Question 1

If there is a surplus in the market for loanable funds, then the interest rate

Accepted Answer

A)  rises, so national saving rises. 
B)  rises, so national saving falls. 
C)  falls, so national saving rises. 
D)  falls, so national saving falls. 
A)  rises, so national saving rises. 
B)  rises, so national saving falls. 
C)  falls, so national saving rises. 
D)  falls, so national saving falls.

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

If the U.S. were to impose import quotas

Accepted Answer

A)  the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange would both increase. 
B)  nether the demand for loanable funds nor the demand for dollars in the market for foreign-currency exchange would increase. 
C)  the demand for loanable funds would increase, but the demand for dollars in the market for foreign-currency exchange would not. 
D)  the demand for dollars in the market for foreign-currency exchange would increase, but the demand for loanable funds would not. 
A)  the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange would both increase. 
B)  nether the demand for loanable funds nor the demand for dollars in the market for foreign-currency exchange would increase. 
C)  the demand for loanable funds would increase, but the demand for dollars in the market for foreign-currency exchange would not. 
D)  the demand for dollars in the market for foreign-currency exchange would increase, but the demand for loanable funds would not.

Question 4

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

Accepted Answer

The interest rate rises. The increase in

Question 5

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

Accepted Answer

A)  real interest rate to rise. 
B)  real exchange rate to rise. 
C)  net exports to rise. 
D)  None of the above is likely. 
A)  real interest rate to rise. 
B)  real exchange rate to rise. 
C)  net exports to rise. 
D)  None of the above is likely.

Question 6

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Accepted Answer

Its exchange rate fa

Question 7

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

Accepted Answer

A) True 
 B)False

Question 8

An increase in the budget deficit

Accepted Answer

A)  reduces net capital outflow and domestic investment. 
B)  reduces net capital outflow and raises domestic investment. 
C)  raises net capital outflow and domestic investment 
D)  raises net capital outflow and reduces domestic investment. 
A)  reduces net capital outflow and domestic investment. 
B)  reduces net capital outflow and raises domestic investment. 
C)  raises net capital outflow and domestic investment 
D)  raises net capital outflow and reduces domestic investment.

Question 9

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)  a company in Canada wants to buy oranges from the U.S 
B)  a Japanese banks want to buy bonds from the U.S. government 
C)  a U.S. citizen wants to buy stock a German company is selling 
D)  None of the above is correct. 
A)  a company in Canada wants to buy oranges from the U.S 
B)  a Japanese banks want to buy bonds from the U.S. government 
C)  a U.S. citizen wants to buy stock a German company is selling 
D)  None of the above is correct.

Question 10

If a U.S. resident purchases a foreign bond, her transactions are included

Accepted Answer

A)  in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange. 
B)  in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange. 
C)  in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange. 
D)  in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange. 
A)  in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange. 
B)  in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange. 
C)  in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange. 
D)  in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.

Question 11

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

Accepted Answer

A) True 
 B)False

Question 12

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Accepted Answer

A)  rise and there would be a trade surplus. 
B)  rise and there would be a trade deficit. 
C)  fall and there would be a trade surplus. 
D)  fall and there would be a trade deficit. 
A)  rise and there would be a trade surplus. 
B)  rise and there would be a trade deficit. 
C)  fall and there would be a trade surplus. 
D)  fall and there would be a trade deficit.

Question 13

When the government budget deficit increases, national saving decreases.

Accepted Answer

A) True 
 B)False

Question 14

If interest rates rise in the U.S., then other things the same

Accepted Answer

A)  foreigners would buy more U.S. bonds which increases the quantity of loanable funds demanded in the U.S. 
B)  foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S. 
C)  foreigners would buy fewer U.S. bonds which increases the quantity of loanable funds demanded in the U.S. 
D)  foreigners would buy fewer U.S. bonds which reduces the quantity of loanable funds demanded in the U.S. 
A)  foreigners would buy more U.S. bonds which increases the quantity of loanable funds demanded in the U.S. 
B)  foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S. 
C)  foreigners would buy fewer U.S. bonds which increases the quantity of loanable funds demanded in the U.S. 
D)  foreigners would buy fewer U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.

Question 15

In which cases) doesdo) a country's supply of loanable funds shift left?

Accepted Answer

A)  both an increase in the budget deficit and capital flight 
B)  an increase in the budget deficit, but not capital flight 
C)  capital flight, but not an increase in the budget deficit 
D)  neither an increase in the budget deficit nor capital flight 
A)  both an increase in the budget deficit and capital flight 
B)  an increase in the budget deficit, but not capital flight 
C)  capital flight, but not an increase in the budget deficit 
D)  neither an increase in the budget deficit nor capital flight

Question 16

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is most likely to increase the exports of a country?

Accepted Answer

A)  The government gives subsidies to firms that export goods or services. 
B)  The government reduces the size of the budget surplus. 
C)  Political instability within the country increases modestly. 
D)  None of the above will increase exports. 
A)  The government gives subsidies to firms that export goods or services. 
B)  The government reduces the size of the budget surplus. 
C)  Political instability within the country increases modestly. 
D)  None of the above will increase exports.

Question 18

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Accepted Answer

A) True 
 B)False

Question 20

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

Accepted Answer

A) True 
 B)False

Exam 19: A Macroeconomic Theory of the Open Economy

If there is a surplus in the market for loanable funds, then the interest rate

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.

If the U.S. were to impose import quotas

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Solidia's

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

An increase in the budget deficit

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

If a U.S. resident purchases a foreign bond, her transactions are included

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

When the government budget deficit increases, national saving decreases.

If interest rates rise in the U.S., then other things the same

In which cases) doesdo) a country's supply of loanable funds shift left?

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Which of the following is most likely to increase the exports of a country?

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

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 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

Six Debates Over Macroeconomic Policy

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