Question 1

In the open-economy macroeconomic model, if foreign interest rates rise and the U.S interest rate stays the same then, U.S.

Accepted Answer

A)  net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right. 
B)  net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. 
C)  net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. 
D)  net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left. 
A)  net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right. 
B)  net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. 
C)  net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. 
D)  net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.

Question 2

In the open-economy macroeconomic model, the

Accepted Answer

A)  exchange rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow. 
B)  exchange rate adjusts to equate national saving with the sum of investment and net capital outflow. 
C)  interest rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow. 
D)  interest rate adjusts to equate national saving with the sum of investment and net capital outflow. 
A)  exchange rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow. 
B)  exchange rate adjusts to equate national saving with the sum of investment and net capital outflow. 
C)  interest rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow. 
D)  interest rate adjusts to equate national saving with the sum of investment and net capital outflow.

Question 3

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Accepted Answer

A)  and U.S. net capital outflow rose. 
B)  and U.S. net capital outflow fell. 
C)  fell and U.S. net capital outflow rose. 
D)  rose and U.S. net capital outflow fell. 
A)  and U.S. net capital outflow rose. 
B)  and U.S. net capital outflow fell. 
C)  fell and U.S. net capital outflow rose. 
D)  rose and U.S. net capital outflow fell.

Question 4

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

Accepted Answer

A)  depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate. 
B)  depends on the real interest rate. The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate. 
C)  and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate. 
D)  and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate. 
A)  depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate. 
B)  depends on the real interest rate. The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate. 
C)  and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate. 
D)  and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate.

Question 5

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 6

The open-economy macroeconomic model includes

Accepted Answer

A)  only the market for loanable funds. 
B)  only the market for foreign-currency exchange. 
C)  both the market for loanable funds and the market for foreign-currency exchange. 
D)  neither the market for loanable funds nor the market for foreign-currency exchange. 
A)  only the market for loanable funds. 
B)  only the market for foreign-currency exchange. 
C)  both the market for loanable funds and the market for foreign-currency exchange. 
D)  neither the market for loanable funds nor the market for foreign-currency exchange.

Question 7

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

Accepted Answer

A)  desired net exports and desired net capital outflow 
B)  desired net exports but not desired net capital outflow 
C)  desired net capital outflow but not desired net exports 
D)  neither desired net exports nor desired net capital outflow 
A)  desired net exports and desired net capital outflow 
B)  desired net exports but not desired net capital outflow 
C)  desired net capital outflow but not desired net exports 
D)  neither desired net exports nor desired net capital outflow

Question 8

In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital outflow decreased. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

Accepted Answer

A)  the U.S. trade deficit grew 
B)  the real exchange rate of the dollar appreciated 
C)  U.S. net capital outflow fell 
D)  None of the above is contrary to the predictions of the model. 
A)  the U.S. trade deficit grew 
B)  the real exchange rate of the dollar appreciated 
C)  U.S. net capital outflow fell 
D)  None of the above is contrary to the predictions of the model.

Question 9

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

Accepted Answer

300 billio

Question 10

If there is a surplus in the U.S. loanable funds market, then the interest rate

Accepted Answer

A)  rises, which increases quantity of loanable funds demanded. 
B)  rises, which decreases the quantity of loanable funds demanded. 
C)  falls, which increases the quantity of loanable funds demanded. 
D)  falls, which decreases the quantity of loanable funds demanded. 
A)  rises, which increases quantity of loanable funds demanded. 
B)  rises, which decreases the quantity of loanable funds demanded. 
C)  falls, which increases the quantity of loanable funds demanded. 
D)  falls, which decreases the quantity of loanable funds demanded.

Question 11

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A)  and net capital outflow to rise. 
B)  to rise and net capital outflow to fall. 
C)  to fall and net capital outflow to rise. 
D)  and net capital outflow to fall. 
A)  and net capital outflow to rise. 
B)  to rise and net capital outflow to fall. 
C)  to fall and net capital outflow to rise. 
D)  and net capital outflow to fall.

Question 12

A trade policy is a government policy

Accepted Answer

A)  directed toward the goal of improving the tradeoff between equity and efficiency. 
B)  that directly influences the quantity of goods and services that a country imports or exports. 
C)  intended to exploit the tradeoff between inflation and unemployment by altering the budget deficit. 
D)  concerning employment laws. 
A)  directed toward the goal of improving the tradeoff between equity and efficiency. 
B)  that directly influences the quantity of goods and services that a country imports or exports. 
C)  intended to exploit the tradeoff between inflation and unemployment by altering the budget deficit. 
D)  concerning employment laws.

Question 13

In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts

Accepted Answer

A)  demand in the market for foreign-currency exchange to the right. 
B)  demand in the market for foreign-currency exchange to the left. 
C)  supply in the market for foreign-currency exchange to the right. 
D)  supply in the market for foreign-currency exchange to the left. 
A)  demand in the market for foreign-currency exchange to the right. 
B)  demand in the market for foreign-currency exchange to the left. 
C)  supply in the market for foreign-currency exchange to the right. 
D)  supply in the market for foreign-currency exchange to the left.

Question 14

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

Accepted Answer

A)  more capital goods and more foreign bonds. 
B)  more capital goods but fewer foreign bonds. 
C)  more foreign bonds but fewer capital goods. 
D)  fewer capital goods and fewer foreign bonds. 
A)  more capital goods and more foreign bonds. 
B)  more capital goods but fewer foreign bonds. 
C)  more foreign bonds but fewer capital goods. 
D)  fewer capital goods and fewer foreign bonds.

Question 15

If net exports are positive, then

Accepted Answer

A)  exports are greater than imports. 
B)  net capital outflow is negative. 
C)  Both of the above are correct. 
D)  Neither of the above is correct. 
A)  exports are greater than imports. 
B)  net capital outflow is negative. 
C)  Both of the above are correct. 
D)  Neither of the above is correct.

Question 16

Which of the following is always correct in an open economy?

Accepted Answer

A)  S = I 
B)  S = NX + NCO 
C)  S = NCO 
D)  S = I + NCO 
A)  S = I 
B)  S = NX + NCO 
C)  S = NCO 
D)  S = I + NCO

Question 17

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Accepted Answer

A) True 
 B)False

Question 18

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Accepted Answer

A) True 
 B)False

Question 19

An increase in a country's budget deficit

Accepted Answer

A)  increases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts right. 
B)  increases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts right. 
C)  decreases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts left. 
D)  decreases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts left. 
A)  increases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts right. 
B)  increases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts right. 
C)  decreases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts left. 
D)  decreases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts left.

Question 20

In the long run, import quotas increase net exports.

Accepted Answer

A) True 
 B)False

Exam 32: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model, if foreign interest rates rise and the U.S interest rate stays the same then, U.S.

In the open-economy macroeconomic model, the

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

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

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

The open-economy macroeconomic model includes

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

If there is a surplus in the U.S. loanable funds market, then the interest rate

An increase in the budget deficit causes domestic interest rates

A trade policy is a government policy

In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

If net exports are positive, then

Which of the following is always correct in an open economy?

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

An increase in a country's budget deficit

In the long run, import quotas increase net exports.

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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