Question 1

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Accepted Answer

The answer of If for some reason U.S. residents increase...

Question 2

If a country has a negative net capital outflow, then

Accepted Answer

A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Question 3

In the open-economy macroeconomic model, if there were a surplus in the market for foreign-currency exchange, the real exchange rate would appreciate.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is most likely to increase exports?

Accepted Answer

A) a reduction in domestic political instability 
B) ending investment tax credits which subsidize domestic investment 
C) a reduction in the size of the government's budget surplus 
D) None of the above will increase exports.

Question 5

Which of the following contains a list only of things that decrease when the budget deficit of the U.S. increases?

Accepted Answer

A) U.S. net exports, U.S. domestic investment, U.S. net capital outflow 
B) U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment 
C) U.S. imports, U.S. interest rates, the real exchange rate of the dollar 
D) None of the above is correct.

Question 6

Suppose that India has a government budget surplus, and then goes into deficit. This change would

Accepted Answer

A) increase India's national saving and shift its supply of loanable funds left. 
B) increase India's national saving and shift its demand for loanable funds right. 
C) decrease India's national saving and shift its supply of loanable funds left. 
D) decrease India's national saving and shift its demand for loanable funds right.

Question 7

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.

Question 8

A firm produces construction equipment, some of which it exports. Which of the following effects of an increase in the government budget deficit would likely reduce the quantity of equipment it sells?

Accepted Answer

A) the change in the interest rate and the change in the exchange rate 
B) the change in the interest rate but not the change in the exchange rate 
C) the change in the exchange rate but not the change in the interest rate 
D) neither the change in the interest rate nor the change in the exchange rate

Question 9

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 that the Mexican economy starts at r2 and e3. Which of the following is consistent with the effects of capital flight?

Accepted Answer

A) a shift from D2 to D1 in Panel A 
B) a shift from NCO1 to NCO2 in Panel B 
C) a shift from D2 to D1 in Panel C 
D) All of the above shifts are consistent with the effects of capital flight.

Question 10

If U.S. residents chose to travel overseas less due to concerns about the safety of foreign travel, then in the open-economy macroeconomic model

Accepted Answer

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

Question 11

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

Accepted Answer

A) shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right. 
B) shift the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left. 
C) shift the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right. 
D) shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left.

Question 12

In an open economy, the demand for loanable funds comes from

Accepted Answer

A) only those who want to buy domestic capital goods. 
B) only those who want to buy foreign assets. 
C) those who want to buy either domestic capital goods or foreign assets. 
D) None of the above is correct.

Question 13

In the open-economy macroeconomic model, if foreign interest rates rise and the U.S interest rate stays the same 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.

Question 14

If the exchange rate falls, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to domestic residents. So, _______ ______.

Accepted Answer

The answer of If the exchange rate falls, domestic goods...

Question 15

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.

Question 16

In the open-economy macroeconomic model, the supply of loanable funds comes from

Accepted Answer

A) the sum of domestic investment and net capital outflow. 
B) the sum of national saving and net capital outflow. 
C) national saving. 
D) net exports

Question 17

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.   
 
-Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

Accepted Answer

A) shifting the demand curve in panel a to the right and the demand curve in panel c to the left. 
B) shifting the demand curve in panel a to the left and the supply curve in panel c to the left. 
C) shifting the supply curve in panel a to the right and the demand curve in panel c to the right. 
D) shifting the supply curve in panel a to the left and the supply curve in panel c to the left.

Question 18

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

Accepted Answer

The answer of If a country's exchange rate rises, what...

Question 19

In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to make payments on its debt. Which of the these events reduces a country's real exchange rate?

Accepted Answer

A) an increase in the budget deficit, and increased concerns about the ability of the government to pay back its debt 
B) an increase in the budget deficit, but not increased concerns about the ability of the government to pay back its debt 
C) increased concerns about the ability of the government to pay back its debt, but not an increase in the budget deficit 
D) neither an increase in the budget deficit, nor increased concerns about the ability of the government to pay back its debt

Question 20

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Accepted Answer