Question 1

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) B) and D)
F) B) and C)

Question 2

When Mexico suffered from capital flight in 1994,Mexico's net capital outflow

Accepted Answer

A)   and net exports decreased.
B)   and net exports increased.
C)   increased while net exports decreased.
D)   decreased while net exports increased.E) None of the above
F) A) and C)

Question 3

If the government of Peru increased its budget deficit,then domestic investment

Accepted Answer

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

Question 4

Suppose that U.S.investors decide that investment opportunities in African countries have improved.What happens to U.S.net capital outflow? What happens to the U.S.real interest rate?

Accepted Answer

U.S.net capital outflow will i...

Question 5

In an open economy,the demand for loanable funds comes from

Accepted Answer

A)   only those who want to borrow funds to buy domestic capital goods.
B)   only those who want to borrow funds to buy foreign assets.
C)   those who want to borrow funds to buy either domestic capital goods or foreign assets.
D)   neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets.E) C) and D)
F) B) and D)

Question 6

If a country's budget deficit increases,then in the foreign exchange market,

Accepted Answer

A)   the supply of its currency shifts right,so the exchange rate falls.
B)   the demand for its currency shifts right,so the exchange rate rises.
C)   the supply of its currency shifts left,so the exchange rate rises.
D)   the demand for its currency shifts left.so the exchange rate falls.E) All of the above
F) A) and B)

Question 7

If a government of a country with a zero trade balance increases its budget deficit,then the real exchange rate

Accepted Answer

A)   appreciates and there is a trade surplus.
B)   appreciates and there is a trade deficit.
C)   depreciates and there is a trade surplus.
D)   depreciates and there is a trade deficit.E) A) and D)
F) C) and D)

Question 8

Other things the same,a lower real interest rate decreases the quantity of

Accepted Answer

A)   loanable funds demanded.
B)   loanable funds supplied.
C)   domestic investment.
D)   net capital outflow.E) C) and D)
F) B) and D)

Question 9

If the U.S.were to impose import quotas

Accepted Answer

A)   the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange would both increase.
B)   nether the demand for loanable funds nor the demand for dollars in the market for foreign-currency exchange would increase.
C)   the demand for loanable funds would increase,but the demand for dollars in the market for foreign-currency exchange would not.
D)   the demand for dollars in the market for foreign-currency exchange would increase,but the demand for loanable funds would not.E) B) and D)
F) C) and D)

Question 10

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

Accepted Answer

A)   national saving.Demand comes from only domestic investment.
B)   national saving.Demand comes from domestic investment and net capital outflow.
C)   Only net capital outflow.Demand for loanable funds comes from national saving.
D)   domestic investment and net capital outflow.Demand for loanable funds comes from national saving.E) A) and B)
F) B) and D)

Question 11

Trade policies

Accepted Answer

A)   affect a country's overall trade balance,but affect all firms and industries the same.
B)   affect a country's overall trade balance,but affect some firms or industries differently than others.
C)   do not affect a country's overall trade balance,but affect some firms or industries differently than others.
D)   do not affect either a country's overall trade balance or specific firms or industries.E) A) and B)
F) None of the above

Question 12

If a country experiences capital flight,which of the following curves shift right?

Accepted Answer

A)   only the demand for loanable funds.
B)   only the supply of dollars in the market for foreign-currency exchange.
C)   only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange.
D)   the demand for loanable funds,the net capital outflow curve,and the supply of dollars in the market for foreign currency exchange.E) A) and B)
F) A) and C)

Question 13

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

Accepted Answer

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

Question 14

In the open-economy macroeconomic model,the key determinant of net capital outflow is the

Accepted Answer

A)   nominal exchange rate.
B)   nominal interest rate.
C)   real exchange rate.
D)   real interest rate.E) All of the above
F) None of the above

Question 15

According to the open-economy macroeconomic model,if the U.S.government budget deficit increases,then both U.S.domestic investment and U.S.net capital outflow would decrease.

Accepted Answer

A) True 
 B)False

Question 16

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Accepted Answer

When the U.S.real exchange rate apprecia...

Question 17

If there is a surplus of loanable funds,the quantity demanded is

Accepted Answer

A)   greater than the quantity supplied and the interest rate will rise.
B)   greater than the quantity supplied and the interest rate will fall.
C)   less than the quantity supplied and the interest rate will rise.
D)   less than the quantity supplied and the interest rate will fall.E) A) and B)
F) None of the above

Question 18

Suppose that Egypt has a government budget surplus,and then goes into deficit.This change would

Accepted Answer

A)   increase national saving and shift Egypt's supply of loanable funds left.
B)   increase national saving and shift Egypt's demand for loanable funds right.
C)   decrease national saving and shift Egypt's supply of loanable funds left.
D)   decrease national saving and shift Egypt's demand for loanable funds right.E) C) and D)
F) None of the above

Question 19

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 20

Figure 32-1 
-Refer to Figure 32-1.In the Figure shown,if the real interest rate is 6 percent,there will be pressure for

Accepted Answer

A)   the real interest rate to fall.
B)   the demand for loanable funds curve to shift left.
C)   the supply for loanable funds curve to shift right.
D)   All of the above are correct.E) A) and D)
F) A) and B)

Exam 32: A Macroeconomic Theory of the Open Economy

If the government of Peru increased its budget deficit,then domestic investment

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Figure 32-1 -Refer to Figure 32-1.In the Figure shown,if the real interest rate is 6 percent,there will be pressure for

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If a country experiences capital flight,which of the following curves shift right?

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If a government of a country with a zero trade balance increases its budget deficit,then the real exchange rate

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Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Correct AnswerverifiedWhen the U.S.real exchange rate apprecia...View AnswerShow Answer

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

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In the open-economy macroeconomic model,the key determinant of net capital outflow is the

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds,the quantity demanded is

Correct AnswerverifiedShow Answer

If a country's budget deficit increases,then in the foreign exchange market,

Correct AnswerverifiedShow Answer

Suppose that Egypt has a government budget surplus,and then goes into deficit.This change would

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model,if the U.S.government budget deficit increases,then both U.S.domestic investment and U.S.net capital outflow would decrease.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes net capital outflow to

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Other things the same,a lower real interest rate decreases the quantity of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In an open economy,the demand for loanable funds comes from

Correct AnswerverifiedShow Answer

Suppose that U.S.investors decide that investment opportunities in African countries have improved.What happens to U.S.net capital outflow? What happens to the U.S.real interest rate?

Correct AnswerverifiedU.S.net capital outflow will i...View AnswerShow Answer

If the U.S.were to impose import quotas

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Trade policies

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When Mexico suffered from capital flight in 1994,Mexico's net capital outflow

Correct AnswerverifiedShow Answer

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When the U.S.real exchange rate apprecia...
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U.S.net capital outflow will i...
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