Question 1

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Accepted Answer

A) True 
 B)False

Question 2

In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 3

If a country's government moves from a budget deficit to a budget surplus, which curve in the market for loanable funds shifts and which direction does it shift? What happens to the interest rate?

Accepted Answer

The supply of loanab...

Question 4

When a country experiences capital flight its

Accepted Answer

A)   net capital outflow increases and its real exchange rate rises.
B)   net capital outflow increases and its real exchange rate falls.
C)   net capital outflow decreases and its real exchange rate rises.
D)   net capital outflow decreases and its real exchange rate falls.E) All of the above
F) A) and C)

Question 5

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

Accepted Answer

A)   U.S. citizens would buy more French bonds and French citizens would buy more U.S. bonds.
B)   U.S. citizens would buy more French bonds and French citizens would buy fewer U.S. bonds.
C)   U.S. citizens would buy fewer French bonds and French citizens would buy more U.S. bonds.
D)   U.S. citizens would buy fewer French bonds and French citizens would buy fewer U.S. bonds.E) B) and C)
F) All of the above

Question 6

If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

Accepted Answer

A)   less than the quantity demanded and the dollar will appreciate.
B)   less than the quantity demanded and the dollar will depreciate.
C)   greater than the quantity demanded and the dollar will appreciate.
D)   greater than the quantity demanded and the dollar will depreciate.E) C) and D)
F) B) and D)

Question 7

If a country's budget deficit rises, then its exchange rate

Accepted Answer

A)   rises, so its imports rise.
B)   rises, so its imports fall.
C)   falls, so its imports rise.
D)   falls so its imports fall.E) B) and C)
F) A) and B)

Question 8

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

Accepted Answer

A)   domestic investment and net capital outflow.
B)   domestic investment but not net capital outflow.
C)   net capital outflow but not domestic investment.
D)   neither domestic investment nor net capital outflow.E) B) and C)
F) All of the above

Question 9

A country has output of $900 billion, consumption of $600 billion, government expenditures of $150 billion and investment of $120 billion. What is its supply of loanable funds?

Accepted Answer

A)   $30 billion
B)   $90 billion
C)   $120 billion
D)   $150 billionE) A) and D)
F) B) and D)

Question 10

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Accepted Answer

A)   rise and there would be a trade surplus.
B)   rise and there would be a trade deficit.
C)   fall and there would be a trade surplus.
D)   fall and there would be a trade deficit.E) B) and D)
F) A) and D)

Question 11

If the supply of loanable funds shifts right, then the equilibrium

Accepted Answer

A)   interest rate falls, so domestic residents will want to purchase more foreign assets.
B)   interest rate falls, so domestic residents will want to purchase fewer foreign assets.
C)   interest rate rises, so domestic residents will want to purchase more foreign assets.
D)   interest rate rises, so domestic residents will want to purchase fewer foreign assets.E) C) and D)
F) B) and D)

Question 12

In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________.

Accepted Answer

net capital outflow,...

Question 13

Many U.S. business leaders argue that the current state of U.S. net exports is the result of

Accepted Answer

A)   U.S. export subsidies.
B)   free trade policies of foreign governments.
C)   unproductive U.S. workers.
D)   unfair foreign competition.E) A) and B)
F) A) and C)

Question 14

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Accepted Answer

A)   lower the real exchange rate and increase net exports.
B)   lower the real exchange rate and have no effect on net exports.
C)   raise the real exchange rate and decrease net exports.
D)   raise the real exchange rate and have no effect on net exports.E) All of the above
F) A) and C)

Question 15

Which of the following results if the U.S. removes an import quota on computer components?

Accepted Answer

A)   U.S. exports and U.S. imports both increase
B)   U.S. exports increase but U.S. imports are unchanged
C)   U.S. imports increase but U.S. exports are unchanged
D)   None of the above are correctE) A) and C)
F) A) and B)

Question 16

Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflows rise because a lowe...

Question 17

If a government started with a budget deficit and moved to a surplus, domestic investment

Accepted Answer

A)   and the real exchange rate would rise.
B)   and the real exchange rate would fall.
C)   would rise and the real exchange rate would fall.
D)   would fall and the real exchange rate would rise.E) C) and D)
F) A) and D)

Question 18

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)   a company in Canada wants to buy oranges from the U.S
B)   a Japanese banks want to buy bonds from the U.S. government
C)   a U.S. citizen wants to buy stock a German company is selling
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 19

Which of the following is most likely to increase the exports of a country?

Accepted Answer

A)   The government gives subsidies to firms that export goods or services.
B)   The government reduces the size of the budget surplus.
C)   Political instability within the country increases modestly.
D)   None of the above will increase exports.E) All of the above
F) None of the above

Question 20

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, 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) B) and C)
F) A) and C)

Exam 32: A Macroeconomic Theory of the Open Economy

When a country experiences capital flight its

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________.

Correct Answerverifiednet capital outflow,...View AnswerShow Answer

Which of the following is most likely to increase the exports of a country?

Correct AnswerverifiedShow Answer

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Correct AnswerverifiedShow Answer

A country has output of $900 billion, consumption of $600 billion, government expenditures of $150 billion and investment of $120 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

If a country's government moves from a budget deficit to a budget surplus, which curve in the market for loanable funds shifts and which direction does it shift? What happens to the interest rate?

Correct AnswerverifiedThe supply of loanab...View AnswerShow Answer

If the real exchange rate for the dollar is below the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

Correct AnswerverifiedShow Answer

If a country's budget deficit rises, then its exchange rate

Correct AnswerverifiedShow Answer

Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Correct AnswerverifiedNet capital outflows rise because a lowe...View AnswerShow Answer

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

If a government started with a budget deficit and moved to a surplus, domestic investment

Correct AnswerverifiedShow Answer

Many U.S. business leaders argue that the current state of U.S. net exports is the result of

Correct AnswerverifiedShow Answer

In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

Correct AnswerverifiedShow Answer

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Correct AnswerverifiedShow Answer

Which of the following results if the U.S. removes an import quota on computer components?

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts right, then the equilibrium

Correct AnswerverifiedShow Answer

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In the market for foreign-currency exchange, the source of the supply of dollars is _____. The supply curve is _ because _________.

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net capital outflow,...
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The supply of loanab...
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Net capital outflows rise because a lowe...
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