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Exam 32: A Macroeconomic Theory of the Open Economy

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Question 41

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Why do higher real interest rates lead to lower net capital outflow?

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Higher domestic interest rates make dome...

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Question 42

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If real interest rates rose less in U.K. than in the United States, then other things the same

A) U.S.citizens would buy fewer U.K.bonds and British people would buy fewer U.S.bonds.
B) U.S.citizens would buy fewer U.K.bonds and British people would buy more U.S.bonds.
C) U.S.citizens would buy more U.K.bonds and British people would buy more U.S.bonds.
D) U.S.citizens would buy more U.K.bonds and British people would buy fewer U.S.bonds.

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

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Question 43

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Scenario 32-4 ​ In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks. -Refer to Scenario 32-4. Which curve in the domestic loanable funds market shifted and which direction did it shift?

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

Figure 32-5 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) -Refer to Figure 32-5. Suppose that initially the economy is in equilibrium at r₁ (point d) and e₃ (point i) . If the government removes import quotas, the exchange rate will move to

What is the source of the supply of loanable funds in the open-economy macroeconomic model?

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Figure 32-5 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) -Refer to Figure 32-5. If the interest rate were initially at r₂ and an import quota were imposed, the interest rate would

What is the source of the demand for dollars in the market for foreign-currency exchange?

Figure 32-4 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) -Refer to Figure 32-4. In the market for foreign-currency exchange, the effects of an increase in the budget surplus shown in graph (c) can be illustrated as a move from j to

Capital flight raises both a country's exchange rate and its interest rate.

Capital flight shifts the NCO curve to the left.

Figure 32-2 -Refer to Figure 32-2. If the real exchange rate is 1, then there is a

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

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

When the government budget deficit increases, national saving decreases.

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

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.

Capital flight shifts the demand for loanable funds to the left.