Question 1

If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real interest rate

Accepted Answer

A)  increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. 
B)  increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases. 
C)  decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow decreases. 
D)  decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow increases. 
A)  increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. 
B)  increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases. 
C)  decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow decreases. 
D)  decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow increases.

Question 2

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

Accepted Answer

A)  appreciates and there is a trade surplus. 
B)  appreciates and there is a trade deficit. 
C)  depreciates and there is a trade surplus. 
D)  depreciates and there is a trade deficit. 
A)  appreciates and there is a trade surplus. 
B)  appreciates and there is a trade deficit. 
C)  depreciates and there is a trade surplus. 
D)  depreciates and there is a trade deficit.

Question 3

When the U.S. real exchange rate appreciates, U.S. goods become

Accepted Answer

A)  more attractive to consumers in the U.S. and abroad. 
B)  more attractive to consumers in the U.S. and less attractive to consumers abroad. 
C)  less attractive to consumers in the U.S. and abroad. 
D)  less attractive to consumers in the U.S. and more attractive to consumers abroad. 
A)  more attractive to consumers in the U.S. and abroad. 
B)  more attractive to consumers in the U.S. and less attractive to consumers abroad. 
C)  less attractive to consumers in the U.S. and abroad. 
D)  less attractive to consumers in the U.S. and more attractive to consumers abroad.

Question 4

The key determinant of net capital outflow is the real interest rate.

Accepted Answer

A) True 
 B)False

Question 5

Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below.  
-Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

Accepted Answer

A)  r2 and e3 
B)  r3 and e2 
C)  r3 and e1 
D)  None of the above is correct. 
A)  r2 and e3 
B)  r3 and e2 
C)  r3 and e1 
D)  None of the above is correct.

Question 6

If a country raises its budget deficit, then in the market for foreign-currency exchange

Accepted Answer

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

Question 7

In the open-economy macroeconomic model, if investment demand decreases, then

Accepted Answer

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

Question 8

When the U.S. real interest rate falls

Accepted Answer

A)  U.S. purchases of foreign assets and foreign purchases of U.S. assets rise 
B)  U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall 
C)  U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise 
D)  U.S. purchases of foreign assets and foreign purchases of U.S. assets fall 
A)  U.S. purchases of foreign assets and foreign purchases of U.S. assets rise 
B)  U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall 
C)  U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise 
D)  U.S. purchases of foreign assets and foreign purchases of U.S. assets fall

Question 9

A large and sudden movement of funds out of a country is called

Accepted Answer

A)  arbitrage. 
B)  capital flight. 
C)  crowding out. 
D)  capital mobility. 
A)  arbitrage. 
B)  capital flight. 
C)  crowding out. 
D)  capital mobility.

Question 10

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 11

If there is a shortage of loanable funds, then

Accepted Answer

A)  the demand for loanable funds will shift right so the real interest rate rises. 
B)  the supply of loanable funds will shift left so the real interest rate falls. 
C)  there will be no shifts of the curves, but the real interest rate rises. 
D)  there will be no shifts of the curves, but the real interest rate falls. 
A)  the demand for loanable funds will shift right so the real interest rate rises. 
B)  the supply of loanable funds will shift left so the real interest rate falls. 
C)  there will be no shifts of the curves, but the real interest rate rises. 
D)  there will be no shifts of the curves, but the real interest rate falls.

Question 12

If the exchange rate falls, U.S. residents pay

Accepted Answer

A)  more dollars for foreign bonds and get more dollars from interest payments. 
B)  more dollars for foreign bonds but get fewer dollars from interest payments. 
C)  fewer dollars for foreign bonds and also get fewer dollars from interest payments. 
D)  fewer dollars for foreign bonds but get more dollars from interest payments. 
A)  more dollars for foreign bonds and get more dollars from interest payments. 
B)  more dollars for foreign bonds but get fewer dollars from interest payments. 
C)  fewer dollars for foreign bonds and also get fewer dollars from interest payments. 
D)  fewer dollars for foreign bonds but get more dollars from interest payments.

Question 13

What effect do protectionist policies have on the trade deficit?

Accepted Answer

Protectionist policies increase the dema

Question 14

When a country experiences capital flight its interest rate

Accepted Answer

A)  and net capital outflow rise. 
B)  rises and net capital outflow falls. 
C)  falls and net capital outflow rises. 
D)  interest rate and net capital outflow fall. 
A)  and net capital outflow rise. 
B)  rises and net capital outflow falls. 
C)  falls and net capital outflow rises. 
D)  interest rate and net capital outflow fall.

Question 15

What happens to domestic investment as the real interest rate rises? Explain your answer.

Accepted Answer

As the real interest rate rise

Question 16

If a country experiences capital flight, which of the following curves shift right?

Accepted Answer

A)  only the demand for loanable funds. 
B)  only the supply of dollars in the market for foreign-currency exchange. 
C)  only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange. 
D)  the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange. 
A)  only the demand for loanable funds. 
B)  only the supply of dollars in the market for foreign-currency exchange. 
C)  only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange. 
D)  the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.

Question 17

If a country raises its budget deficit, then its

Accepted Answer

A)  net capital outflow and net exports rise. 
B)  net capital outflow rises and net exports fall. 
C)  net capital outflow falls and net exports rise. 
D)  net capital outflow and net exports fall. 
A)  net capital outflow and net exports rise. 
B)  net capital outflow rises and net exports fall. 
C)  net capital outflow falls and net exports rise. 
D)  net capital outflow and net exports fall.

Question 18

In the long run import quotas do not affect the size of net exports.

Accepted Answer

A) True 
 B)False

Question 19

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

Accepted Answer

The exchange rate ri

Question 20

Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

Accepted Answer

A)  the U.S. government budget deficit decreases 
B)  capital flight from foreign countries 
C)  the U.S. imposes import quotas 
D)  None of the above is correct. 
A)  the U.S. government budget deficit decreases 
B)  capital flight from foreign countries 
C)  the U.S. imposes import quotas 
D)  None of the above is correct.

Exam 32: A Macroeconomic Theory of the Open Economy

If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real interest rate

If a government of a country with a zero trade balance increases its budget deficit, then the real exchange rate

When the U.S. real exchange rate appreciates, U.S. goods become

The key determinant of net capital outflow is the real interest rate.

Figure 32-7 Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. -Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

If a country raises its budget deficit, then in the market for foreign-currency exchange

In the open-economy macroeconomic model, if investment demand decreases, then

When the U.S. real interest rate falls

A large and sudden movement of funds out of a country is called

If the U.S. were to impose import quotas

If there is a shortage of loanable funds, then

If the exchange rate falls, U.S. residents pay

What effect do protectionist policies have on the trade deficit?

When a country experiences capital flight its interest rate

What happens to domestic investment as the real interest rate rises? Explain your answer.

If a country experiences capital flight, which of the following curves shift right?

If a country raises its budget deficit, then its

In the long run import quotas do not affect the size of net exports.

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

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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