Question 1

If the Canadian government raises it budget deficit, then Canada's net capital outflows will

Accepted Answer

A)  increase, so its exchange rate will rise.
B)  increase, so its exchange rate will fall.
C)  decrease, so its exchange rate will rise.
D)  decrease, so its exchange rate will fall.E) C) and D)
F) A) and D)

Question 2

When a country experiences capital flight, the interest rate

Accepted Answer

A)  falls because the demand for loanable funds shifts left.
B)  falls because the supply for loanable funds shifts right.
C)  rises because the demand for loanable funds shifts right.
D)  rises because the supply for loanable funds shifts left.E) A) and B)
F) A) and C)

Question 3

Which of the following can explain a decrease in the U.S. real exchange rate?

Accepted Answer

A)  the U.S. government budget deficit falls
B)  the U.S. impose import quotas
C)  the default risk of U.S. assets falls
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 4

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

Accepted Answer

A)  national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
B)  national saving. The demand for loanable funds comes only from domestic investment.
C)  private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
D)  private saving. The demand for loanable funds comes only from domestic investment.E) A) and D)
F) A) and C)

Question 5

Figure 32-2 
-Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?

Accepted Answer

A)  1, 300
B)  .8, 400
C)  .6, 500
D)  None of the above are correct.E) A) and D)
F) All of the above

Question 6

If the U.S. government imposes an import quota on beef, U.S. net exports will

Accepted Answer

A)  increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
B)  increase, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change
C)  not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. beef will increase.
D)  not change, the real exchange rate of the dollar will depreciate, and domestic sales of U.S. beef will not change.E) All of the above
F) C) and D)

Question 7

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 8

If a country removed an import quota on cotton, then overall that country's

Accepted Answer

A)  exports and imports would rise.
B)  exports would rise and imports would fall.
C)  exports would fall and imports would rise.
D)  exports and imports would fall.E) B) and C)
F) None of the above

Question 9

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Accepted Answer

A)  the real exchange rate and the interest rate will rise.
B)  the real exchange rate will rise and the interest rate will fall.
C)  the real exchange rate will fall and the interest rate will rise.
D)  the real exchange rate and the interest rate will fall.E) None of the above
F) All of the above

Question 10

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

Accepted Answer

A) True 
 B)False

Question 11

If the U.S. imposes a quota on cotton, then

Accepted Answer

A)  both exports and imports of other goods will rise.
B)  exports of other goods will rise and imports of other goods will fall.
C)  exports of other goods will fall and imports of other goods will rise.
D)  both imports and exports of other goods will fall.E) C) and D)
F) B) and D)

Question 12

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

Accepted Answer

A)  supplied for the purpose of selling assets domestically.
B)  supplied for the purpose of buying foreign assets.
C)  demanded for the purpose of buying U.S. net exports of goods and services.
D)  demanded for the purpose of importing foreign goods and services.E) All of the above
F) A) and C)

Question 13

If a country raises its budget deficit then

Accepted Answer

A)  both its supply of and demand for loanable funds shift.
B)  its supply of but not its demand for loanable funds shifts.
C)  its demand for but not its supply of loanable funds shifts.
D)  neither its supply nor its demand for loanable funds shift.E) B) and C)
F) A) and D)

Question 14

Other things the same, an increase in the U.S. interest rate causes U.S. net capital outflow to

Accepted Answer

A)  rise, so supply in the market for foreign-currency exchange shifts right.
B)  rise, so demand in the market for foreign-currency exchange shifts right.
C)  fall, so supply in the market for foreign-currency exchange shifts left.
D)  fall, so demand in the market for foreign-currency exchange shifts left.E) All of the above
F) B) and D)

Question 15

A country reduces its government budget deficit and also makes political reforms that lead people to believe this country's assets are less risky. Given the combination of a reduced deficit and lower asset risk, what happens to the interest rate?

Accepted Answer

The intere...

Question 16

At the original exchange rate an import quota

Accepted Answer

A)  creates a surplus in the market for foreign-currency exchange, so the exchange rate rises.
B)  creates a surplus in the market for foreign-currency exchange, so the exchange rate falls.
C)  creates a shortage in the market for foreign-currency exchange, so the exchange rate rises.
D)  creates a shortage in the market for foreign-currency exchange, so the exchange rate falls.E) A) and B)
F) None of the above

Question 17

Refer to Shoe Quota. What is a quota? What is a tariff?

Accepted Answer

A quota limits the quantity of...

Question 18

In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

Accepted Answer

A) True 
 B)False

Question 19

If a country raises its budget deficit, then net capital outflow

Accepted Answer

A)  rises, so the supply of its currency shifts right in the market for foreign-currency exchange.
B)  rises, so the demand for its currency shifts right in the market for foreign-currency exchange.
C)  falls, so the supply of its currency shifts left in the market for foreign-currency exchange.
D)  falls, so the demand for its currency shifts right in the market for foreign-currency exchange.E) A) and B)
F) B) and D)

Question 20

In the United States in the early 1980s, there was a government budget

Accepted Answer

A)  surplus and a trade surplus.
B)  deficit and a trade deficit.
C)  surplus and a trade deficit.
D)  deficit and a trade surplus.E) B) and C)
F) C) and D)

Exam 32: A Macroeconomic Theory of the Open Economy

In the United States in the early 1980s, there was a government budget

Correct AnswerverifiedShow Answer

A country reduces its government budget deficit and also makes political reforms that lead people to believe this country's assets are less risky. Given the combination of a reduced deficit and lower asset risk, what happens to the interest rate?

Correct AnswerverifiedThe intere...View AnswerShow Answer

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

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Refer to Shoe Quota. What is a quota? What is a tariff?

Correct AnswerverifiedA quota limits the quantity of...View AnswerShow Answer

If the Canadian government raises it budget deficit, then Canada's net capital outflows will

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If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

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When a country experiences capital flight, the interest rate

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If a country raises its budget deficit, then net capital outflow

Correct AnswerverifiedShow Answer

If the U.S. government imposes an import quota on beef, U.S. net exports will

Correct AnswerverifiedShow Answer

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

Correct AnswerverifiedShow Answer

If a country raises its budget deficit then

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Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

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Figure 32-2 -Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports?

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Which of the following can explain a decrease in the U.S. real exchange rate?

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If the U.S. imposes a quota on cotton, then

Correct AnswerverifiedShow Answer

Other things the same, an increase in the U.S. interest rate causes U.S. net capital outflow to

Correct AnswerverifiedShow Answer

If a country removed an import quota on cotton, then overall that country's

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

Correct AnswerverifiedShow Answer

At the original exchange rate an import quota

Correct AnswerverifiedShow Answer

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The intere...
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A quota limits the quantity of...
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