Question 1

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

Question 2

Figure 19-1 
-Refer to Figure 19-1. 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) None of the above
F) A) and D)

Question 3

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 4

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

Accepted Answer

A) True 
 B)False

Question 5

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 6

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 7

Trade policies

Accepted Answer

A)  affect a country's overall trade balance, but affect all firms and industries the same.
B)  affect a country's overall trade balance, but affect some firms or industries differently than others.
C)  do not affect a country's overall trade balance, but affect some firms or industries differently than others.
D)  do not affect either a country's overall trade balance or specific firms or industries.E) B) and D)
F) B) and C)

Question 8

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases, ...

Question 9

In the long run, import quotas increase net exports.

Accepted Answer

A) True 
 B)False

Question 10

At the equilibrium real interest rate in the open-economy macroeconomic model

Accepted Answer

A)  saving = domestic investment
B)  saving = net capital outflow
C)  net capital outflow = domestic investment
D)  net capital outflow + domestic investment = savingE) A) and B)
F) C) and D)

Question 11

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Accepted Answer

A)  net capital outflow and the real exchange rate will rise.
B)  net capital outflow will rise and the real exchange rate will fall.
C)  net capital outflow will fall and the real exchange rate will rise.
D)  net capital outflow and the exchange rate will fall.E) None of the above
F) All of the above

Question 12

In the open-economy 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) B) and D)
F) B) and C)

Question 13

If the demand for loanable funds shifts right, then

Accepted Answer

A)  the real interest rate and the equilibrium quantity of loanable funds both fall.
B)  the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)  the real interest rate and the equilibrium quantity of loanable funds both rise.
D)  the real interest rate rises and the equilibrium quantify of loanable funds falls.E) A) and D)
F) All of the above

Question 14

Other things the same, a decrease in the U.S. real interest rate induces

Accepted Answer

A)  Americans to buy more foreign assets, which increases U.S. net capital outflow.
B)  Americans to buy more foreign assets, which reduces U.S. net capital outflow.
C)  foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.
D)  foreigners to buy more U.S. assets, which increases U.S. net capital outflow.E) A) and C)
F) B) and D)

Question 15

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

Accepted Answer

A) True 
 B)False

Question 16

If U.S. citizens decide to save a smaller fraction of their incomes, U.S. domestic investment

Accepted Answer

A)  increases, and U.S. net capital outflow increases.
B)  increases, and U.S. net capital outflow decreases.
C)  decreases, and U.S. net capital outflow increases.
D)  decreases, and U.S. net capital outflow decreases.E) A) and B)
F) B) and C)

Question 17

A trade policy is a government policy

Accepted Answer

A)  directed toward the goal of improving the tradeoff between equity and efficiency.
B)  that directly influences the quantity of goods and services that a country imports or exports.
C)  intended to exploit the tradeoff between inflation and unemployment by altering the budget deficit.
D)  concerning employment laws.E) A) and C)
F) A) and B)

Question 18

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 19

In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

Accepted Answer

A) True 
 B)False

Question 20

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Exam 19: A Macroeconomic Theory of the Open Economy

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

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

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If the demand for loanable funds shifts right, then

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A trade policy is a government policy

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In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

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How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

Figure 19-1 -Refer to Figure 19-1. The loanable funds market is in equilibrium at

Correct AnswerverifiedShow Answer

An increase in the government budget deficit shifts the supply of loanable funds to the left.

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Trade policies

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In the open-economy macroeconomic model, if a country's interest rate falls, then its

Correct AnswerverifiedShow Answer

In the long run, import quotas increase net exports.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

Correct AnswerverifiedShow Answer

Other things the same, a decrease in the U.S. real interest rate induces

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model

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

If U.S. citizens decide to save a smaller fraction of their incomes, U.S. domestic investment

Correct AnswerverifiedShow Answer

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Correct AnswerverifiedThe supply of loanable funds increases, ...View AnswerShow Answer

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S is national saving, which is the sourc...
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The supply of loanable funds increases, ...
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