Question 1

In which case(s) does(do) a country's demand for loanable funds shift right?

Accepted Answer

A)  both an increase in the budget deficit and capital flight 
B)  an increase in the budget deficit, but not capital flight 
C)  capital flight, but not an increase in the budget deficit 
D)  neither an increase in the budget deficit nor capital flight 
A)  both an increase in the budget deficit and capital flight 
B)  an increase in the budget deficit, but not capital flight 
C)  capital flight, but not an increase in the budget deficit 
D)  neither an increase in the budget deficit nor capital flight

Question 2

If people in the U.S. choose to save a smaller percentage of income, what will happen to the interest rate, net capital outflow, the exchange rate, and net exports?

Accepted Answer

The interest rate will rise, n

Question 3

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

Accepted Answer

A)  and the real exchange rate increase. 
B)  and the real exchange rate decrease. 
C)  increases and the real exchange rate decreases. 
D)  decreases and the real exchange rate increases. 
A)  and the real exchange rate increase. 
B)  and the real exchange rate decrease. 
C)  increases and the real exchange rate decreases. 
D)  decreases and the real exchange rate increases.

Question 4

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

Accepted Answer

A)  $50 billion 
B)  $70 billion 
C)  $90 billion 
D)  $120 billion 
A)  $50 billion 
B)  $70 billion 
C)  $90 billion 
D)  $120 billion

Question 5

If a country places tariffs on imported goods, then

Accepted Answer

A)  its currency appreciates which reduces exports. 
B)  its currency appreciates which increases exports. 
C)  its currency depreciates which reduces exports. 
D)  its currency depreciates which increases exports. 
A)  its currency appreciates which reduces exports. 
B)  its currency appreciates which increases exports. 
C)  its currency depreciates which reduces exports. 
D)  its currency depreciates which increases exports.

Question 6

In the open-economy macroeconomic model, if the U.S. interest rate rises, 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 7

Refer to Shoe Quota. Overall as a result of this change in policy, what happens to exports, imports, and net exports?

Accepted Answer

Exports and imports

Question 8

If the U.S. imposes a quota on cotton, then

Accepted Answer

A)  both exports and imports of other goods will rise. 
B)  exports of other goods will rise and imports of other goods will fall. 
C)  exports of other goods will fall and imports of other goods will rise. 
D)  both imports and exports of other goods will fall. 
A)  both exports and imports of other goods will rise. 
B)  exports of other goods will rise and imports of other goods will fall. 
C)  exports of other goods will fall and imports of other goods will rise. 
D)  both imports and exports of other goods will fall.

Question 9

If there is a surplus in the market for loanable funds, the resulting change in the real interest rate

Accepted Answer

A)  reduces both the quantity of loanable funds supplied and the quantity of loanable funds demanded. 
B)  reduces the quantity of loanable funds supplied and raises the quantity of loanable funds demanded 
C)  raises both the quantity of loanable funds supplied and the quantity of loanable funds demanded. 
D)  raises the quantity of loanable funds supplied and reduces the quantity of loanable funds demanded. 
A)  reduces both the quantity of loanable funds supplied and the quantity of loanable funds demanded. 
B)  reduces the quantity of loanable funds supplied and raises the quantity of loanable funds demanded 
C)  raises both the quantity of loanable funds supplied and the quantity of loanable funds demanded. 
D)  raises the quantity of loanable funds supplied and reduces the quantity of loanable funds demanded.

Question 10

Which of the following is the most likely result from an increase in a country's government budget surplus?

Accepted Answer

A)  higher interest rates 
B)  lower imports 
C)  lower net capital outflows 
D)  lower domestic investment 
A)  higher interest rates 
B)  lower imports 
C)  lower net capital outflows 
D)  lower domestic investment

Question 11

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Accepted Answer

A) True 
 B)False

Question 12

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

Accepted Answer

A)  nominal exchange rate. 
B)  nominal interest rate. 
C)  real exchange rate. 
D)  real interest rate. 
A)  nominal exchange rate. 
B)  nominal interest rate. 
C)  real exchange rate. 
D)  real interest rate.

Question 13

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Accepted Answer

A)  rise and the trade balance moves to a surplus. 
B)  rise and the trade balance moves to a deficit. 
C)  fall and the trade balance moves to a surplus. 
D)  fall and the trade balance moves to a deficit. 
A)  rise and the trade balance moves to a surplus. 
B)  rise and the trade balance moves to a deficit. 
C)  fall and the trade balance moves to a surplus. 
D)  fall and the trade balance moves to a deficit.

Question 14

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign- currency exchange.

Accepted Answer

A) True 
 B)False

Question 15

If there is capital flight from the United States, then the demand for loanable funds

Accepted Answer

A)  and the supply of dollars in the foreign-exchange market shift right. 
B)  and the supply of dollars in the foreign-exchange market shift left. 
C)  shifts left while the supply of dollars in the foreign-exchange market shifts right. 
D)  shifts right while the supply of dollars in the foreign-exchange market shifts left. 
A)  and the supply of dollars in the foreign-exchange market shift right. 
B)  and the supply of dollars in the foreign-exchange market shift left. 
C)  shifts left while the supply of dollars in the foreign-exchange market shifts right. 
D)  shifts right while the supply of dollars in the foreign-exchange market shifts left.

Question 16

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 17

A decrease in the budget deficit causes domestic interest rates

Accepted Answer

A)  and investment to rise. 
B)  to rise and investment to fall. 
C)  to fall and investment to rise. 
D)  and investment to fall. 
A)  and investment to rise. 
B)  to rise and investment to fall. 
C)  to fall and investment to rise. 
D)  and investment to fall.

Question 18

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Accepted Answer

A lower probability of default has the o

Question 19

If interest rates rose more in Japan than in the U.S., then other things the same

Accepted Answer

A)  U.S. citizens would buy more Japanese bonds and Japanese citizens would buy more U.S. bonds. 
B)  U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds. 
C)  U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy more U.S. bonds. 
D)  U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy fewer U.S. bonds. 
A)  U.S. citizens would buy more Japanese bonds and Japanese citizens would buy more U.S. bonds. 
B)  U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds. 
C)  U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy more U.S. bonds. 
D)  U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy fewer U.S. bonds.

Question 20

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

Accepted Answer

A)  tariff. 
B)  excise tax. 
C)  import quota. 
D)  None of the above is correct. 
A)  tariff. 
B)  excise tax. 
C)  import quota. 
D)  None of the above is correct.

Exam 32: A Macroeconomic Theory of the Open Economy

In which case(s) does(do) a country's demand for loanable funds shift right?

If people in the U.S. choose to save a smaller percentage of income, what will happen to the interest rate, net capital outflow, the exchange rate, and net exports?

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

If a country places tariffs on imported goods, then

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

Refer to Shoe Quota. Overall as a result of this change in policy, what happens to exports, imports, and net exports?

If the U.S. imposes a quota on cotton, then

If there is a surplus in the market for loanable funds, the resulting change in the real interest rate

Which of the following is the most likely result from an increase in a country's government budget surplus?

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign- currency exchange.

If there is capital flight from the United States, then the demand for loanable funds

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

A decrease in the budget deficit causes domestic interest rates

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

If interest rates rose more in Japan than in the U.S., then other things the same

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

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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