Question 1

In the open-economy macroeconomic model, what is the key determinant of net capital outflow?

Accepted Answer

A)  the nominal exchange rate 
B)  the nominal interest rate 
C)  the real exchange rate 
D)  the real interest rate 
A)  the nominal exchange rate 
B)  the nominal interest rate 
C)  the real exchange rate 
D)  the real interest rate

Question 2

Which statement best explains the effect of trade policies on the trade balance?

Accepted Answer

A)  Trade policies alter the trade balance because they alter imports of the country that implemented them. 
B)  Trade policies alter the trade balance because they alter net capital outflow of the country that implemented them. 
C)  Trade policies do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D)  Trade policies do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them. 
A)  Trade policies alter the trade balance because they alter imports of the country that implemented them. 
B)  Trade policies alter the trade balance because they alter net capital outflow of the country that implemented them. 
C)  Trade policies do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D)  Trade policies do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.

Question 3

How does an increase in the Canadian government budget deficit change the graph representing the Canadian market for loanable funds?

Accepted Answer

A)  The supply of loanable funds curve shifts to the right. 
B)  The supply of loanable funds curve shifts to the left. 
C)  The demand for loanable funds shifts to the right. 
D)  The demand for loanable funds shifts to the left. 
A)  The supply of loanable funds curve shifts to the right. 
B)  The supply of loanable funds curve shifts to the left. 
C)  The demand for loanable funds shifts to the right. 
D)  The demand for loanable funds shifts to the left.

Question 4

Which statement is consistent with an appreciation of the dollar?

Accepted Answer

A)  Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall. 
B)  Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise. 
C)  Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall. 
D)  Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise. 
A)  Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall. 
B)  Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise. 
C)  Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall. 
D)  Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.

Question 5

In the open-economy macroeconomic model, what would make Trinidad's net capital outflow decrease?

Accepted Answer

A)  a decrease in Canadian interest rates 
B)  a decrease in Trinidadian interest rates 
C)  an appreciation of the Trinidadian dollar 
D)  an increase in Trinidad's net exports 
A)  a decrease in Canadian interest rates 
B)  a decrease in Trinidadian interest rates 
C)  an appreciation of the Trinidadian dollar 
D)  an increase in Trinidad's net exports

Question 6

In 2002 and again in 2014, the Argentinean government defaulted on its debt. Which statement is consistent with what the open-economy macroeconomic model predicts?

Accepted Answer

A)  This event should have raised Argentinean interest rates and caused the Argentinean currency to appreciate. 
B)  This event should have raised Argentinean interest rates and caused the Argentinean currency to depreciate. 
C)  This event should have lowered Argentinean interest rates and caused the Argentinean currency to appreciate. 
D)  This event should have lowered Argentinean interest rates and caused the Argentinean currency to depreciate. 
A)  This event should have raised Argentinean interest rates and caused the Argentinean currency to appreciate. 
B)  This event should have raised Argentinean interest rates and caused the Argentinean currency to depreciate. 
C)  This event should have lowered Argentinean interest rates and caused the Argentinean currency to appreciate. 
D)  This event should have lowered Argentinean interest rates and caused the Argentinean currency to depreciate.

Question 7

Suppose that Canadian investors decide that investment opportunities in African countries have improved. What happens to Canadian net capital outflow? What happens to the Canadian real interest rate?

Accepted Answer

Canadian net capital outflow w

Question 8

What is the effect of an increase in Canadian government deficit?

Accepted Answer

A)  Canadian national saving increases. 
B)  The real exchange rate of the dollar increases. 
C)  Canadian net exports increase. 
D)  Canadian domestic investment increases. 
A)  Canadian national saving increases. 
B)  The real exchange rate of the dollar increases. 
C)  Canadian net exports increase. 
D)  Canadian domestic investment increases.

Question 9

Suppose that Canada places higher tariffs on imports of ice cream. What would be the most likely result?

Accepted Answer

A)  The tariffs would reduce imports into Canada, which would cause Canadian net exports to rise. 
B)  The tariffs would reduce imports into Canada, which would cause the net supply of dollars in the foreign exchange market to rise. 
C)  The tariffs would reduce imports of ice cream into Canada, but would reduce Canadian exports of other goods by an equal amount. 
D)  The tariffs would reduce imports of ice cream into Canada, but would increase Canadian exports of other goods by an equal amount. 
A)  The tariffs would reduce imports into Canada, which would cause Canadian net exports to rise. 
B)  The tariffs would reduce imports into Canada, which would cause the net supply of dollars in the foreign exchange market to rise. 
C)  The tariffs would reduce imports of ice cream into Canada, but would reduce Canadian exports of other goods by an equal amount. 
D)  The tariffs would reduce imports of ice cream into Canada, but would increase Canadian exports of other goods by an equal amount.

