Question 1

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

Question 2

If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate

Accepted Answer

A)   decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
B)   decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
C)   increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
D)   increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.E) All of the above
F) A) and C)

Question 3

An increase in the budget deficit

Accepted Answer

A)   reduces investment because the interest rate rises.
B)   reduces investment because the interest rate falls.
C)   raises investment because the interest rate rises.
D)   raises investment because the interest rate falls.E) A) and D)
F) A) and C)

Question 4

If a government has a budget surplus, then public saving

Accepted Answer

A)   is positive and increases national saving.
B)   is positive but decreases national saving.
C)   is negative and decreases national saving.
D)   is negative but increases national saving.E) C) and D)
F) A) and D)

Question 5

Suppose that the Turkish government budget deficit increases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Accepted Answer

The supply of Turkish loanable funds cur...

Question 6

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)   U.S. citizens would buy more German bonds and German citizens would buy more U.S. bonds.
B)   U.S. citizens would buy more German bonds and German citizens would buy fewer U.S. bonds.
C)   U.S. citizens would buy fewer German bonds and German citizens would buy more U.S. bonds.
D)   U.S. citizens would buy fewer German bonds and German citizens would buy fewer U.S. bonds.E) A) and D)
F) None of the above

Question 8

In the open-economy macroeconomic model, the key determinant of net capital outflow is

Accepted Answer

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

Question 9

An increase in the U.S. government budget deficit shifts the

Accepted Answer

A)   demand for loanable funds right and decreases investment spending.
B)   supply of loanable funds right and increases investment spending.
C)   supply of loanable funds left and decreases investment spending.
D)   None of the above is correct.E) A) and D)
F) None of the above

Question 10

If net exports are negative, then

Accepted Answer

A)   net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   net capital outflow is positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   net capital outflow is negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.E) A) and D)
F) A) and B)

Question 11

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) C) and D)

Question 12

If net exports are positive, then

Accepted Answer

A)   net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   net capital outflow is positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   net capital outflow is negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.E) C) and D)
F) None of the above

Question 13

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 14

Which of the following increases if the U.S. imposes an import quota on computer components?

Accepted Answer

A)   U.S. exports
B)   U.S. imports
C)   U.S. net exports
D)   None of the above increases.E) None of the above
F) A) and D)

Question 15

An increase in the government budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 16

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) A) and D)
F) A) and B)

Question 17

A higher U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Accepted Answer

A) True 
 B)False

Question 18

If the world thought that many banks in a certain country were at or near the point of bankruptcy, then that country's real exchange rate

Accepted Answer

A)   and net exports would rise.
B)   would rise and net exports would fall.
C)   would fall and net exports would rise.
D)   and net exports would fall.E) A) and B)
F) C) and D)

Question 19

In the open-economy macroeconomic model, if the supply of loanable funds increases, then the interest rate

Accepted Answer

A)   and the real exchange rate increase.
B)   and the real exchange rate decrease.
C)   increases and the real exchange rate decreases.
D)   decreases and the real exchange rate increases.E) All of the above
F) A) and B)

Question 20

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Exam 14: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model, the key determinant of net capital outflow is

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An increase in the U.S. government budget deficit shifts the

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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?

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A higher U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

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Suppose that the Turkish government budget deficit increases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Correct AnswerverifiedThe supply of Turkish loanable funds cur...View AnswerShow Answer

An increase in the budget deficit

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In the open-economy macroeconomic model, if the supply of loanable funds increases, then the interest rate

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

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

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An increase in the government budget deficit shifts the demand for loanable funds to the right.

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Which of the following increases if the U.S. imposes an import quota on computer components?

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If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate

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

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If net exports are negative, then

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In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

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An increase in the budget deficit

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If a government has a budget surplus, then public saving

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If net exports are positive, then

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If the world thought that many banks in a certain country were at or near the point of bankruptcy, then that country's real exchange rate

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A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

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The supply of Turkish loanable funds cur...
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