Question 1

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Accepted Answer

A) True 
 B)False

Question 2

If Canadian citizens decide to purchase more foreign assets at each interest rate, which statement would best describe the effects?

Accepted Answer

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

Question 3

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand curve for foreign-currency exchange.

Accepted Answer

The answer of Explain how the relation between the real...

Question 4

Which of the following will decrease Canadian net capital outflow?

Accepted Answer

A)  capital flight from Canada 
B)  a decrease in the tax on investment income 
C)  the imposition of Canadian government import quotas 
D)  a decrease in the tax on capital gains

Question 5

If a government increases its budget deficit, which statement would best predict the effects?

Accepted Answer

A)  Interest rates rise, and the real exchange rate appreciates. 
B)  Interest rates fall, and the real exchange rate depreciates. 
C)  Interest rates rise, and the real exchange rate depreciates. 
D)  Interest rates fall, and the real exchange rate appreciates.

Question 6

Which statement is consistent with an above-the-equilibrium exchange rate of the dollar?

Accepted Answer

A)  The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate. 
B)  The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate. 
C)  The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate. 
D)  The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.

Question 7

An import quota imposed by Egypt would reduce Egyptian imports, but have no impact on Egyptian exports.

Accepted Answer

A) True 
 B)False

Question 8

Suppose that Canada imposed an import quota on pharmaceutical drugs. Which statement identifies the most likely results?

Accepted Answer

A)  Sales of Canadian pharmaceutical drugs would rise; exports of other industries would increase. 
B)  Sales of Canadian pharmaceutical drugs would rise; exports of other industries would decline. 
C)  Sales of Canadian pharmaceutical drugs would not change; exports of other industries would increase. 
D)  Sales of Canadian pharmaceutical drugs would not change; exports of other industries would decline.

Question 9

The 1998 default by the Russian government had results that were predictable using the textbook model. Which statement best describes what happened?

Accepted Answer

A)  The event increased Russian interest rates and net exports. 
B)  The event reduced Russian interest rates and net exports. 
C)  The event increased Russian interest rates and reduced Russian net exports. 
D)  The event reduced Russian interest rates and increased Russian net exports.

Question 10

When the government increases the government budget deficit, national saving decreases.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign-currency exchange market diagram, which outcome would most likely result?

Accepted Answer

A)  Both the demand and supply curves would shift right. 
B)  Both the demand and supply curves would shift left. 
C)  Only the demand curve would shift right. 
D)  Only the supply curve would shift right.

Question 12

Which statement best describes the effects of a decrease in the real interest rate?

Accepted Answer

A)  It discourages people from saving and so increases the quantity of loanable funds demanded. 
B)  It discourages people from saving and so decreases the quantity of loanable funds demanded. 
C)  It encourages people to save and so increases the quantity of loanable funds supplied. 
D)  It encourages people to save and so decreases the quantity of loanable funds supplied.

Question 13

According to the open-economy macroeconomic model, if the Canadian government decreased the government budget deficit, both Canadian domestic investment and Canadian net capital outflow would fall.

Accepted Answer

A) True 
 B)False

Question 14

If the world real interest rate is less than the real interest rate that would occur in Canada if there was no trade, what should we expect to happen in the supply and demand for loanable funds graph?

Accepted Answer

A)  the supply curve to shift to the left 
B)  the demand curve to shift to the right 
C)  net capital outflow to remain unchanged 
D)  net capital outflow to decrease

Question 15

Figure 13-2 
-Refer to Figure 13-2. Which of the following shifts shows the effects of an import quota?

Accepted Answer

A)  a shift of the supply of Canadian dollars (S-I) curve to the right 
B)  a shift from D0 to D1 
C)  a shift from D0 to D2 
D)  a shift of the demand for loanable funds curve to the right

Question 16

Where does the supply of dollars in the foreign-currency exchange market come from?

Accepted Answer

A)  from Canadian national saving 
B)  from Canadian net capital outflow 
C)  from domestic investment 
D)  from foreign demand for Canadian goods

Question 17

Which statement best describes the effects of an increase in real interest rates in Canada?

Accepted Answer

A)  It discourages both Canadian and foreign residents from buying Canadian assets. 
B)  It encourages both Canadian and foreign residents to buy Canadian assets. 
C)  It encourages Canadian residents to buy Canadian assets, but discourages foreign residents from buying Canadian assets. 
D)  It encourages foreign residents to buy Canadian assets, but discourages Canadian residents from buying Canadian assets.

Question 18

Mexico suffered from capital flight in 1994. What happened to Mexico's net exports?

Accepted Answer

A)  They decreased. 
B)  They did not change. 
C)  They increased. 
D)  They decreased until the peso appreciated; then they increased.

Question 19

Mexico suffered from capital flight in 1994. Which statement best describes the effects of this event on the Canadian economy?

Accepted Answer

A)  The Canadian real interest rate rose, and the real exchange rate of the dollar appreciated. 
B)  The Canadian real interest rate rose, and the real exchange rate of the dollar depreciated. 
C)  The Canadian real interest rate fell, and the real exchange rate of the dollar appreciated. 
D)  The Canadian real interest rate fell, and the real exchange rate of the dollar depreciated.

Question 20

Which statement is the most accurate description of trade policy?

Accepted Answer

A)  Trade policy has neither microeconomic nor macroeconomic effects. 
B)  Trade policy has similar microeconomic and macroeconomic effects. 
C)  The effects of trade policy are more macroeconomic than microeconomic. 
D)  The effects of trade policy are more microeconomic than macroeconomic.

Exam 13: A Macroeconomic Theory of the Small Open Economy

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

If Canadian citizens decide to purchase more foreign assets at each interest rate, which statement would best describe the effects?

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand curve for foreign-currency exchange.

Which of the following will decrease Canadian net capital outflow?

If a government increases its budget deficit, which statement would best predict the effects?

Which statement is consistent with an above-the-equilibrium exchange rate of the dollar?

An import quota imposed by Egypt would reduce Egyptian imports, but have no impact on Egyptian exports.

Suppose that Canada imposed an import quota on pharmaceutical drugs. Which statement identifies the most likely results?

The 1998 default by the Russian government had results that were predictable using the textbook model. Which statement best describes what happened?

When the government increases the government budget deficit, national saving decreases.

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign-currency exchange market diagram, which outcome would most likely result?

Which statement best describes the effects of a decrease in the real interest rate?

According to the open-economy macroeconomic model, if the Canadian government decreased the government budget deficit, both Canadian domestic investment and Canadian net capital outflow would fall.

If the world real interest rate is less than the real interest rate that would occur in Canada if there was no trade, what should we expect to happen in the supply and demand for loanable funds graph?

Figure 13-2 -Refer to Figure 13-2. Which of the following shifts shows the effects of an import quota?

Where does the supply of dollars in the foreign-currency exchange market come from?

Which statement best describes the effects of an increase in real interest rates in Canada?

Mexico suffered from capital flight in 1994. What happened to Mexico's net exports?

Mexico suffered from capital flight in 1994. Which statement best describes the effects of this event on the Canadian economy?

Which statement is the most accurate description of trade policy?