Question 1

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) B

Question 2

If a country's budget deficit increases,then in the foreign exchange market,

Accepted Answer

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

Question 3

When a country imposes an import quota,its

Accepted Answer

A)  net exports rise and its real exchange rate appreciates.
B)  net exports rise and its real exchange rate depreciates.
C)  net exports fall and its real exchange rate depreciates
D)  None of the above is correct.E) B) and C)
F) None of the above

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

When Mexico suffered from capital flight in 1994,Mexico's net exports

Accepted Answer

A)  decreased.
B)  did not change.
C)  increased.
D)  decreased until the peso appreciated,then increased.E) A) and D)
F) B) and D)

Question 6

If net exports are negative,then

Accepted Answer

A)  net capital outflow is positive,so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)  net capital outflow is positive,so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)  net capital outflow is negative,so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)  net capital outflow is negative,so American assets bought by foreigners are greater than foreign assets bought by Americans.E) B) and C)
F) A) and D)

Question 7

Which of the following is the correct way to show the effects of a newly imposed import quota?

Accepted Answer

A)  Shift the demand for loanable funds right,the supply of dollars in the market for foreign-currency exchange right,and the demand for dollars left.
B)  Shift the demand for loanable funds right,and the supply of dollars in the market for foreign-currency exchange left.
C)  Shift the demand for dollars in the market for foreign-currency exchange left.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 8

Figure 33-4 
-Refer to Figure 33-4.Suppose that the government goes from a budget surplus to a budget deficit.The effects of the change could be illustrated by

Accepted Answer

A)  shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)  shifting the demand curve in panel a to the left and the supply curve in panel c to the left.
C)  shifting the supply curve in panel a to the right and the demand curve in panel c to the right.
D)  shifting the supply curve in panel a to the left and the supply curve in panel c to the left.E) B) and D)
F) None of the above

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Capital flight reduces a country's real exchange rate.

Accepted Answer

A) True 
 B)False

Question 11

The slope of the supply of loanable funds is based on an increase in

Accepted Answer

A)  only national saving when the interest rate rises.
B)  both national saving and net capital outflow when the interest rate rises.
C)  only national saving when the interest rate falls.
D)  both national saving and net capital outflow when the interest rate falls.E) A) and B)
F) A) and C)

Question 12

A tax on imported goods is called a(n)

Accepted Answer

A)  excise tax.
B)  tariff.
C)  import quota.
D)  None of the above is correct.E) B) and C)
F) B) and D) B

Question 13

A rise in the government budget deficit

Accepted Answer

A)  increases the interest rate so in the market for foreign-currency exchange,supply shifts right.
B)  increases the interest rate so in the market for foreign-currency exchange,supply shifts left.
C)  decreases the interest rate so in the market for foreign-currency exchange,supply shifts left.
D)  decreases the interest rate so in the market for foreign-currency exchange supply shifts right.E) C) and D)
F) None of the above

Question 14

If a country has a positive net capital outflow,then

Accepted Answer

A)  on net it is purchasing assets from abroad.This adds to its demand for domestically generated loanable funds.
B)  on net it is purchasing assets from abroad.This subtracts from its demand for domestically generated loanable funds.
C)  on net other countries are purchasing assets from it.This adds to its demand for domestically generated loanable funds.
D)  on net other countries are purchasing assets from it.This subtracts from its demand for domestically generated loanable funds.E) All of the above
F) A) and B)

Question 15

In an open economy,the demand for loanable funds comes from both domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 16

If a country removed an import quota on cotton,then overall that country's

Accepted Answer

A)  exports and imports would rise.
B)  exports would rise and imports would fall.
C)  exports would fall and imports would rise.
D)  exports and imports would fall.E) B) and C)
F) C) and D) A

Question 17

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Accepted Answer

A)  downward sloping.
B)  upward sloping.
C)  horizontal.
D)  vertical.E) A) and C)
F) B) and C)

Question 18

Other things the same,which of the following would shift the supply of money in the market for foreign exchange to the right?

Accepted Answer

A)  foreigners want to buy more domestic bonds
B)  foreigners want to buy fewer domestic bonds
C)  foreigners want to buy more domestic goods and services.
D)  foreigners want to buy fewer domestic goods and services.E) B) and C)
F) All of the above

Question 19

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

Question 20

What effect do protectionist policies have on the trade deficit?

Accepted Answer

Protectionist policies increase the dema...

Exam 33: A Macroeconomic Theory of the Open Economy

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

Correct AnswerverifiedB

If a country's budget deficit increases,then in the foreign exchange market,

Correct AnswerverifiedShow Answer

When a country imposes an import quota,its

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994,Mexico's net exports

Correct AnswerverifiedShow Answer

If net exports are negative,then

Correct AnswerverifiedShow Answer

Which of the following is the correct way to show the effects of a newly imposed import quota?

Correct AnswerverifiedShow Answer

Figure 33-4 -Refer to Figure 33-4.Suppose that the government goes from a budget surplus to a budget deficit.The effects of the change could be illustrated by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Capital flight reduces a country's real exchange rate.

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds is based on an increase in

Correct AnswerverifiedShow Answer

A tax on imported goods is called a(n)

Correct AnswerverifiedB

A rise in the government budget deficit

Correct AnswerverifiedShow Answer

If a country has a positive net capital outflow,then

Correct AnswerverifiedShow Answer

In an open economy,the demand for loanable funds comes from both domestic investment and net capital outflow.

Correct AnswerverifiedShow Answer

If a country removed an import quota on cotton,then overall that country's

Correct AnswerverifiedA

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Correct AnswerverifiedShow Answer

Other things the same,which of the following would shift the supply of money in the market for foreign exchange to the right?

Correct AnswerverifiedShow Answer

In an open economy,national saving equals

Correct AnswerverifiedShow Answer

What effect do protectionist policies have on the trade deficit?

Correct AnswerverifiedProtectionist policies increase the dema...View AnswerShow Answer

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B

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B

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A

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Protectionist policies increase the dema...
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