Question 1

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 2

Trade policies

Accepted Answer

A)  alter the trade balance because they alter imports of the country that implemented them. 
B)  alter the trade balance because they alter net capital outflow of the country that implemented them. 
C)  do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D)  do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them. 
A)  alter the trade balance because they alter imports of the country that implemented them. 
B)  alter the trade balance because they alter net capital outflow of the country that implemented them. 
C)  do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D)  do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.

Question 3

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 4

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

Accepted Answer

Such a campaign will increase the demand

Question 6

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Accepted Answer

A decrease in demand for capital goods i

Question 7

Refer to Budget Reform. In the market for loanable funds which curve(s) does this policy change shift? Which direction does it shift?

Accepted Answer

Since the budget def

Question 8

Which of the following happens in the market for loanable funds when there is capital flight?

Accepted Answer

A)  the demand curve shifts right. 
B)  the demand curve shifts left. 
C)  the supply curve shifts right. 
D)  the supply curve shifts left. 
A)  the demand curve shifts right. 
B)  the demand curve shifts left. 
C)  the supply curve shifts right. 
D)  the supply curve shifts left.

Question 9

Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

Accepted Answer

A)  fall and the quantity of dollars demanded in the market for foreign-currency exchange would fall. 
B)  fall and the quantity of dollars demanded in the market for foreign-currency exchange would rise. 
C)  rise and the quantity of dollars demanded in the market for foreign-currency exchange would fall. 
D)  rise and the quantity of dollars demanded in the market for foreign-currency exchange would rise. 
A)  fall and the quantity of dollars demanded in the market for foreign-currency exchange would fall. 
B)  fall and the quantity of dollars demanded in the market for foreign-currency exchange would rise. 
C)  rise and the quantity of dollars demanded in the market for foreign-currency exchange would fall. 
D)  rise and the quantity of dollars demanded in the market for foreign-currency exchange would rise.

Question 10

If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

Accepted Answer

A)  shortage of loanable funds and the interest rate will fall. 
B)  shortage of loanable funds and the interest rate will rise. 
C)  surplus of loanable funds and the interest rate will fall. 
D)  surplus of loanable funds and the interest rate will rise. 
A)  shortage of loanable funds and the interest rate will fall. 
B)  shortage of loanable funds and the interest rate will rise. 
C)  surplus of loanable funds and the interest rate will fall. 
D)  surplus of loanable funds and the interest rate will rise.

Question 11

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

Accepted Answer

S is national saving, which is the sourc

Question 12

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Accepted Answer

A)  $40 billion 
B)  $60 billion 
C)  $90 billion 
D)  $130 billion 
A)  $40 billion 
B)  $60 billion 
C)  $90 billion 
D)  $130 billion

Question 13

Refer to Budget in Recession. In the market for loanable funds which curve(s) does this change in the deficit shift? Which direction does it shift?

Accepted Answer

Since the budget def

Question 14

Which of the following would shift the demand for dollars in the market for foreign currency exchange to the right?

Accepted Answer

A)  foreign citizens want to buy more U.S. goods and services at a given exchange rate 
B)  foreign citizens want to buy fewer U.S. goods and services at a given exchange rate 
C)  foreign citizens want to buy more U.S. bonds 
D)  foreign citizens want to by fewer U.S. bonds 
A)  foreign citizens want to buy more U.S. goods and services at a given exchange rate 
B)  foreign citizens want to buy fewer U.S. goods and services at a given exchange rate 
C)  foreign citizens want to buy more U.S. bonds 
D)  foreign citizens want to by fewer U.S. bonds

Question 15

If the government of Canada increased its budget deficit, then domestic investment

Accepted Answer

A)  and net exports would rise. 
B)  would rise and net exports would fall. 
C)  would fall and net exports would rise. 
D)  and net exports would fall. 
A)  and net exports would rise. 
B)  would rise and net exports would fall. 
C)  would fall and net exports would rise. 
D)  and net exports would fall.

Question 16

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this candidate's promise.

Accepted Answer

An increase in the government budget sur

Question 17

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S. foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 18

Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

Accepted Answer

Desired net exports rise. The

Question 19

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Accepted Answer

A)  surplus of loanable funds, so the interest rate increases. 
B)  surplus of loanable funds, so the interest rate decreases. 
C)  shortage of loanable funds, so the interest rate increases. 
D)  shortage of loanable funds, so the interest rate decreases. 
A)  surplus of loanable funds, so the interest rate increases. 
B)  surplus of loanable funds, so the interest rate decreases. 
C)  shortage of loanable funds, so the interest rate increases. 
D)  shortage of loanable funds, so the interest rate decreases.

Question 20

An increase in real interest rates in the United States

Accepted Answer

A)  discourages both U.S. and foreign residents from buying U.S. assets. 
B)  encourages both U.S. and foreign residents to buy U.S. assets. 
C)  encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets. 
D)  encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets. 
A)  discourages both U.S. and foreign residents from buying U.S. assets. 
B)  encourages both U.S. and foreign residents to buy U.S. assets. 
C)  encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets. 
D)  encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets.

Exam 32: A Macroeconomic Theory of the Open Economy

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

Trade policies

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

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Refer to Budget Reform. In the market for loanable funds which curve(s) does this policy change shift? Which direction does it shift?

Which of the following happens in the market for loanable funds when there is capital flight?

Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

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

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Refer to Budget in Recession. In the market for loanable funds which curve(s) does this change in the deficit shift? Which direction does it shift?

Which of the following would shift the demand for dollars in the market for foreign currency exchange to the right?

If the government of Canada increased its budget deficit, then domestic investment

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this candidate's promise.

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S. foreign-currency exchange market.

Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

An increase in real interest rates in the United States

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 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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