Question 1

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

Question 2

What happens to each of the following if the supply of loanable funds shifts left?
a. the interest rate
b. net capital outflow
c. the exchange rate

Accepted Answer

The interest rate ri...

Question 3

In the open-economy macroeconomic model, if the supply of loanable funds shifts right

Accepted Answer

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

Question 4

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

Question 5

Suppose that India has a government budget surplus, and then goes into deficit. This change would

Accepted Answer

A)   increase India's national saving and shift its supply of loanable funds left.
B)   increase India's national saving and shift its demand for loanable funds right.
C)   decrease India's national saving and shift its supply of loanable funds left.
D)   decrease India's national saving and shift its demand for loanable funds right.E) None of the above
F) C) and D)

Question 6

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
 
-Refer to Figure 32-5. The initial effect of an increase in the budget deficit in the loanable funds market can be illustrated as a move from

Accepted Answer

A)   a to b. 
B)  b to a
C)   a to c
D)   d to a.E) B) and D)
F) A) and B)

Question 7

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

Question 8

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)   the real exchange rate and the interest rate will rise.
B)   the real exchange rate will rise and the interest rate will fall.
C)   the real exchange rate will fall and the interest rate will rise.
D)   the real exchange rate and the interest rate will fall.E) A) and B)
F) None of the above

Question 9

If a government increases its budget deficit, then the real exchange rate

Accepted Answer

A)   and domestic investment rise.
B)   and domestic investment fall.
C)   rises and domestic investment falls.
D)   falls and domestic investment rises.E) None of the above
F) A) and B)

Question 10

Figure 32-6
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
 
-Refer to Figure 32-6. If the economy were originally in equilibrium at a and g and the government removed import quotas on autos the economy would move to

Accepted Answer

A)   b and k.
B)   c and j.
C)   d and i.
D)   None of the above is correct.E) A) and D)
F) A) and C)

Question 11

In an open economy, national saving equals

Accepted Answer

A)   domestic investment plus net capital outflow.
B)   domestic investment minus net capital outflow.
C)   domestic investment.
D)   net capital outflow.E) B) and D)
F) A) and B)

Question 12

If the supply of 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 quantity of loanable funds falls.E) A) and B)
F) All of the above

Question 13

In the open-economy macroeconomic model, the supply of loanable funds comes from

Accepted Answer

A)   national saving.
B)   private saving.
C)   domestic investment.
D)   the sum of domestic investment and net capital outflow.E) B) and C)
F) A) and D)

Question 14

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Accepted Answer

A lower probability of default has the o...

Question 15

If at a given exchange rate foreign citizens want to buy fewer U.S bonds, then 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) A) and B)
F) None of the above

Question 16

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

Question 17

Capital flight refers to

Accepted Answer

A)   the movement of workers across international borders in response to exchange rate changes.
B)   the movement of funds between financial intermediaries when interest rates change.
C)   the ability of foreign direct investment to lift a country out of poverty.
D)   a large and sudden movement of funds out of a country.E) None of the above
F) C) and D)

Question 18

The open-economy macroeconomic model examines the determination of

Accepted Answer

A)   the output growth rate and the real interest rate.
B)   unemployment and the exchange rate.
C)   the output growth rate and the inflation rate.
D)   the trade balance and the exchange rate.E) None of the above
F) A) and B)

Question 19

An increase in a country's budget surplus shifts its

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) A) and C)

Question 20

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Accepted Answer

A)   surplus of loanable funds, so the interest rate increases.
B)   surplus of loanable funds, so the interest rate decreases.
C)   shortage of loanable funds, so the interest rate increases.
D)   shortage of loanable funds, so the interest rate decreases.E) C) and D)
F) A) and D)

Exam 19: A Macroeconomic Theory of the Open Economy

Figure 32-6 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-6. If the economy were originally in equilibrium at a and g and the government removed import quotas on autos the economy would move to

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts right, then

Correct AnswerverifiedShow Answer

If at a given exchange rate foreign citizens want to buy fewer U.S bonds, then the

Correct AnswerverifiedShow Answer

In an open economy, national saving equals

Correct AnswerverifiedShow Answer

The open-economy macroeconomic model examines the determination of

Correct AnswerverifiedShow Answer

What happens to each of the following if the supply of loanable funds shifts left? a. the interest rate b. net capital outflow c. the exchange rate

Correct AnswerverifiedThe interest rate ri...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the supply of loanable funds shifts right

Correct AnswerverifiedShow 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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Correct AnswerverifiedA lower probability of default has the o...View AnswerShow Answer

An increase in a country's budget surplus shifts its

Correct AnswerverifiedShow Answer

A trade policy is a government policy

Correct AnswerverifiedShow Answer

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. The initial effect of an increase in the budget deficit in the loanable funds market can be illustrated as a move from

Correct AnswerverifiedShow Answer

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Correct AnswerverifiedShow Answer

Capital flight refers to

Correct AnswerverifiedShow Answer

Suppose that India has a government budget surplus, and then goes into deficit. This change would

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply of loanable funds comes from

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, then the real exchange rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The interest rate ri...
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A lower probability of default has the o...
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