Question 1

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

Accepted Answer

Higher domestic interest rates make dome...

Question 2

The open-economy macroeconomic model takes

Accepted Answer

A)   GDP, but not the price level as given.
B)   the price level, but not GDP as given.
C)   both the price level and GDP as given.
D)   the price level and GDP as variables to be determined by the model.E) C) and D)
F) A) and C)

Question 3

If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a

Accepted Answer

A)   shortage of loanable funds and the interest rate will fall.
B)   shortage of loanable funds and the interest rate will rise.
C)   surplus of loanable funds and the interest rate will fall.
D)   surplus of loanable funds and the interest rate will rise.E) None of the above
F) A) and C)

Question 4

When a country's government budget deficit decreases,

Accepted Answer

A)   the real exchange rate of its currency and its net exports increase.
B)   the real exchange rate of its currency and its net exports decrease.
C)   the real exchange rate of its currency increases and its net exports decrease.
D)   the real exchange rate of its currency decreases and its net exports increase.E) C) and D)
F) A) and B)

Question 5

If imports = 500 billion euros, exports = 700 billion euros, purchases of domestic assets by foreign residents = 600 billion euros, and purchases of foreign assets by domestic residents = 800 billion euros, what is the quantity of euros demanded in the market for foreign-currency exchange?

Accepted Answer

A)   1,100 billion euros
B)   600 billion euros
C)   500 billion euros
D)   200 billion eurosE) B) and D)
F) A) and B)

Question 6

When a country imposes an import quota, its

Accepted Answer

A)   imports fall and its net exports rise.
B)   imports fall and its net exports are unchanged.
C)   imports rise and its net exports are unchanged.
D)   imports and exports are unchanged.E) A) and B)
F) A) and C)

Question 7

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

Accepted Answer

A)   and the real exchange rate increase.
B)   and the real exchange rate decrease.
C)   increases and the real exchange rate decreases.
D)   decreases and the real exchange rate increases.E) C) and D)
F) None of the above

Question 8

If a government started with a budget deficit and moved to a surplus, domestic investment

Accepted Answer

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

Question 9

Refer to Depositors Move Funds Out of Greek Banks. Because of depositors reactions what happened to net capital outflow?

Accepted Answer

Greece's n...

Question 10

What happens to each of the following if investment becomes less desirable at each interest rate?
a. the interest rate
b. net capital outflow
c. the exchange rate

Accepted Answer

The interest rate fa...

Question 11

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from

Accepted Answer

A)   net exports
B)   net capital outflow
C)   net exports + net capital outflow
D)   net exports - net capital outflowE) A) and D)
F) B) and C)

Question 12

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 interest rate were initially at r2 and an import quota were imposed, the interest rate would

Accepted Answer

A)   stay at r2.
B)   decrease because supply would shift right.
C)   increase because supply would shift left.
D)   decrease because demand would shift left.E) All of the above
F) A) and B)

Question 13

In the open-economy macroeconomic model, if there were a surplus in the market for foreign-currency exchange, the real exchange rate would appreciate.

Accepted Answer

A) True 
 B)False

Question 14

If interest rates rose more in the U.S. than in France, then other things the same

Accepted Answer

A)   U.S. citizens would buy more French bonds and French citizens would buy more U.S. bonds.
B)   U.S. citizens would buy more French bonds and French citizens would buy fewer U.S. bonds.
C)   U.S. citizens would buy fewer French bonds and French citizens would buy more U.S. bonds.
D)   U.S. citizens would buy fewer French bonds and French citizens would buy fewer U.S. bonds.E) A) and B)
F) C) and D)

Question 15

Figure 32-1 
-Refer to Figure 32-1. If the real interest rate is 6 percent, there will be pressure for

Accepted Answer

A)   the real interest rate to fall.
B)   the demand for loanable funds curve to shift left.
C)   the supply for loanable funds curve to shift right.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 16

When the U.S. real interest rate falls, purchasing U.S. assets becomes

Accepted Answer

A)   less attractive and so U.S. net capital outflow rises.
B)   less attractive and so U.S. net capital outflow falls.
C)   more attractive and so U.S. net capital outflow rises.
D)   more attractive and so U.S. net capital outflow falls.E) A) and B)
F) A) and C)

Question 17

If at a given exchange rate U.S. citizens wanted to buy more foreign bonds

Accepted Answer

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

Question 18

An increase in the budget deficit

Accepted Answer

A)   reduces investment because the interest rate rises.
B)   reduces investment because the interest rate falls.
C)   raises investment because the interest rate rises.
D)   raises investment because the interest rate falls.E) A) and B)
F) A) and C)

Question 19

The quantity of U.S. bonds foreigners want to buy is taken into account

Accepted Answer

A)   in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)   in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
C)   in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
D)   in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.E) B) and D)
F) B) and C)

Question 20

In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy should have

Accepted Answer

A)   reduced imports into the United States and made U.S. net exports rise.
B)   reduced imports into the United States and made the net supply of dollars in the foreign exchange market shift right.
C)   reduced imports of steel into the United States, but reduced U.S. exports of other goods by an equal amount.
D)   reduced imports of steel into the United States and increased U.S. exports of other goods by an equal amount.E) A) and D)
F) C) and D)

Exam 19: A Macroeconomic Theory of the Open Economy

Refer to Depositors Move Funds Out of Greek Banks. Because of depositors reactions what happened to net capital outflow?

Correct AnswerverifiedGreece's n...View AnswerShow Answer

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

Correct AnswerverifiedHigher domestic interest rates make dome...View AnswerShow Answer

If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a

Correct AnswerverifiedShow Answer

The quantity of U.S. bonds foreigners want to buy is taken into account

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if there were a surplus in the market for foreign-currency exchange, the real exchange rate would appreciate.

Correct AnswerverifiedShow Answer

What happens to each of the following if investment becomes less desirable at each interest rate? a. the interest rate b. net capital outflow c. the exchange rate

Correct AnswerverifiedThe interest rate fa...View AnswerShow Answer

If interest rates rose more in the U.S. than in France, then other things the same

Correct AnswerverifiedShow Answer

When a country imposes an import quota, its

Correct AnswerverifiedShow Answer

An increase in the budget deficit

Correct AnswerverifiedShow Answer

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 6 percent, there will be pressure for

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from

Correct AnswerverifiedShow Answer

If a government started with a budget deficit and moved to a surplus, domestic investment

Correct AnswerverifiedShow Answer

If at a given exchange rate U.S. citizens wanted to buy more foreign bonds

Correct AnswerverifiedShow Answer

In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy should have

Correct AnswerverifiedShow Answer

The open-economy macroeconomic model takes

Correct AnswerverifiedShow Answer

When the U.S. real interest rate falls, purchasing U.S. assets becomes

Correct AnswerverifiedShow Answer

When a country's government budget deficit decreases,

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

Correct AnswerverifiedShow Answer

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 interest rate were initially at r2 and an import quota were imposed, the interest rate would

Correct AnswerverifiedShow Answer

If imports = 500 billion euros, exports = 700 billion euros, purchases of domestic assets by foreign residents = 600 billion euros, and purchases of foreign assets by domestic residents = 800 billion euros, what is the quantity of euros demanded in the market for foreign-currency exchange?

Correct AnswerverifiedShow Answer

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Greece's n...
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Higher domestic interest rates make dome...
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The interest rate fa...
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