Question 1

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

Question 2

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Accepted Answer

more, less...

Question 3

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 D)
F) None of the above

Question 4

In which cases does/do a country's demand for loanable funds shift left?

Accepted Answer

A)   both an increase in the budget deficit and capital flight
B)   an increase in the budget deficit, but not capital flight
C)   capital flight, but not an increase in the budget deficit
D)   neither an increase in the budget deficit nor capital flightE) A) and B)
F) A) and C)

Question 5

If the government of Canada increased its budget deficit, then domestic investment

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) C) and D)
F) A) and C)

Question 6

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 7

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A)   foreign residents want to buy more U.S. goods and services.
B)   U.S. residents want to buy fewer foreign goods and services.
C)   Both A and B are correct.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 8

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Accepted Answer

A)   $350 billion
B)   $250 billion
C)   $200 billion
D)   $150 billionE) A) and C)
F) None of the above

Question 9

Over the past three decades, the United States has

Accepted Answer

A)   generally had, or been very near to a trade balance.
B)   had trade deficits in about as many years as it has trade surpluses.
C)   persistently had a trade deficit.
D)   persistently had a trade surplus.E) All of the above
F) None of the above

Question 10

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

Accepted Answer

A)   net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right.
B)   net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right.
C)   net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left.
D)   net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.E) All of the above
F) C) and D)

Question 11

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

Accepted Answer

A)   increased Russian interest rates and net exports.
B)   reduced Russian interest rates and net exports.
C)   increased Russian interest rates and reduced Russian net exports.
D)   reduced Russian interest rates and increased Russian net exports.E) None of the above
F) A) and B)

Question 12

Which of the following is always correct in an open economy?

Accepted Answer

A)   S = I
B)   S = NX + NCO
C)   S = NCO
D)   S = I + NCOE) A) and B)
F) A) and D)

Question 13

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Accepted Answer

The quantity of loanable funds...

Question 14

Budget Reform
Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes.
-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 15

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

Accepted Answer

The interest rate rises. The increase in...

Question 16

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)   increase domestic saving
B)   increase domestic political stability and respect of property rights
C)   other countries reduce their trade restrictions
D)   raise tariffsE) B) and D)
F) B) and C)

Question 17

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Accepted Answer

A)   rise because national saving rises.
B)   rise because domestic investment rises.
C)   fall because national saving falls.
D)   fall because domestic investment falls.E) C) and D)
F) All of the above

Question 18

If a country raises its budget deficit, then in the market for foreign-currency exchange

Accepted Answer

A)   supply shifts left.
B)   supply shifts right.
C)   demand shifts left.
D)   supply shifts rightE) None of the above
F) All of the above

Question 19

If a country raises its budget deficit, then net capital outflow

Accepted Answer

A)   rises, so the supply of its currency shifts right in the market for foreign-currency exchange.
B)   rises, so the demand for its currency shifts right in the market for foreign-currency exchange.
C)   falls, so the supply of its currency shifts left in the market for foreign-currency exchange.
D)   falls, so the demand for its currency shifts right in the market for foreign-currency exchange.E) A) and B)
F) B) and C)

Question 20

In the open-economy macroeconomic model, net capital outflow rises if

Accepted Answer

A)   either the exchange rate rises or the real interest rate falls.
B)   either the exchange rate falls or the real interest rate rises.
C)   the real interest rate rises. Net capital outflow does not depend on the exchange rate.
D)   the real interest rate falls. Net capital outflow does not depend on the exchange rate.E) None of the above
F) A) and D)

Exam 14: A Macroeconomic Theory of the Open Economy

Which of the following would do the most to reduce a trade deficit?

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In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

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In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

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Which of the following is always correct in an open economy?

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According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a country raises its budget deficit, then in the market for foreign-currency exchange

Correct AnswerverifiedShow Answer

Budget Reform Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -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

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Correct AnswerverifiedThe quantity of loanable funds...View AnswerShow Answer

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

Correct AnswerverifiedShow Answer

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Correct Answerverifiedmore, less...View AnswerShow Answer

In the open-economy macroeconomic model, net capital outflow rises if

Correct AnswerverifiedShow Answer

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Correct AnswerverifiedShow Answer

If the government of Canada increased its budget deficit, then domestic investment

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 GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

In which cases does/do a country's demand for loanable funds shift left?

Correct AnswerverifiedShow Answer

Over the past three decades, the United States has

Correct AnswerverifiedShow Answer

If a country raises its budget deficit, then net capital outflow

Correct AnswerverifiedShow Answer

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

Correct AnswerverifiedThe interest rate rises. The increase in...View AnswerShow Answer

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Net capital outflows rise because a lowe...
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The quantity of loanable funds...
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If the exchange rate rises, domestic goods become relatively ____ expensive. This change in the affordability of domestic goods makes domestic goods _ attractive to foreigners. So, _ __.

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more, less...
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The interest rate rises. The increase in...
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