Question 1

If a government increases its budget deficit, which of the following best describes 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 fall. 
D) Interest rates fall and domestic investment rise. 
A) Interest rates and domestic investment rise. 
B) Interest rates and domestic investment fall. 
C) Interest rates rise and domestic investment fall. 
D) Interest rates fall and domestic investment rise.

Question 2

Which of the following would be consistent with an increase in the Canadian real interest rate?

Accepted Answer

A) A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing. 
B) Canadian firms decide, since interest rates are higher, to do more investment spending. 
C) Brad, a Canadian resident, decides to put less money in his savings account than he had planned to. 
D) Canadian net exports increase. 
A) A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing. 
B) Canadian firms decide, since interest rates are higher, to do more investment spending. 
C) Brad, a Canadian resident, decides to put less money in his savings account than he had planned to. 
D) Canadian net exports increase.

Question 3

Suppose that Canada imposed an import quota on beef. Which of the following identifies the most likely results?

Accepted Answer

A) Sales of Canadian beef would rise; exports of other industries would increase. 
B) Sales of Canadian beef would rise; exports of other industries would decline. 
C) Sales of Canadian beef would not change; exports of other industries would increase. 
D) Sales of Canadian beef would not change; exports of other industries would decline. 
A) Sales of Canadian beef would rise; exports of other industries would increase. 
B) Sales of Canadian beef would rise; exports of other industries would decline. 
C) Sales of Canadian beef would not change; exports of other industries would increase. 
D) Sales of Canadian beef would not change; exports of other industries would decline.

Question 4

Since the mid 1990s, Canadian governments have tried to eliminate budget deficits. Which of the following was expected to happen?

Accepted Answer

A) This would decrease national savings, appreciate the real exchange rate, and decrease net exports. 
B) This would increase national savings, depreciate the real exchange rate, and increase net exports. 
C) This would increase national savings, depreciate the real exchange rate, and increase net exports 
D) This would decrease national savings, depreciate the real exchange rate, and decrease net exports. 
A) This would decrease national savings, appreciate the real exchange rate, and decrease net exports. 
B) This would increase national savings, depreciate the real exchange rate, and increase net exports. 
C) This would increase national savings, depreciate the real exchange rate, and increase net exports 
D) This would decrease national savings, depreciate the real exchange rate, and decrease net exports.

Question 5

Where does the supply of dollars in the foreign currency exchange market come from?

Accepted Answer

A) from Canadian national saving 
B) from Canadian net capital outflow 
C) from domestic investment 
D) from foreign demand for Canadian goods 
A) from Canadian national saving 
B) from Canadian net capital outflow 
C) from domestic investment 
D) from foreign demand for Canadian goods

Question 6

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 7

If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 8

In the open-economy macroeconomic model we focus on the determination of GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 9

How does the supply or demand for loanable funds shift when a country increases its budget deficit?

Accepted Answer

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

Question 10

If a government increases its budget deficit, which of the following best predicts the effects?

Accepted Answer

A) The real exchange rate appreciates, and the trade balance moves toward surplus. 
B) The real exchange rate appreciates, and the trade balance moves toward deficit. 
C) The real exchange rate depreciates, and the trade balance moves toward surplus. 
D) The real exchange rate depreciates, and the trade balance moves toward deficit. 
A) The real exchange rate appreciates, and the trade balance moves toward surplus. 
B) The real exchange rate appreciates, and the trade balance moves toward deficit. 
C) The real exchange rate depreciates, and the trade balance moves toward surplus. 
D) The real exchange rate depreciates, and the trade balance moves toward deficit.

Question 11

Which of the following will not change Canadian net exports?

Accepted Answer

A) capital flight from Canada 
B) an increase in the government budget deficit 
C) the imposition of Canadian import quotas 
D) an increase in the world interest rate 
A) capital flight from Canada 
B) an increase in the government budget deficit 
C) the imposition of Canadian import quotas 
D) an increase in the world interest rate

Question 12

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A) increasing domestic saving 
B) increasing political stability and respect for property rights 
C) negotiating with other countries to get them to reduce their trade restrictions 
D) imposing higher tariffs on imported goods 
A) increasing domestic saving 
B) increasing political stability and respect for property rights 
C) negotiating with other countries to get them to reduce their trade restrictions 
D) imposing higher tariffs on imported goods

Question 13

If the government started with a budget deficit and moved to a surplus, which of the following best describes the effects of these changes?

Accepted Answer

A) Domestic investment would rise, and the trade balance would move towards surplus. 
B) Domestic investment would rise, and the trade balance would move towards deficit. 
C) Domestic investment would fall, and the trade balance would move towards surplus. 
D) Domestic investment would fall, and the trade balance would move towards deficit. 
A) Domestic investment would rise, and the trade balance would move towards surplus. 
B) Domestic investment would rise, and the trade balance would move towards deficit. 
C) Domestic investment would fall, and the trade balance would move towards surplus. 
D) Domestic investment would fall, and the trade balance would move towards deficit.

