Question 1

Explain why the Australian dollar may appreciate owing to a change in interest rates?

Accepted Answer

Relatively high rates in Australia, comp

Question 2

In using the open-economy macroeconomic model to analyse an event, the first step is to:

Accepted Answer

A)  determine which of the supply and demand curves the event affects 
B)  determine which way the curves shift 
C)  use the supply-and-demand diagrams to examine how the shifts alter the economy's equilibrium 
D)  it doesn't matter in which order the steps are taken 
A)  determine which of the supply and demand curves the event affects 
B)  determine which way the curves shift 
C)  use the supply-and-demand diagrams to examine how the shifts alter the economy's equilibrium 
D)  it doesn't matter in which order the steps are taken

Question 3

The demand for loanable funds comes from:

Accepted Answer

A)  domestic investment 
B)  net foreign investment 
C)  national saving 
D)  both A and B 
E)  A, B and C 
A)  domestic investment 
B)  net foreign investment 
C)  national saving 
D)  both A and B 
E)  A, B and C

Question 4

Citing a recent example, describe how a loss of overseas confidence due to political/financial instability may cause that country's exchange rate to depreciate.

Accepted Answer

Overseas investors will look elsewhere t

Question 5

Participants in the market for foreign-currency exchange trade Australian dollars in exchange for foreign currencies.

Accepted Answer

A) True 
 B)False

Question 6

If a country experienced a large and sudden movement of funds out of it, the interest rate would:

Accepted Answer

A)  increase 
B)  decrease 
C)  be unaffected 
D)  fluctuate 
A)  increase 
B)  decrease 
C)  be unaffected 
D)  fluctuate

Question 7

According to the theory of purchasing-power parity, the demand curve is horizontal at the level of the real exchange rate that ensures parity of purchasing power at home and abroad.

Accepted Answer

A) True 
 B)False

Question 8

NARRBEGIN 32-2
Graph 32-2
  
-If money is neutral, the nominal exchange rate must _____ when the domestic price level rises.

Accepted Answer

A)  fall 
B)  rise 
C)  not change 
D)  none of the above 
A)  fall 
B)  rise 
C)  not change 
D)  none of the above

Question 9

NARRBEGIN 32-2
Graph 32-2
  
-In Graph 32-2, capital flight from Indonesia causes the supply of rupiah in the foreign-currency exchange market to:

Accepted Answer

A)  decrease from S0 to S1 
B)  increase from S1 to S0 
C)  be unaffected 
D)  it is impossible to tell what happens to the supply of pesos 
A)  decrease from S0 to S1 
B)  increase from S1 to S0 
C)  be unaffected 
D)  it is impossible to tell what happens to the supply of pesos

Question 10

In recent times China overtook Germany to become the world's biggest exporter. On one measure it now looks likely to become the world's biggest economy within 10 years.

Accepted Answer

A) True 
 B)False

Question 11

NARRBEGIN 32-2
Graph 32-2
  
-Which of the following statements is not correct when the government runs a budget deficit?

Accepted Answer

A)  The supply of loanable funds decreases 
B)  The interest rate rises 
C)  Net foreign investment increases 
D)  The real exchange rate appreciates 
A)  The supply of loanable funds decreases 
B)  The interest rate rises 
C)  Net foreign investment increases 
D)  The real exchange rate appreciates

Question 12

NARRBEGIN 32-2
Graph 32-2
  
-In Graph 32-2, capital flight from Indonesia causes the demand for loanable funds in Indonesia to:

Accepted Answer

A)  decrease from D0 to D1 
B)  increase from D1 to D0 
C)  be unaffected 
D)  it is impossible to tell what happens to net foreign investment 
A)  decrease from D0 to D1 
B)  increase from D1 to D0 
C)  be unaffected 
D)  it is impossible to tell what happens to net foreign investment

Question 13

In the market for foreign-currency exchange, E1 is:

Accepted Answer

A)  the price of goods and services in the present relative to goods and services in the future 
B)  the price of goods and services in the future relative to goods and services in the present 
C)  the price of foreign goods and services relative to domestic goods and services 
D)  the price of domestic goods and services relative to foreign goods and services 
A)  the price of goods and services in the present relative to goods and services in the future 
B)  the price of goods and services in the future relative to goods and services in the present 
C)  the price of foreign goods and services relative to domestic goods and services 
D)  the price of domestic goods and services relative to foreign goods and services

Question 14

In the market for foreign-currency exchange, the supply curve represents:

Accepted Answer

A)  national saving 
B)  private saving 
C)  domestic investment 
D)  net foreign investment 
E)  none of the above 
A)  national saving 
B)  private saving 
C)  domestic investment 
D)  net foreign investment 
E)  none of the above

Question 15

Commentators often refer to government budget deficits and trade deficits as 'twin deficits'. Explain how the two types of deficit are related.

Accepted Answer

An increase in the government deficit re

Question 16

NARRBEGIN 32-2
Graph 32-2
  
-Trade policies:

Accepted Answer

A)  directly affect a country's overall trade balance 
B)  affect specific firms and industries in countries 
C)  do not affect specific firms and industries in countries 
D)  both A and C 
A)  directly affect a country's overall trade balance 
B)  affect specific firms and industries in countries 
C)  do not affect specific firms and industries in countries 
D)  both A and C

Question 17

Because trade policies do not affect a country's overall trade balance, they also do not affect specific firms, industries and foreign countries.

Accepted Answer

A) True 
 B)False

Question 18

NARRBEGIN 32-2
Graph 32-2
  
-What is the difference between the supply of loanable funds in a closed economy and that in an open economy?

Accepted Answer

The supply of loanable funds in an open

Question 19

The concept of income elasticity of demand is also an explanation of how nations behave when the cost of luxury imports increase in price.

Accepted Answer

A) True 
 B)False

Question 20

Graph 32-1
  
-In Graph 32-1, an increase in the government budget deficit causes the equilibrium in the economy to move from:

Accepted Answer

A)  A to B in panel (a) and from E1 to E2 in panel (c) 
B)  B to A in panel (a) and from E2 to E1 in panel (c) 
C)  A to B in panel (a) and from E2 to E1 in panel (c) 
D)  B to A in panel (a) and from E1 to E2 in panel (c) 
A)  A to B in panel (a) and from E1 to E2 in panel (c) 
B)  B to A in panel (a) and from E2 to E1 in panel (c) 
C)  A to B in panel (a) and from E2 to E1 in panel (c) 
D)  B to A in panel (a) and from E1 to E2 in panel (c)

Exam 32: A Macroeconomic Theory of the Open Economy

Explain why the Australian dollar may appreciate owing to a change in interest rates?

In using the open-economy macroeconomic model to analyse an event, the first step is to:

The demand for loanable funds comes from:

Citing a recent example, describe how a loss of overseas confidence due to political/financial instability may cause that country's exchange rate to depreciate.

Participants in the market for foreign-currency exchange trade Australian dollars in exchange for foreign currencies.

If a country experienced a large and sudden movement of funds out of it, the interest rate would:

According to the theory of purchasing-power parity, the demand curve is horizontal at the level of the real exchange rate that ensures parity of purchasing power at home and abroad.

NARRBEGIN 32-2 Graph 32-2 -If money is neutral, the nominal exchange rate must _____ when the domestic price level rises.

NARRBEGIN 32-2 Graph 32-2 -In Graph 32-2, capital flight from Indonesia causes the supply of rupiah in the foreign-currency exchange market to:

In recent times China overtook Germany to become the world's biggest exporter. On one measure it now looks likely to become the world's biggest economy within 10 years.

NARRBEGIN 32-2 Graph 32-2 -Which of the following statements is not correct when the government runs a budget deficit?

NARRBEGIN 32-2 Graph 32-2 -In Graph 32-2, capital flight from Indonesia causes the demand for loanable funds in Indonesia to:

In the market for foreign-currency exchange, E1 is:

In the market for foreign-currency exchange, the supply curve represents:

Commentators often refer to government budget deficits and trade deficits as 'twin deficits'. Explain how the two types of deficit are related.

NARRBEGIN 32-2 Graph 32-2 -Trade policies:

Because trade policies do not affect a country's overall trade balance, they also do not affect specific firms, industries and foreign countries.

NARRBEGIN 32-2 Graph 32-2 -What is the difference between the supply of loanable funds in a closed economy and that in an open economy?

The concept of income elasticity of demand is also an explanation of how nations behave when the cost of luxury imports increase in price.

Graph 32-1 -In Graph 32-1, an increase in the government budget deficit causes the equilibrium in the economy to move from:

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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