Question 1

In an open economy, what does the market for loanable funds equate national saving with?

Accepted Answer

A)   domestic investment
B)   net capital outflow
C)   the sum of national consumption and net exports
D)   the sum of domestic investment and net capital outflowE) A) and B)
F) None of the above

Question 2

Which statement is consistent with a below-the-equilibrium exchange rate of the dollar?

Accepted Answer

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

Question 3

What is the term for a limit on the quantity of an imported good?

Accepted Answer

A)   a tariff
B)   an excise tax
C)   an import quota
D)   net importsE) B) and C)
F) A) and C)

Question 4

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Question 5

If Canada imposes an import quota on kayaks, which statement would best predict the consequences?

Accepted Answer

A)   Canadian exports increase, imports increase, and net exports are unchanged.
B)   Canadian exports increase, imports decrease, and net exports increase.
C)   Canadian exports decrease, imports increase, and net exports decrease.
D)   Canadian exports decrease, imports decrease, and net exports are unchanged.E) A) and C)
F) A) and B)

Question 6

If there is capital flight from Canada, how does the open-economy macroeconomic model change?

Accepted Answer

A)   Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift right.
B)   Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift left.
C)   The supply of loanable funds shifts left, while the supply of dollars shifts right.
D)   The supply of loanable funds shifts right, while the supply of dollars shifts left.E) C) and D)
F) All of the above

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which statement is consistent with a depreciation of the dollar?

Accepted Answer

A)   Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.
B)   Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise.
C)   Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall.
D)   Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.E) None of the above
F) B) and C)

Question 9

In the open-economy macroeconomic model, we focus on the determination of GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 10

Figure 13-2 
-Refer to Figure 13-2. If the interest rate was initially at r0 and an import quota was imposed, what would happen to the real interest rate?

Accepted Answer

A)   It would not change because the world interest rate is not affected.
B)   It would decrease because supply would shift right.
C)   It would not change because both supply and demand would shift right.
D)   It would decrease because demand would shift left.E) All of the above
F) B) and C)

Question 11

What is consistent with capital flight from Great Britain?

Accepted Answer

A)   The British capital outflow decreases.
B)   The real exchange rate of the pound depreciates.
C)   The British real interest rate decreases.
D)   The British demand for loanable funds increases.E) A) and B)
F) All of the above

Question 12

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

Accepted Answer

A)   The real exchange rate and domestic investment rise.
B)   The real exchange rate and domestic investment fall.
C)   The real exchange rate rises, and domestic investment falls.
D)   The real exchange rate falls, and domestic investment rises.E) C) and D)
F) B) and D)

Question 13

If a country's exports are greater than its imports, what is the country said to have?

Accepted Answer

A)   a trade surplus
B)   a trade deficit
C)   a comparative advantage
D)   an absolute advantageE) B) and C)
F) C) and D)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Suppose that Peru has a budget surplus, and then goes into deficit. Which statement best predicts the consequences?

Accepted Answer

A)   National saving would increase, and Peru's supply of loanable funds would shift to the left.
B)   National saving would increase, and Peru's demand for loanable funds would shift to the right.
C)   National saving would decrease, and Peru's supply of loanable funds would shift to the left.
D)   National saving would decrease, and Peru's demand for loanable funds would shift to the right.E) A) and B)
F) None of the above

Question 16

Which statement best defines capital flight?

Accepted Answer

A)   The process of taking advantage of differences in prices in different markets
B)   The movement of funds between financial intermediaries when interest rates change
C)   The ability of investment expenditures to lift a country out of poverty
D)   The large and sudden reduction in the demand for assets located in a countryE) B) and C)
F) All of the above

Question 17

Figure 13-1 
-Refer to Figure 13-1. If the world interest rate equals 7 percent, what is the net capital outflow?

Accepted Answer

A)   -$4000
B)   -$2000
C)   $2000
D)   $4000E) A) and B)
F) B) and C)

Question 18

How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 19

In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following results from a higher real exchange rate?

Accepted Answer

A)   It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B)   It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C)   It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars supplied.
D)   It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars demanded.E) A) and D)
F) B) and D)

Question 20

What effect does a fall in the real interest rate have on the quantity of loanable funds?

Accepted Answer

A)   It increases the quantity demanded and decreases the quantity supplied.
B)   It decreases both the quantity demanded and supplied.
C)   It increases both the quantity demanded and supplied.
D)   It decreases the quantity demanded and increases the quantity supplied.E) B) and C)
F) C) and D)

Exam 13: A Macroeconomic Theory of the Small Open Economy

In an open economy, what does the market for loanable funds equate national saving with?

Correct AnswerverifiedShow Answer

If there is capital flight from Canada, how does the open-economy macroeconomic model change?

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In the open-economy macroeconomic model, we focus on the determination of GDP and the price level.

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In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following results from a higher real exchange rate?

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

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Which statement best defines capital flight?

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If Canada imposes an import quota on kayaks, which statement would best predict the consequences?

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What is consistent with capital flight from Great Britain?

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Which statement is consistent with a depreciation of the dollar?

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If a country's exports are greater than its imports, what is the country said to have?

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What effect does a fall in the real interest rate have on the quantity of loanable funds?

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In an open economy, the supply of loanable funds comes from national saving.

Correct AnswerverifiedShow Answer

Suppose that Peru has a budget surplus, and then goes into deficit. Which statement best predicts the consequences?

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Figure 13-1 -Refer to Figure 13-1. If the world interest rate equals 7 percent, what is the net capital outflow?

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Which statement is consistent with a below-the-equilibrium exchange rate of the dollar?

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How are the identities S = NCO + I and NCO = NX related to the foreign-currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

Figure 13-2 -Refer to Figure 13-2. If the interest rate was initially at r0 and an import quota was imposed, what would happen to the real interest rate?

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

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What is the term for a limit on the quantity of an imported good?

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

Correct AnswerverifiedShow Answer

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S is national saving, which is the sourc...
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