Question 14

In the open economy macroeconomic model, what is net capital outflow equal to?

Accepted Answer

A) the quantity of dollars supplied in the foreign exchange market 
B) the quantity of dollars demand in the foreign exchange market 
C) the quantity of funds supplied in the loanable funds market 
D) the quantity of funds demanded in the loanable funds market 
A) the quantity of dollars supplied in the foreign exchange market 
B) the quantity of dollars demand in the foreign exchange market 
C) the quantity of funds supplied in the loanable funds market 
D) the quantity of funds demanded in the loanable funds market

Question 15

If a government started with a deficit and moved to a surplus, which of the following best describes the effects of these changes?

Accepted Answer

A) Domestic investment and the real exchange rate would rise. 
B) Domestic investment and the real exchange rate would fall. 
C) Domestic investment would rise, and the real exchange rate would fall. 
D) Domestic investment would fall, and the real exchange rate would rise. 
A) Domestic investment and the real exchange rate would rise. 
B) Domestic investment and the real exchange rate would fall. 
C) Domestic investment would rise, and the real exchange rate would fall. 
D) Domestic investment would fall, and the real exchange rate would rise.

Question 16

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Accepted Answer

A) True 
 B)False

Question 17

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). Which of the following 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 18

If Kenya experienced capital flight, which of the following best explains the effects?

Accepted Answer

A) The supply of Kenyan schillings curve would shift left, which would make the real exchange rate of the Kenyan schilling appreciate. 
B) The supply of Kenyan schillings curve would shift left, which would make the real exchange rate of the Kenyan schilling depreciate. 
C) The supply of Kenyan schillings curve would shift right, which would make the real exchange rate of the Kenyan schilling appreciate. 
D) The supply of Kenyan schillings curve would shift right, which would make the real exchange rate of the Kenyan schilling depreciate. 
A) The supply of Kenyan schillings curve would shift left, which would make the real exchange rate of the Kenyan schilling appreciate. 
B) The supply of Kenyan schillings curve would shift left, which would make the real exchange rate of the Kenyan schilling depreciate. 
C) The supply of Kenyan schillings curve would shift right, which would make the real exchange rate of the Kenyan schilling appreciate. 
D) The supply of Kenyan schillings curve would shift right, which would make the real exchange rate of the Kenyan schilling depreciate.

Question 19

What does a lower real interest rate decrease the quantity of?

Accepted Answer

A) loanable funds demanded 
B) loanable funds supplied 
C) domestic investment 
D) net capital outflow 
A) loanable funds demanded 
B) loanable funds supplied 
C) domestic investment 
D) net capital outflow

Question 20

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

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

If a government increases its budget deficit, which of the following best describes the consequences?

Which of the following would be consistent with an increase in the Canadian real interest rate?

Suppose that Canada imposed an import quota on beef. Which of the following identifies the most likely results?

Since the mid 1990s, Canadian governments have tried to eliminate budget deficits. Which of the following was expected to happen?

Where does the supply of dollars in the foreign currency exchange market come from?

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

If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

In the open-economy macroeconomic model we focus on the determination of GDP and the price level.

How does the supply or demand for loanable funds shift when a country increases its budget deficit?

If a government increases its budget deficit, which of the following best predicts the effects?

Which of the following will not change Canadian net exports?

Which of the following would do the most to reduce a trade deficit?

If the government started with a budget deficit and moved to a surplus, which of the following best describes the effects of these changes?

In the open economy macroeconomic model, what is net capital outflow equal to?

If a government started with a deficit and moved to a surplus, which of the following best describes the effects of these changes?

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). Which of the following is consistent with what the open-economy macroeconomic model predicts?

If Kenya experienced capital flight, which of the following best explains the effects?

What does a lower real interest rate decrease the quantity of?

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

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 and 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 Open Economy

If a government increases its budget deficit, which of the following best describes the consequences?

Which of the following would be consistent with an increase in the Canadian real interest rate?

Suppose that Canada imposed an import quota on beef. Which of the following identifies the most likely results?

Since the mid 1990s, Canadian governments have tried to eliminate budget deficits. Which of the following was expected to happen?

Where does the supply of dollars in the foreign currency exchange market come from?

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

If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

In the open-economy macroeconomic model we focus on the determination of GDP and the price level.

How does the supply or demand for loanable funds shift when a country increases its budget deficit?

If a government increases its budget deficit, which of the following best predicts the effects?

Which of the following will not change Canadian net exports?

Which of the following would do the most to reduce a trade deficit?

If the government started with a budget deficit and moved to a surplus, which of the following best describes the effects of these changes?

In the open economy macroeconomic model, what is net capital outflow equal to?

If a government started with a deficit and moved to a surplus, which of the following best describes the effects of these changes?

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). Which of the following is consistent with what the open-economy macroeconomic model predicts?

If Kenya experienced capital flight, which of the following best explains the effects?

What does a lower real interest rate decrease the quantity of?

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters