Question 1

If the budget deficit increases, then

Accepted Answer

A) an increase in the interest rate increases net capital outflow. 
B) an increase in the interest rate decreases net capital outflow. 
C) a decrease in the interest rate increases net capital outflow. 
D) a decrease in the interest rate decreases net capital outflow. 
A) an increase in the interest rate increases net capital outflow. 
B) an increase in the interest rate decreases net capital outflow. 
C) a decrease in the interest rate increases net capital outflow. 
D) a decrease in the interest rate decreases net capital outflow.

Question 2

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A) both a U.S. retail chain wanting to build a store in France and a U.S. retail chain wanting to buy dresses produced in Italy 
B) a U.S. retail chain wanting to build a store in France but not a U.S. retail chain wanting to buy dresses produced in Italy 
C) a U.S. retail chain wanting to buy dresses produced in Italy, but not a U.S. retail chain wanting to build a store in France 
D) neither a U.S. retail chain wanting to build a store in France nor a U.S. retail chain wanting to buy dresses produced in Italy 
A) both a U.S. retail chain wanting to build a store in France and a U.S. retail chain wanting to buy dresses produced in Italy 
B) a U.S. retail chain wanting to build a store in France but not a U.S. retail chain wanting to buy dresses produced in Italy 
C) a U.S. retail chain wanting to buy dresses produced in Italy, but not a U.S. retail chain wanting to build a store in France 
D) neither a U.S. retail chain wanting to build a store in France nor a U.S. retail chain wanting to buy dresses produced in Italy

Question 3

In the open-economy macroeconomic model, if a country's interest rate rises, then its

Accepted Answer

A) net capital outflow and net exports rise. 
B) net capital outflow rises and its net exports fall. 
C) net capital outflow falls and its net exports rise. 
D) net capital outflow and net exports fall. 
A) net capital outflow and net exports rise. 
B) net capital outflow rises and its net exports fall. 
C) net capital outflow falls and its net exports rise. 
D) net capital outflow and net exports fall.

Question 4

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is the most likely result from an increase in a country's government 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 6

What do trade policies do to the standard of living?

Accepted Answer

Trade policies reduce both imports and e

Question 7

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. 
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.

Question 8

In the open-economy macroeconomic model, if the U.S. interest rate rises, then its

Accepted Answer

A) net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right. 
B) net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. 
C) net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. 
D) net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left. 
A) net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right. 
B) net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. 
C) net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. 
D) net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.

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

From 2001 to 2004, the U.S. government went from a budget surplus to a budget deficit. According to the open-economy macroeconomic model, this should have decreased

Accepted Answer

A) both the supply of loanable funds and the supply of dollars in the market for foreign-currency exchange. 
B) neither the supply of loanable funds nor the supply of dollars in the market for foreign-currency exchange. 
C) the supply of loanable funds but not the supply of dollars in the market for foreign-currency exchange. 
D) the supply of dollars in the market for foreign-currency exchange, but not the supply of loanable funds. 
A) both the supply of loanable funds and the supply of dollars in the market for foreign-currency exchange. 
B) neither the supply of loanable funds nor the supply of dollars in the market for foreign-currency exchange. 
C) the supply of loanable funds but not the supply of dollars in the market for foreign-currency exchange. 
D) the supply of dollars in the market for foreign-currency exchange, but not the supply of loanable funds.

Question 11

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

Accepted Answer

A) increased Russian interest rates and net exports. 
B) reduced Russian interest rates and net exports. 
C) increased Russian interest rates and reduced Russian net exports. 
D) reduced Russian interest rates and increased Russian net exports. 
A) increased Russian interest rates and net exports. 
B) reduced Russian interest rates and net exports. 
C) increased Russian interest rates and reduced Russian net exports. 
D) reduced Russian interest rates and increased Russian net exports.

Question 12

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. 
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.

Question 13

Which of the following is correct in an open economy?

Accepted Answer

A) S = I 
B) S = NX + NCO 
C) S = NCO 
D) S = I + NCO 
A) S = I 
B) S = NX + NCO 
C) S = NCO 
D) S = I + NCO

Question 14

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

Accepted Answer

A) the real exchange rate. When the real exchange rate rises, net capital outflow rises. 
B) the real exchange rate. When the real exchange rate rises, net capital outflow falls. 
C) the real interest rate. When the real interest rate rises, net capital outflow rises. 
D) the real interest rate. When the real interest rate rises, net capital outflow falls. 
A) the real exchange rate. When the real exchange rate rises, net capital outflow rises. 
B) the real exchange rate. When the real exchange rate rises, net capital outflow falls. 
C) the real interest rate. When the real interest rate rises, net capital outflow rises. 
D) the real interest rate. When the real interest rate rises, net capital outflow falls.

Question 15

The value of net exports equals the value of

Accepted Answer

A) national saving. 
B) public saving. 
C) national saving - net capital outflow. 
D) national saving - domestic investment. 
A) national saving. 
B) public saving. 
C) national saving - net capital outflow. 
D) national saving - domestic investment.

Question 16

According to the open-economy macroeconomic model, if the U.S. government budget deficit increases, then both U.S. domestic investment and U.S. net capital outflow decrease.

Accepted Answer

A) True 
 B)False

Question 17

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. 
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.

Question 18

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. 
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.

Question 19

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

Accepted Answer

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

Question 20

The diagram below represents the market for loanable funds and the market for foreign-currency exchange in Mexico. Use the diagram to answer the following questions.Figure 19-7  
-Refer to Figure 19-7. Supposing that the Mexican economy starts at r0 and E1. Which of the following is consistent with the effects of capital flight?

Accepted Answer

A) the shift from D0 to D1 in Panel A 
B) the shift from NCO0 to NCO1 in Panel B 
C) the shift from S0 to S1 in Panel C 
D) All of the above shifts are consistent with the effects of capital flight. 
A) the shift from D0 to D1 in Panel A 
B) the shift from NCO0 to NCO1 in Panel B 
C) the shift from S0 to S1 in Panel C 
D) All of the above shifts are consistent with the effects of capital flight.

Exam 19: A Macroeconomic Theory of the Open Economy

If the budget deficit increases, then

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

In the open-economy macroeconomic model, if a country's interest rate rises, then its

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Which of the following is the most likely result from an increase in a country's government budget surplus?

What do trade policies do to the standard of living?

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

In the open-economy macroeconomic model, if the U.S. interest rate rises, then its

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

From 2001 to 2004, the U.S. government went from a budget surplus to a budget deficit. According to the open-economy macroeconomic model, this should have decreased

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

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

Which of the following is correct in an open economy?

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

The value of net exports equals the value of

According to the open-economy macroeconomic model, if the U.S. government budget deficit increases, then both U.S. domestic investment and U.S. net capital outflow decrease.

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

When a country imposes an import quota, its

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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