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Exam 32: A Macroeconomic Theory of the Open Economy

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Question 71

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In an open economy, national saving equals

A) domestic investment plus net capital outflow.
B) domestic investment minus net capital outflow.
C) domestic investment.
D) net capital outflow.

E) A) and B)
F) A) and C)

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Question 72

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In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

A) True
B) False

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Question 73

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If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

Scenario 32-5 ​ Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes. -Refer to Scenario 32-5. What happens to the interest rate, U.S. net capital outflow, and the net capital outflow of foreign countries?

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Suppose that Australia imposes an import quota on coal. The quota makes the real exchange rate of Australian dollar

Which curve in the market for foreign-currency exchange shifts and which direction does it shift if the government budget deficit increases? Explain why an increase in the budget deficit shifts this curve.

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . The open-economy macroeconomic model predicts that this should have

An increase in the government budget deficit shifts the demand for loanable funds to the right.

What happens to each of the following if the supply of loanable funds shifts right? A. the interest rate B. net capital outflow C. the exchange rate

State what, if anything, each of the following does to the supply or demand of loanable funds. a.net capital outflow increases at each interest rate b.domestic investment increases at each interest rate c.the government deficit increases d.private saving increases

Figure 32-3 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) ​ -Refer to Figure 32-3. Which curve is determined by net capital outflow only?

An economy recently had 800 billion euros of saving and 600 billion euros of net capital outflow. What was its investment? What was its quantity of loanable funds supplied?

Suppose that U.S. savers decide that holding Brazilian assets has become riskier. What happens to U.S. net capital outflow? What happens to the U.S. real interest rate?

In the open-economy macroeconomic model, other things the same, when a U.S. resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

Scenario 32-2 ​ Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -Refer to Scenario 32-2. This policy change causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

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

If a country makes political reforms so that people now believe this country's assets are less risky, what happens to its interest rate, its exchange rate, and its net exports?

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.