Question 1

What would make the equilibrium interest rate decrease and the equilibrium quantity of funds increase?

Accepted Answer

A)  The supply of loanable funds shifts right. 
B)  The supply of loanable funds shifts left. 
C)  The demand for loanable funds shifts right. 
D)  The demand for loanable funds shifts left.

Question 2

In the open-economy macroeconomic model, what is net capital outflow equal to?

Accepted Answer

A)  the quantity of dollars supplied in the foreign exchange market 
B)  the quantity of dollars demanded in the foreign exchange market 
C)  the quantity of funds supplied in the loanable funds market 
D)  the quantity of funds demanded in the loanable funds market

Question 3

In an open economy, where does the demand for loanable funds come from?

Accepted Answer

A)  from those who want to borrow funds to buy domestic capital goods 
B)  from those who want to borrow funds to buy foreign assets 
C)  from those who want to borrow funds to buy either domestic capital goods or foreign assets 
D)  from those who want to borrow funds to buy Canadian bonds or shares of stock in Canadian companies

Question 4

Figure 13-2 
-Refer to Figure 13-2. If the economy were initially in equilibrium at r0 and E0 and the government removed import quotas, what would happen to the exchange rate?

Accepted Answer

A)  It would appreciate to E1. 
B)  It would appreciate to E2. 
C)  It would depreciate to E1. 
D)  It would depreciate to E2.

Question 5

The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r; in country 2, it is I = 18 - 4r and S = 8 + 2r.
a) Find the relationships between net capital outflow and the world interest rate (rw) in the two countries.
b) What is the nature of these relationships? (Are they both positive, both negative, or one positive and the other negative?)
c) Calculate the world equilibrium interest rate.
d) How can you reconcile the result from part b with the one from part c?

Accepted Answer

The answer of The market for loanable funds in country...

Question 6

If a country went from a government budget deficit to a surplus, which statement would best predict the consequences?

Accepted Answer

A)  National saving would increase, shifting the supply of loanable funds right. 
B)  National saving would increase, shifting the supply of loanable funds left. 
C)  National saving would decrease, shifting the demand for loanable funds right. 
D)  National saving would decrease, shifting the demand for loanable funds left.

Question 7

If the quantity of loanable funds supplied is greater than the quantity demanded, what are the excess funds used for?

Accepted Answer

A)  Canadians to purchase foreign assets 
B)  Canadians to purchase domestic investments 
C)  foreigners to purchase Canadian assets 
D)  foreigners to purchase Canadian goods

Question 8

If Great Britain experienced capital flight, which statement would best explain the effects?

Accepted Answer

A)  The supply of British pounds curve would shift left, which would make the real exchange rate of the British pound appreciate. 
B)  The supply of British pounds curve would shift left, which would make the real exchange rate of the British pound depreciate. 
C)  The supply of British pounds curve would shift right, which would make the real exchange rate of the British pound appreciate. 
D)  The supply of British pounds curve would shift right, which would make the real exchange rate of the British pound depreciate.

Question 9

State what, if anything, each of the following does to the supply or demand of loanable funds.
a. Net capital outflow increases at each interest rate.
b. Domestic investment decreases at each interest rate.
c. The government surplus increases.
d. Private saving increases.

Accepted Answer

The answer of State what, if anything, each of the...

Question 10

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Accepted Answer

A) True 
 B)False

Question 11

The country of Nowhere is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, which statement would happen?

Accepted Answer

A)  Nowhere's real interest rate would rise. 
B)  Nowhere's real exchange rate would fall. 
C)  Nowhere's net exports would fall. 
D)  Nowhere's net exports would not change.

Question 12

What is the term for a tax on imported goods?

Accepted Answer

A)  an excise tax 
B)  a tariff 
C)  an import quota 
D)  import tax

Question 13

Suppose a foreign energy company wants to build a number of new solar parks in Canada. How does this affect the Canadian market for loanable funds?

Accepted Answer

A)  The supply of loanable funds increases. 
B)  The demand for loanable funds increases. 
C)  The supply of loanable funds decreases. 
D)  The demand for loanable funds decreases.

Question 14

If policymakers impose import restrictions on automobiles, the Canadian trade deficit would shrink.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that the government of Jordan raises its budget deficit. Which statement best predicts the effects of this action?

Accepted Answer

A)  The real exchange rate of the Jordanian dinar would depreciate, and Jordanian net exports would rise. 
B)  The real exchange rate of the Jordanian dinar would depreciate, and Jordanian net exports would fall. 
C)  The real exchange rate of the Jordanian dinar would appreciate, and Jordanian net exports would rise. 
D)  The real exchange rate of the Jordanian dinar would appreciate, and Jordanian net exports would fall.

Question 16

When a country experiences capital flight, which statement best explains the effects?

Accepted Answer

A)  The interest rate falls because the demand for loanable funds shifts left. 
B)  The interest rate falls because the supply for loanable funds shifts right. 
C)  The interest rate rises because the demand for loanable funds shifts right. 
D)  The interest rate rises because the supply for loanable funds shifts left.

Question 17

What would cause the real exchange rate of the Canadian dollar to depreciate?

Accepted Answer

A)  an increase in the Canadian government budget deficit 
B)  capital flight from Canada 
C)  the imposition of Canadian government import quotas 
D)  a decrease in the world interest rate

Question 18

What is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

Accepted Answer

A)  Canadian net exports will rise. 
B)  Canadian saving will rise. 
C)  Canadian domestic investment will rise. 
D)  Canadian imports will rise.

Question 19

What is the variable that links the loanable funds market and the foreign-currency exchange market?

Accepted Answer

A)  net capital outflow 
B)  national saving 
C)  exports 
D)  imports

Question 20

What is most likely to increase exports in the country of El Dorado?

Accepted Answer

A)  The government of El Dorado introduces an investment tax credit. 
B)  The government of El Dorado reduces the size of the budget surplus. 
C)  The government of El Dorado reduces the size of the budget deficit. 
D)  The government of El Dorado imposes an import quota.

Exam 13: A Macroeconomic Theory of the Small Open Economy