Question 10

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?

Accepted Answer

A)  The exchange rate rises. 
B)  The exchange rate falls. 
C)  The expected rate of return on Canadian assets rises. 
D)  The expected rate of return on Canadian assets falls. 
A)  The exchange rate rises. 
B)  The exchange rate falls. 
C)  The expected rate of return on Canadian assets rises. 
D)  The expected rate of return on Canadian assets falls.

Question 11

If the government of Pakistan made policy changes that increased national saving, which statement would best predict the consequences?

Accepted Answer

A)  The real exchange rate of the rupee would depreciate, and Pakistan net exports would rise. 
B)  The real exchange rate of the rupee would depreciate, and Pakistan net exports would fall. 
C)  The real exchange rate of the rupee would appreciate, and Pakistan net exports would rise. 
D)  The real exchange rate of the rupee would appreciate, and Pakistan net exports would fall. 
A)  The real exchange rate of the rupee would depreciate, and Pakistan net exports would rise. 
B)  The real exchange rate of the rupee would depreciate, and Pakistan net exports would fall. 
C)  The real exchange rate of the rupee would appreciate, and Pakistan net exports would rise. 
D)  The real exchange rate of the rupee would appreciate, and Pakistan net exports would fall.

Question 12

If a government increases its budget deficit, which statement would best describe the consequences?

Accepted Answer

A)  Interest rates and domestic investment rise. 
B)  Interest rates and domestic investment fall. 
C)  Interest rates rise, and domestic investment falls. 
D)  Interest rates fall, and domestic investment rises. 
A)  Interest rates and domestic investment rise. 
B)  Interest rates and domestic investment fall. 
C)  Interest rates rise, and domestic investment falls. 
D)  Interest rates fall, and domestic investment rises.

Question 13

Suppose we measure Canada's net capital outflow by what Statistics Canada calls "net international investment position," and we approximate the real exchange rate of the dollar by the price of the Canadian dollar in terms of U.S. dollars. The following table gives some fictitious data on these two variables.
 
a. What does our open-economy macroeconomic model predict with regard to the relationship between net capital outflow and the real exchange rate?
b. Do you find evidence in the data to support the theory?
c. If you find discrepancies between the data and the theory, what could cause them?

Accepted Answer

a. Our macro model predicts an inverse r

Question 14

At the equilibrium interest rate in the open-macroeconomic model, what is the amount that people want to save?

Accepted Answer

A)  the desired quantity of net capital outflow 
B)  the desired quantity of domestic investment 
C)  the desired quantity of net capital outflow plus domestic investment 
D)  the desired quantity of net capital outflow minus domestic investment 
A)  the desired quantity of net capital outflow 
B)  the desired quantity of domestic investment 
C)  the desired quantity of net capital outflow plus domestic investment 
D)  the desired quantity of net capital outflow minus domestic investment

Question 15

What does the identity "net capital outflow = net exports" imply?

Accepted Answer

A)  The supply of dollars equals the demand for dollars in the foreign-currency market. 
B)  National saving equals domestic investment. 
C)  The volume of exports equals the volume of imports. 
D)  Canadian investment abroad is equal to foreign investment in Canada. 
A)  The supply of dollars equals the demand for dollars in the foreign-currency market. 
B)  National saving equals domestic investment. 
C)  The volume of exports equals the volume of imports. 
D)  Canadian investment abroad is equal to foreign investment in Canada.

Question 16

What is the most likely result from an increase in the government's budget surplus?

Accepted Answer

A)  higher interest rates 
B)  lower imports 
C)  lower net capital outflows 
D)  lower domestic investment 
A)  higher interest rates 
B)  lower imports 
C)  lower net capital outflows 
D)  lower domestic investment

Question 17

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

Accepted Answer

A)  Canadian interest rates rise. 
B)  Canadian net capital outflow falls. 
C)  The real exchange rate of the Canadian dollar depreciates. 
D)  The Canadian supply of loanable funds shifts left. 
A)  Canadian interest rates rise. 
B)  Canadian net capital outflow falls. 
C)  The real exchange rate of the Canadian dollar depreciates. 
D)  The Canadian supply of loanable funds shifts left.

Question 18

In an open economy, what best identifies the sources of loanable funds?

