Exam 32: A Macroeconomic Theory of the Open Economy

Other things the same, if the expected return on U.S. assets increases, the

Which of the following is correct?

An increase in the budget deficit makes domestic interest rates

Why do higher real interest rates lead to lower net capital outflow?

What happens to each of the following if investment becomes less desirable at each interest rate? a. the interest rate b. net capital outflow c. the exchange rate

In the open­economy macroeconomic model, if a country's interest rate falls, then its

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

If a government increases its budget deficit, then interest rates

Because the open-economy macroeconomic model focuses on the long run, it is assumed that

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Over the past two decades the U.S. has persistently had trade deficits.

When a country imposes an import quota, its

An increase in the budget deficit

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Figure 32-1 -Refer to Figure 32-1. The loanable funds market is in equilibrium at

Suppose that U.S. savers decide that holding Brazilian assets has become riskier. What happens to U.S. net capital outflow? What happens to the U.S. real interest rate?

If a country's exchange rate rises, what happens to its exports and what happens to its imports?

Figure 32-2 -Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?