F) None of the above

Question 9

If the U.S. imposed an import quota on farm machinery, then sales of U.S. farm machinery 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) A) and D)
F) A) and C)

Question 10

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

Question 11

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Accepted Answer

A lower probability of default has the o...

Question 12

Other things the same an increase in the interest rate

Accepted Answer

A)   increases national saving, this is shown by moving along the demand for loanable funds curve.
B)   increases national saving, this is shown by moving along the supply of loanable funds curve.
C)   decreases national saving, this is shown by moving along the demand for loanable funds curve.
D)   decreases national saving, this is shown by moving along the supply of loanable funds curve.E) A) and D)
F) None of the above

Question 13

In the open-economy macroeconomic model, as the exchange rate rises,

Accepted Answer

A)   desired net exports fall, so the quantity of dollars supplied rise.
B)   desired net exports fall, so the quantity of dollars demanded falls.
C)   desired net exports rise ,so the quantity of dollars supplied falls.
D)   desired net exports rise, so the quantity of dollars demanded rises.E) All of the above
F) None of the above

Question 14

At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?

Accepted Answer

A)   foreign citizens want to buy more U.S. bonds
B)   U.S. citizens want to buy more foreign bonds
C)   foreign citizens want to buy more U.S. goods
D)   U.S. citizens want to buy more foreign goodsE) B) and D)
F) A) 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) B) and D)
F) A) and B)

Question 16

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

Question 17

In the open-economy macroeconomic model, the supply of loanable funds comes from

Accepted Answer

A)   the sum of domestic investment and net capital outflow.
B)   net capital outflow alone.
C)   domestic investment alone.
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 18

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

Accepted Answer

A) True 
 B)False

Question 19

What effect do protectionist policies have on the trade deficit?

Accepted Answer

Protectionist policies increase the dema...

Question 20

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

Accepted Answer

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

Exam 14: A Macroeconomic Theory of the Open Economy

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 would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What effect do protectionist policies have on the trade deficit?

Correct AnswerverifiedProtectionist policies increase the dema...View AnswerShow 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

Other things the same an increase in the interest rate

Correct AnswerverifiedShow Answer

A large and sudden movement of funds out of a country is called

Correct AnswerverifiedShow Answer

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Correct AnswerverifiedA lower probability of default has the o...View AnswerShow Answer

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

When the U.S. real exchange rate appreciates, U.S. goods become

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, as the exchange rate rises,

Correct AnswerverifiedShow Answer

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, other things the same, when a U.S. resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply of loanable funds comes from

Correct AnswerverifiedShow Answer

At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?

Correct AnswerverifiedShow Answer

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Protectionist policies increase the dema...
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A lower probability of default has the o...
View Answer

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