Question 1

When a country experiences capital flight its

Accepted Answer

A)   net capital outflow increases and its real exchange rate rises.
B)   net capital outflow increases and its real exchange rate falls.
C)   net capital outflow decreases and its real exchange rate rises.
D)   net capital outflow decreases and its real exchange rate falls.

Question 2

Suppose that the U.S. imposes an import quota on lumber. The quota makes the real exchange rate of the U.S. dollar

Accepted Answer

A)   appreciate but does not change the real interest rate in the United States.
B)   appreciate and the real interest rate in the United States increase.
C)   depreciate and the real interest rate in the United States decrease.
D)   depreciate but does not change the real interest rate in the United States.

Question 3

If the exchange rate falls, U.S. residents pay

Accepted Answer

A)   more dollars for foreign bonds and get more dollars from interest payments.
B)   more dollars for foreign bonds but get fewer dollars from interest payments.
C)   fewer dollars for foreign bonds and also get fewer dollars from interest payments.
D)   fewer dollars for foreign bonds but get more dollars from interest payments.

Question 4

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

Accepted Answer

A)   GDP, but not the price level is given.
B)   the price level, but not GDP is given.
C)   both the price level and GDP are given.
D)   the price level and GDP are variables to be determined by the model.

Question 5

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)   increase domestic saving
B)   increase domestic political stability and respect of property rights
C)   other countries reduce their trade restrictions
D)   raise tariffs

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.

Question 7

If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

Accepted Answer

A)   shortage of loanable funds and the interest rate will fall.
B)   shortage of loanable funds and the interest rate will rise.
C)   surplus of loanable funds and the interest rate will fall.
D)   surplus of loanable funds and the interest rate will rise.

Question 8

If a country's government moves from a budget deficit to a budget surplus, which curve in the market for loanable funds shifts and which direction does it shift? What happens to the interest rate?

Accepted Answer

The supply of loanab...

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.

Question 10

Other things the same, a decrease in the real interest rate

Accepted Answer

A)   decreases the quantity of loanable funds demanded.
B)   increases the quantity of loanable funds demand
C)   shifts the demand for loanable funds to the right.
D)   shifts the demand for loanable funds to the left.

Question 11

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?

Accepted Answer

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

Question 12

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Accepted Answer

A)   lower the real exchange rate and increase net exports.
B)   lower the real exchange rate and have no effect on net exports.
C)   raise the real exchange rate and decrease net exports.
D)   raise the real exchange rate and have no effect on net exports.

Question 13

Suppose the U.S. removes an import quota on steel. U.S. exports

Accepted Answer

A)   increase, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow increases.
B)   increase, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow is unchanged.
C)   decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow is unchanged.
D)   decrease, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow decreases.

Question 14

When the U.S. real exchange rate appreciates, U.S. goods become

Accepted Answer

A)   more attractive to consumers in the U.S. and abroad.
B)   more attractive to consumers in the U.S. and less attractive to consumers abroad.
C)   less attractive to consumers in the U.S. and abroad.
D)   less attractive to consumers in the U.S. and more attractive to consumers abroad.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts

Accepted Answer

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

Question 17

When a country experiences capital flight, which of the following rise?

Accepted Answer

A)   its real interest rate and its real exchange rate
B)   its real interest rate but not its real exchange rate
C)   its real exchange rate but not its real interest rate
D)   neither its real interest rate nor its foreign exchange rate

Question 18

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 19

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Accepted Answer

A)   $40 billion
B)   $60 billion
C)   $90 billion
D)   $130 billion

Question 20

Refer to Depositors Move Funds Out of Greek Banks. What happened to domestic investment? Why?

Accepted Answer

Domestic investment ...

Exam 19: A Macroeconomic Theory of the Open Economy

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?

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

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When a country experiences capital flight, which of the following rise?

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Suppose that the U.S. imposes an import quota on lumber. The quota makes the real exchange rate of the U.S. dollar

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a country experiences capital flight its

Correct AnswerverifiedShow Answer

If a country's government moves from a budget deficit to a budget surplus, which curve in the market for loanable funds shifts and which direction does it shift? What happens to the interest rate?

Correct AnswerverifiedThe supply of loanab...View AnswerShow Answer

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Correct AnswerverifiedShow Answer

Suppose the U.S. removes an import quota on steel. U.S. exports

Correct AnswerverifiedShow Answer

Which of the following would do the most to reduce a trade deficit?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the U.S. real exchange rate appreciates, U.S. goods become

Correct AnswerverifiedShow Answer

Refer to Depositors Move Funds Out of Greek Banks. What happened to domestic investment? Why?

Correct AnswerverifiedDomestic investment ...View AnswerShow Answer

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.

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In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts

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If the exchange rate falls, U.S. residents pay

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A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

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Other things the same, a decrease in the real interest rate

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If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

Correct AnswerverifiedShow Answer

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The supply of loanab...
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Domestic investment ...
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