Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

According to the open-economy macroeconomic model, an increase in the Canadian government budget surplus increases Canadian net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases Canadian net exports.

Accepted Answer

A) True 
 B)False

Question 3

What is net capital outflow equal to?

Accepted Answer

A)   national saving minus the net exports
B)   domestic investment plus national saving
C)   national saving minus domestic investment
D)   domestic investment minus national savingE) A) and B)
F) B) and D)

Question 4

In the open-economy macroeconomic model, what is net capital outflow equal to?

Accepted Answer

A)   the quantity of dollars supplied in the foreign exchange market
B)   the quantity of dollars demanded in the foreign exchange market
C)   the quantity of funds supplied in the loanable funds market
D)   the quantity of funds demanded in the loanable funds marketE) None of the above
F) B) and D)

Question 5

Which statement best predicts the effects of a fall in the Canadian real interest rate?

Accepted Answer

A)   Owning Canadian assets becomes less attractive, and net capital outflow rises.
B)   Owning Canadian assets becomes less attractive, and net capital outflow falls.
C)   Owning Canadian assets becomes more attractive, and net capital outflow rises.
D)   Owning Canadian assets becomes more attractive, and net capital outflow falls.E) A) and B)
F) C) and D)

Question 6

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 7

Suppose Canada imposes an import quota on wine. Which statement best describes the most likely effects of this quota?

Accepted Answer

A)   Canadian exports increase, and the dollar appreciates.
B)   Canadian exports increase, and the dollar depreciates.
C)   Canadian exports decrease, and the dollar appreciates.
D)   Canadian exports decrease, and the dollar depreciates.E) C) and D)
F) B) and D)

Question 8

If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the right?

Accepted Answer

A)   The exchange rate rises.
B)   The exchange rate falls.
C)   The expected rate of return on Canadian assets rises.
D)   The expected rate of return on Canadian assets falls.E) B) and C)
F) A) and B)

Question 10

What is the term for a tax on imported goods?

Accepted Answer

A)   an excise tax
B)   a tariff
C)   an import quota
D)   import taxE) A) and B)
F) A) and C)

Question 11

If the government of India made policy changes that increased national saving, which statement would best predict the consequences?

Accepted Answer

A)   The real exchange rate of the rupee would depreciate, and Indian net exports would rise.
B)   The real exchange rate of the rupee would depreciate, and Indian net exports would fall.
C)   The real exchange rate of the rupee would appreciate, and Indian net exports would rise.
D)   The real exchange rate of the rupee would appreciate, and Indian net exports would fall.E) C) and D)
F) None of the above

Question 12

Which statement best describes the effects of an increase in real interest rates in Canada?

Accepted Answer

A)   It discourages both Canadian and foreign residents from buying Canadian assets.
B)   It encourages both Canadian and foreign residents to buy Canadian assets.
C)   It encourages Canadian residents to buy Canadian assets, but discourages foreign residents from buying Canadian assets.
D)   It encourages foreign residents to buy Canadian assets, but discourages Canadian residents from buying Canadian assets.E) A) and B)
F) All of the above

Question 13

In the market for foreign-currency exchange in the open-economy macroeconomic model, what does the amount of net capital outflow represent?

Accepted Answer

A)   the quantity of dollars supplied for the purpose of selling assets domestically
B)   the quantity of dollars supplied for the purpose of buying assets abroad
C)   the quantity of dollars demanded for the purpose of buying Canadian exports of goods and services
D)   the quantity of dollars demanded for the purpose of importing foreign goods and servicesE) A) and D)
F) All of the above

Question 14

What are the main elements of our open-economy macroeconomic model?

Accepted Answer

A)   the market for loanable funds, the foreign-currency market, and the price level
B)   the market for goods and services, the price level, and GDP
C)   the market for goods and services, net exports, and GDP
D)   the market for loanable funds, net capital outflow, and the foreign-currency marketE) B) and C)
F) B) and D)

Question 15

What does the identity "net capital outflow = net exports" imply?

Accepted Answer

A)   The supply of dollars equals the demand for dollars in the foreign-currency market.
B)   National saving equals domestic investment.
C)   The volume of exports equals the volume of imports.
D)   Canadian investment abroad is equal to foreign investment in Canada.E) C) and D)
F) B) and C)

Question 16

What is the term for a limit on the quantity of an imported good?

Accepted Answer

A)   a tariff
B)   an excise tax
C)   an import quota
D)   net importsE) B) and C)
F) None of the above

Question 17

If Canadian citizens decide to save a larger fraction of their incomes, which statement would best identify the effects?

Accepted Answer

A)   The real interest rate decreases, the real exchange rate of the dollar depreciates, and Canadian net capital outflow increases.
B)   The real interest rate decreases, the real exchange rate of the dollar appreciates, and Canadian net capital outflow decreases.
C)   The real interest rate increases, the real exchange rate of the dollar appreciates, and Canadian net capital outflow decreases.
D)   The real interest rate increases, the real exchange rate of the dollar depreciates, and Canadian net capital outflow increases.E) B) and C)
F) None of the above

Question 18

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

Accepted Answer

Higher Canadian interest rates make Cana...

Question 19

Suppose a prime ministerial candidate promises to increase the government budget surplus and claims that doing so will stop Canadian citizens from investing in foreign companies and increase the value of the dollar. Evaluate this promise.

Accepted Answer

An increase in the government budget sur...

Question 20

The key determinant of net capital outflow is the real exchange rate.

Accepted Answer

A) True 
 B)False

Exam 13: A Macroeconomic Theory of the Small Open Economy

The key determinant of net capital outflow is the real exchange rate.

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In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Correct AnswerverifiedShow Answer

Suppose a prime ministerial candidate promises to increase the government budget surplus and claims that doing so will stop Canadian citizens from investing in foreign companies and increase the value of the dollar. Evaluate this promise.

Correct AnswerverifiedAn increase in the government budget sur...View AnswerShow Answer

What are the main elements of our open-economy macroeconomic model?

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If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

Correct AnswerverifiedShow Answer

What does the identity "net capital outflow = net exports" imply?

Correct AnswerverifiedShow Answer

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the right?

Correct AnswerverifiedShow Answer

What is the term for a limit on the quantity of an imported good?

Correct AnswerverifiedShow Answer

Suppose Canada imposes an import quota on wine. Which statement best describes the most likely effects of this quota?

Correct AnswerverifiedShow Answer

Which statement best describes the effects of an increase in real interest rates in Canada?

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According to the open-economy macroeconomic model, an increase in the Canadian government budget surplus increases Canadian net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases Canadian net exports.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, what is net capital outflow equal to?

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What is net capital outflow equal to?

Correct AnswerverifiedShow Answer

Which statement best predicts the effects of a fall in the Canadian real interest rate?

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

Correct AnswerverifiedHigher Canadian interest rates make Cana...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

What is the term for a tax on imported goods?

Correct AnswerverifiedShow Answer

If the government of India made policy changes that increased national saving, which statement would best predict the consequences?

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange in the open-economy macroeconomic model, what does the amount of net capital outflow represent?

Correct AnswerverifiedShow Answer

If Canadian citizens decide to save a larger fraction of their incomes, which statement would best identify the effects?

Correct AnswerverifiedShow Answer

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An increase in the government budget sur...
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Higher Canadian interest rates make Cana...
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