Question 1

In which cases)  doesdo)  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) All of the above
F) A) and B)

Question 2

If the U.S. were to impose import quotas

Accepted Answer

A)   the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange would both increase.
B)   nether the demand for loanable funds nor the demand for dollars in the market for foreign-currency exchange would increase.
C)   the demand for loanable funds would increase, but the demand for dollars in the market for foreign-currency exchange would not.
D)   the demand for dollars in the market for foreign-currency exchange would increase, but the demand for loanable funds would not.E) A) and C)
F) A) and B)

Question 3

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)   a company in Canada wants to buy oranges from the U.S
B)   a Japanese banks want to buy bonds from the U.S. government
C)   a U.S. citizen wants to buy stock a German company is selling
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 5

An increase in the budget deficit

Accepted Answer

A)   reduces net capital outflow and domestic investment.
B)   reduces net capital outflow and raises domestic investment.
C)   raises net capital outflow and domestic investment
D)   raises net capital outflow and reduces domestic investment.E) B) and C)
F) C) and D)

Question 6

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Accepted Answer

A)   rise and there would be a trade surplus.
B)   rise and there would be a trade deficit.
C)   fall and there would be a trade surplus.
D)   fall and there would be a trade deficit.E) A) and C)
F) A) and B)

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Accepted Answer

A) True 
 B)False

Question 9

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 10

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Accepted Answer

Its exchange rate fa...

Question 11

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

Accepted Answer

A)   real interest rate to rise.
B)   real exchange rate to rise.
C)   net exports to rise.
D)   None of the above is likely.E) C) and D)
F) B) and C)

Question 12

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

Accepted Answer

A) True 
 B)False

Question 13

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

Accepted Answer

The interest rate rises. The increase in...

Question 14

If interest rates rise in the U.S., then other things the same

Accepted Answer

A)   foreigners would buy more U.S. bonds which increases the quantity of loanable funds demanded in the U.S.
B)   foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.
C)   foreigners would buy fewer U.S. bonds which increases the quantity of loanable funds demanded in the U.S.
D)   foreigners would buy fewer U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.E) A) and B)
F) None of the above

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 there is a surplus in the market for loanable funds, then the interest rate

Accepted Answer

A)   rises, so national saving rises.
B)   rises, so national saving falls.
C)   falls, so national saving rises.
D)   falls, so national saving falls.E) B) and C)
F) A) and B)

Question 17

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Accepted Answer

A) True 
 B)False

Question 18

When the government budget deficit increases, national saving decreases.

Accepted Answer

A) True 
 B)False

Question 19

If a U.S. resident purchases a foreign bond, her transactions are included

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) C) and D)
F) A) and C)

Question 20

Which of the following is most likely to increase the exports of a country?

Accepted Answer

A)   The government gives subsidies to firms that export goods or services.
B)   The government reduces the size of the budget surplus.
C)   Political instability within the country increases modestly.
D)   None of the above will increase exports.E) A) and C)
F) All of the above

Exam 19: A Macroeconomic Theory of the Open Economy

In which cases) doesdo) a country's supply of loanable funds shift left?

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Correct AnswerverifiedShow Answer

An increase in the budget deficit

Correct AnswerverifiedShow Answer

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

Correct AnswerverifiedThe interest rate rises. The increase in...View AnswerShow Answer

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

Correct AnswerverifiedShow Answer

If there is a surplus in the market for loanable funds, then the interest rate

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

When the government budget deficit increases, national saving decreases.

Correct AnswerverifiedShow Answer

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Correct AnswerverifiedIts exchange rate fa...View AnswerShow Answer

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Correct AnswerverifiedShow Answer

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

Correct AnswerverifiedShow Answer

If interest rates rise in the U.S., then other things the same

Correct AnswerverifiedShow Answer

If a U.S. resident purchases a foreign bond, her transactions are included

Correct AnswerverifiedShow Answer

If the U.S. were to impose import quotas

Correct AnswerverifiedShow Answer

Which of the following is most likely to increase the exports of a country?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The interest rate rises. The increase in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Its exchange rate fa...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified