Question 1

Figure 32-2 
-Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?

Accepted Answer

A)   1, 300
B)   .8, 400
C)   .6, 500
D)   None of the above are correct.E) A) and B)
F) A) and D)

Question 2

If a country's exchange rate rises, what happens to its exports and what happens to its imports?

Accepted Answer

Its export...

Question 3

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

Question 4

Suppose that U.S. savers decide that holding Brazilian assets has become riskier. What happens to U.S. net capital outflow? What happens to the U.S. real interest rate?

Accepted Answer

U.S. net capital outflow decre...

Question 5

In the open­economy macroeconomic model, if a country's interest rate falls, then its

Accepted Answer

A)   net capital outflow and its net exports rise.
B)   net capital outflow rises and its net exports fall.
C)   net capital outflow falls and its net exports rise.
D)   net capital outflow and its net exports fall.E) A) and B)
F) A) and C)

Question 6

An increase in the budget deficit makes domestic interest rates

Accepted Answer

A)   rise because the supply of loanable funds shifts left.
B)   fall because the supply of loanable funds shifts left.
C)   rise because the demand for loanable funds shifts right.
D)   fall because the demand for loanable funds shifts right.E) B) and D)
F) A) and D)

Question 7

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 8

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

Accepted Answer

A)   an appreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
B)   an appreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.
C)   a depreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market.
D)   a depreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.E) B) and C)
F) A) and D)

Question 9

Over the past two decades the U.S. has persistently had trade deficits.

Accepted Answer

A) True 
 B)False

Question 10

Because the open-economy macroeconomic model focuses on the long run, it is assumed that

Accepted Answer

A)   GDP, but not the price level is given.
B)   the price level, but not GDP is given.
C)   both the price level and GDP are given.
D)   the price level and GDP are variables to be determined by the model.E) None of the above
F) B) and C)

Question 11

When a country imposes an import quota, its

Accepted Answer

A)   net exports rise and its real exchange rate appreciates.
B)   net exports rise and its real exchange rate depreciates.
C)   net exports fall and its real exchange rate depreciates
D)   None of the above is correct.E) All of the above
F) A) and C)

Question 12

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

Accepted Answer

A)   U.S. residents will want to buy more foreign assets.
B)   Foreign residents will want to buy more U.S. goods and services.
C)   U.S. firms will want to purchase fewer U.S. capital goods.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 13

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Accepted Answer

A)   net capital outflow.
B)   national saving.
C)   exports.
D)   domestic investment.E) A) and B)
F) A) and C)

Question 14

If a government increases its budget deficit, then interest rates

Accepted Answer

A)   rise and the real exchange rate appreciates.
B)   fall and the real exchange rate depreciates.
C)   rise and the real exchange rate depreciates.
D)   fall and the real exchange rate appreciates.E) C) and D)
F) All of the above

Question 15

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

Higher domestic interest rates make dome...

Question 16

Figure 32-1 
-Refer to Figure 32-1. The loanable funds market is in equilibrium at

Accepted Answer

A)   2 percent, $20 billion.
B)   4 percent, $40 billion.
C)   6 percent, $60 billion.
D)   None of the above is correct.E) A) and C)
F) B) and D)

Question 17

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

Question 18

Which of the following is correct?

Accepted Answer

A)   capital flight from the United States decreases net capital outflow
B)   an increase in the government budget deficit creates no change in net capital outflow
C)   if the U.S. imposes a restriction on imports, net capital outflow increases
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 19

What happens to each of the following if investment becomes less desirable at each interest rate?
a. the interest rate
b. net capital outflow
c. the exchange rate

Accepted Answer

The interest rate fa...

Question 20

Other things the same, if the expected return on U.S. assets increases, the

Accepted Answer

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

Exam 32: A Macroeconomic Theory of the Open Economy

In the open­economy macroeconomic model, if a country's interest rate falls, then its

Correct AnswerverifiedShow Answer

Other things the same, if the expected return on U.S. assets increases, the

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What happens to each of the following if investment becomes less desirable at each interest rate? a. the interest rate b. net capital outflow c. the exchange rate

Correct AnswerverifiedThe interest rate fa...View AnswerShow Answer

Which of the following is correct?

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If a government increases its budget deficit, then interest rates

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An increase in the budget deficit

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Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

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Figure 32-1 -Refer to Figure 32-1. The loanable funds market is in equilibrium at

Correct AnswerverifiedShow Answer

An increase in the budget deficit makes domestic interest rates

Correct AnswerverifiedShow Answer

Because the open-economy macroeconomic model focuses on the long run, it is assumed that

Correct AnswerverifiedShow Answer

If a country's exchange rate rises, what happens to its exports and what happens to its imports?

Correct AnswerverifiedIts export...View AnswerShow Answer

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

Correct AnswerverifiedShow Answer

Over the past two decades the U.S. has persistently had trade deficits.

Correct AnswerverifiedShow Answer

Figure 32-2 -Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?

Correct AnswerverifiedShow 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

When a country imposes an import quota, its

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

Suppose that U.S. savers decide that holding Brazilian assets has become riskier. What happens to U.S. net capital outflow? What happens to the U.S. real interest rate?

Correct AnswerverifiedU.S. net capital outflow decre...View AnswerShow Answer

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Correct AnswerverifiedShow Answer

Why do higher real interest rates lead to lower net capital outflow?

Correct AnswerverifiedHigher domestic interest rates make dome...View AnswerShow Answer

In the openeconomy macroeconomic model, if a country's interest rate falls, then its

Correct Answer
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The interest rate fa...
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Its export...
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U.S. net capital outflow decre...
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Higher domestic interest rates make dome...
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