Exam 32: A Macroeconomic Theory of the Open Economy

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

If a country's budget deficit decreases, then the exchange rate

When a country's government budget deficit decreases,

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a

Refer to Shoe Quota. As a result of the quota, is there initially a surplus or a shortage in the market for foreign- currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

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?

Imposing an import quota causes the domestic real exchange rate to

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

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 at a given exchange rate foreign citizens want to buy fewer U.S bonds, then the

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

When a country's government budget deficit increases,

If a country makes political reforms so that people now believe this country's assets are less risky, what happens to its interest rate, its exchange rate, and its net exports?

The real exchange rate measures the

Other things the same, a decrease in the interest rate

When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Because depreciation of the real exchange rate of the dollar increases U.S. net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

If a government increases its budget deficit, then domestic interest rates

A country reduces its government budget deficit and also makes political reforms that lead people to believe this country's assets are less risky. Given the combination of a reduced deficit and lower asset risk, what happens to the interest rate?

If after a country experiences capital flight, people become more confident about the safety of its assets, then in that country