Question 1

A country has domestic investment of $100 billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

Accepted Answer

A)   -$100 billion
B)   $100 billion
C)   $300 billion
D)   $600 billionE) None of the above
F) B) and D)

Question 2

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the budget deficit causes net capital outflow to

Accepted Answer

A)   rise, because the supply of loanable funds shifts right.
B)   rise, because the demand for loanable funds shifts right.
C)   fall, because the supply of loanable funds shifts left.
D)   fall, because the demand for loanable funds shifts right.E) A) and B)
F) A) and C)

Question 4

If a country had capital flight, then the real exchange rate would

Accepted Answer

A)   fall. To offset this fall the government could increase the budget deficit.
B)   fall. To offset this fall the government could decrease the budget deficit.
C)   rise. To offset this rise the government could increase the budget deficit.
D)   rise. To offset this rise the government could decrease the budget deficit.E) A) and C)
F) A) and B)

Question 5

Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

Accepted Answer

A)   the U.S. government budget deficit increases
B)   capital flight from the United States
C)   the U.S. imposes import quotas
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 6

Which of the following is correct in an open economy?

Accepted Answer

A)   S = I
B)   S = NX + NCO
C)   S = NCO
D)   S = I + NCOE) All of the above
F) A) and C)

Question 7

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) A) and B)
F) All of the above

Question 8

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

Accepted Answer

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

Question 9

In the open-economy macroeconomic model, the market for loanable funds identity can be written as

Accepted Answer

A)   S = I
B)   S = NCO
C)   S = I + NCO
D)   S + I = NCOE) All of the above
F) B) and C)

Question 10

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

Accepted Answer

A)   there is a shortage of loanable funds and the interest rate will fall.
B)   there is a shortage of loanable funds and the interest rate will rise.
C)   there is a surplus of loanable funds and the interest rate will fall.
D)   there is a surplus of loanable funds and the interest rate will rise.E) A) and B)
F) A) and C)

Question 11

If the U.S. imposed an import quota on corn, then in the U.S.

Accepted Answer

A)   exports and imports would rise.
B)   exports and imports would fall.
C)   exports would rise and imports would fall.
D)   exports would fall and imports would rise.E) B) and C)
F) B) and D)

Question 12

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Accepted Answer

A)   downward sloping.
B)   upward sloping.
C)   horizontal.
D)   vertical.E) B) and C)
F) A) and B)

Question 13

If there is a shortage of loanable funds, then

Accepted Answer

A)   the demand for loanable funds will shift right so the real interest rate rises.
B)   the supply of loanable funds will shift left so the real interest rate falls.
C)   there will be no shifts of the curves, but the real interest rate rises.
D)   there will be no shifts of the curves, but the real interest rate falls.E) All of the above
F) B) and C)

Question 14

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.E) B) and D)
F) None of the above

Question 15

If the U.S. put an import quota on clothing, it would

Accepted Answer

A)   raise U.S. net exports of clothing and raise net exports of other U.S. goods.
B)   raise U.S. net exports of clothing and lower net exports of other U.S. goods.
C)   lower U.S. net exports of clothing and raise net exports of other U.S. goods.
D)   lower U.S. net exports of clothing and lower net exports of other U.S. goods.E) All of the above
F) A) and B)

Question 16

A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Accepted Answer

A)   $30 billion
B)   $40 billion
C)   $50 billion
D)   $70 billionE) All of the above
F) B) and D)

Question 17

Other things the same, if the interest rate falls, then

Accepted Answer

A)   firms will want to borrow more, which increases the quantity of loanable funds demanded.
B)   firms will want to borrow less, which decreases the quantity of loanable funds demanded.
C)   firms will want to borrow more, which increase the quantity of loanable funds supplied.
D)   firms will want to borrow less, which decreases the quantity of loanable funds supplied.E) A) and B)
F) None of the above

Question 18

In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 19

In an open economy, national saving equals

Accepted Answer

A)   domestic investment plus net capital outflow.
B)   domestic investment minus net capital outflow.
C)   domestic investment.
D)   net capital outflow.E) None of the above
F) A) and D)

Question 20

When a country experiences capital flight its currency

Accepted Answer

A)   appreciates and net exports rise.
B)   appreciates and net exports fall.
C)   depreciates and net exports rise.
D)   depreciates and net exports fall.E) B) and D)
F) B) and C)

Exam 14: A Macroeconomic Theory of the Open Economy

If a country raises its budget deficit then

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Which of the following is correct in an open economy?

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When a country experiences capital flight its currency

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If the U.S. imposed an import quota on corn, then in the U.S.

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In the open-economy macroeconomic model, the market for loanable funds identity can be written as

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If the U.S. put an import quota on clothing, it would

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A country has domestic investment of $100 billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

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

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Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?

Correct AnswerverifiedShow Answer

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

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 an open economy, national saving equals

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If a country had capital flight, then the real exchange rate would

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

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The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

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An increase in the budget deficit causes net capital outflow to

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If there is a shortage of loanable funds, then

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Other things the same, if the interest rate falls, then

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In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

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A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

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