Exam 19: A Macroeconomic Theory of the Open Economy

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

A trade policy is a government policy

Other things the same, a decrease in the U.S. real interest rate induces

Trade policies

In the long run, import quotas increase net exports.

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

If the demand for loanable funds shifts right, then

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

At the equilibrium real interest rate in the open-economy macroeconomic model

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.

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

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

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

An increase in the government budget deficit shifts the supply of loanable funds to the left.

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

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

If U.S. citizens decide to save a smaller fraction of their incomes, U.S. domestic investment

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

Figure 19-1 -Refer to Figure 19-1. The loanable funds market is in equilibrium at