Accepted Answer

A)  Canadians who consume less than their income and government budget deficit 
B)  Canadians who consume less than their income and government budget surplus 
C)  foreigners who buy Canadian bonds and shares of stock and Canadian government surplus 
D)  foreigners who invest in Canada and Canadian government surplus 
A)  Canadians who consume less than their income and government budget deficit 
B)  Canadians who consume less than their income and government budget surplus 
C)  foreigners who buy Canadian bonds and shares of stock and Canadian government surplus 
D)  foreigners who invest in Canada and Canadian government surplus

Question 19

Following an increase in the Canadian budget deficit, it has been observed that the trade deficit has increased, the Canadian real exchange rate has appreciated, the net capital outflow has decreased, and the interest rate has decreased. Which event is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

Accepted Answer

A)  The trade deficit has increased. 
B)  The real exchange rate has appreciated. 
C)  The net capital outflow has decreased. 
D)  The interest rate has decreased. 
A)  The trade deficit has increased. 
B)  The real exchange rate has appreciated. 
C)  The net capital outflow has decreased. 
D)  The interest rate has decreased.

Question 20

Peter and Wendy are co-owners of the Canadian firm, Tick Tock Airlines. Peter borrows money to build airplanes in Quebec. Wendy borrows money to build airplanes in England. How does this affect the market for loanable funds in Canada?

Accepted Answer

A)  Peter increases the demand for loanable funds. 
B)  Wendy increases the demand for loanable funds. 
C)  Peter increases the supply for loanable funds. 
D)  Wendy increases the supply of loanable funds. 
A)  Peter increases the demand for loanable funds. 
B)  Wendy increases the demand for loanable funds. 
C)  Peter increases the supply for loanable funds. 
D)  Wendy increases the supply of loanable funds.

In the open-economy macroeconomic model, what is the key determinant of net capital outflow?

Which statement best explains the effect of trade policies on the trade balance?

How does an increase in the Canadian government budget deficit change the graph representing the Canadian market for loanable funds?

Which statement is consistent with an appreciation of the dollar?

In the open-economy macroeconomic model, what would make Trinidad's net capital outflow decrease?

In 2002 and again in 2014, the Argentinean government defaulted on its debt. Which statement is consistent with what the open-economy macroeconomic model predicts?

Suppose that Canadian investors decide that investment opportunities in African countries have improved. What happens to Canadian net capital outflow? What happens to the Canadian real interest rate?

What is the effect of an increase in Canadian government deficit?

Suppose that Canada places higher tariffs on imports of ice cream. What would be the most likely result?

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?

If the government of Pakistan made policy changes that increased national saving, which statement would best predict the consequences?

If a government increases its budget deficit, which statement would best describe the consequences?

At the equilibrium interest rate in the open-macroeconomic model, what is the amount that people want to save?

What does the identity "net capital outflow = net exports" imply?

What is the most likely result from an increase in the government's budget surplus?

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

In an open economy, what best identifies the sources of loanable funds?

Peter and Wendy are co-owners of the Canadian firm, Tick Tock Airlines. Peter borrows money to build airplanes in Quebec. Wendy borrows money to build airplanes in England. How does this affect the market for loanable funds in Canada?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 13: A Macroeconomic Theory of the Small Open Economy

In the open-economy macroeconomic model, what is the key determinant of net capital outflow?

Which statement best explains the effect of trade policies on the trade balance?

How does an increase in the Canadian government budget deficit change the graph representing the Canadian market for loanable funds?

Which statement is consistent with an appreciation of the dollar?

In the open-economy macroeconomic model, what would make Trinidad's net capital outflow decrease?

In 2002 and again in 2014, the Argentinean government defaulted on its debt. Which statement is consistent with what the open-economy macroeconomic model predicts?

Suppose that Canadian investors decide that investment opportunities in African countries have improved. What happens to Canadian net capital outflow? What happens to the Canadian real interest rate?

What is the effect of an increase in Canadian government deficit?

Suppose that Canada places higher tariffs on imports of ice cream. What would be the most likely result?

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?

If the government of Pakistan made policy changes that increased national saving, which statement would best predict the consequences?

If a government increases its budget deficit, which statement would best describe the consequences?

At the equilibrium interest rate in the open-macroeconomic model, what is the amount that people want to save?

What does the identity "net capital outflow = net exports" imply?

What is the most likely result from an increase in the government's budget surplus?

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

In an open economy, what best identifies the sources of loanable funds?

Peter and Wendy are co-owners of the Canadian firm, Tick Tock Airlines. Peter borrows money to build airplanes in Quebec. Wendy borrows money to build airplanes in England. How does this affect the market for loanable funds in Canada?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters