Exam 13: A Macroeconomic Theory of the Small Open Economy

Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r. a) Find the relationship between net capital outflow and the world interest rate rw. b) If net exports are described by NX = 16 - 4X, find the relationship between NX and the world interest rate at the equilibrium exchange rate. c) For rw = 1.4, what is the elasticity of NX with respect to rw? d) What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

If there is a surplus of loanable funds, what best describes the difference?

Suppose that from 1980 to 1987, Canadian net capital outflows decreased. According to the open-economy macroeconomic model, what could have caused this?

When a country suffers from capital flight, which statement best explains the effects?

What does the value of net exports equal?

Which statement best predicts the effects of an increase in a country's real interest rate?

In 2012 and again in 2015, citizens of Greece were reported to be withdrawing their savings from Greek banks because they feared that Greece would leave the European Union. What is consistent with what the open-economy macroeconomic model predicts?

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

Suppose that Canada imposes an import quota on snow blowers. In the open-economy macroeconomic model, which curve would this quota shift?

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

What is the correct way to show the effects of a new import quota?

Figure 13-1 -Refer to Figure 13-1. In the figure shown, if the real interest rate is 7 percent, what is the result?

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

Suppose that in the 1990s, Canadian net capital outflow fell. Which of the following could explain this?

What would make both the equilibrium interest rate and the equilibrium quantity of loanable funds decrease?