Question 1

If the British government raised its budget deficit, then the pound (Britain's currency)  would

Accepted Answer

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

Question 2

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

Accepted Answer

A)  rises and the real exchange rate rises.
B)  falls and the real exchange rate falls.
C)  rises and the real exchange rate falls.
D)  falls and the real exchange rate rises.E) B) and C)
F) A) and D)

Question 3

If government policy encouraged households to save more at each interest rate, then

Accepted Answer

A)  the real exchange rate and net exports would rise.
B)  the real exchange rate and net exports would fall.
C)  the real exchange rate would rise and net exports would fall.
D)  the real exchange rate would fall and net exports would rise.E) B) and C)
F) C) and D)

Question 4

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Accepted Answer

A)  the interest rate
B)  net exports
C)  the exchange rate
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 5

If the U.S. government increased its deficit, then

Accepted Answer

A)  U.S. bonds would pay higher interest but a dollar would purchase fewer foreign goods.
B)  U.S. bonds would pay higher interest and a dollar would purchase more foreign goods.
C)  U.S. bonds would pay lower interest and a dollar would purchase fewer foreign goods.
D)  U.S. bonds would pay lower interest but a dollar would purchase more foreign goods.E) C) and D)
F) B) and D)

Question 6

Figure 19-2 
-Refer to Figure 19-2. If the real exchange rate is .6, then there is a

Accepted Answer

A)  surplus of 100 so the real exchange rate will fall.
B)  surplus of 100 so the real exchange rate will rise.
C)  shortage of 100 so the real exchange rate will fall.
D)  shortage of 100 so the real exchange rate will rise.E) C) and D)
F) B) and D)

Question 7

In which case(s)  does(do)  a country's supply of 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 8

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 9

When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Accepted Answer

A)  fell and the peso appreciated.
B)  fell and the peso depreciated.
C)  rose and the peso appreciated.
D)  rose and the peso depreciated.E) None of the above
F) B) and D)

Question 10

In an open economy,

Accepted Answer

A)  net capital outflow = imports.
B)  net capital outflow = net exports.
C)  net capital outflow = exports.
D)  None of the above is correct.E) A) and D)
F) B) and C)

Question 11

If a country raises its budget deficit then

Accepted Answer

A)  both its supply of and demand for loanable funds shift.
B)  its supply of but not its demand for loanable funds shifts.
C)  its demand for but not its supply of loanable funds shifts.
D)  neither its supply nor its demand for loanable funds shift.E) A) and B)
F) A) and C)

Question 12

A rise in the budget deficit

Accepted Answer

A)  shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange right.
B)  shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange left.
C)  shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the market for foreign-currency exchange right.
D)  shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the market for foreign-currency exchange left.E) A) and B)
F) All of the above

Question 13

Which of the following would both raise the U.S. exchange rate?

Accepted Answer

A)  capital flight from other countries to the U.S. occurs and the U.S. moves from budget surplus to budget deficit
B)  capital flight from other countries to the U.S. occurs and the U.S. moves from budget deficit to budget surplus
C)  capital flight from the U.S. to other countries occurs, the U.S. moves from budget surplus to budget deficit
D)  capital flight from U.S. to other countries occurs, the U.S. moves from budget deficit to budget surplusE) B) and C)
F) A) and C)

Question 14

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

Accepted Answer

A) True 
 B)False

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

In the United States in the early 1980s, there was a government budget

Accepted Answer

A)  surplus and a trade surplus.
B)  deficit and a trade deficit.
C)  surplus and a trade deficit.
D)  deficit and a trade surplus.E) A) and B)
F) C) and D)

Question 17

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Accepted Answer

A) True 
 B)False

Question 18

If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

Accepted Answer

A) True 
 B)False

Question 19

If the U.S. put an import quota on clothing, it would

Accepted Answer

A)  raise U.S. net exports of clothing and raise net exports of other U.S. goods.
B)  raise U.S. net exports of clothing and lower net exports of other U.S. goods.
C)  lower U.S. net exports of clothing and raise net exports of other U.S. goods.
D)  lower U.S. net exports of clothing and lower net exports of other U.S. goods.E) A) and B)
F) A) and D)

Question 20

If the supply of loanable funds shifts left, 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) None of the above
F) A) and B)

Exam 19: A Macroeconomic Theory of the Open Economy

In which case(s) does(do) a country's supply of loanable funds shift left?

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If the U.S. put an import quota on clothing, it would

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In an open economy,

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If the British government raised its budget deficit, then the pound (Britain's currency) would

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If the U.S. government increased its deficit, then

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

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In the United States in the early 1980s, there was a government budget

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If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

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If a country raises its budget deficit then

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If the supply of loanable funds shifts left, then

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Figure 19-2 -Refer to Figure 19-2. If the real exchange rate is .6, then there is a

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A rise in the budget deficit

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In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

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The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

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Which of the following would both raise the U.S. exchange rate?

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In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

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When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

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If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

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If government policy encouraged households to save more at each interest rate, then

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