Question 1

In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 2

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 3

In the open-economy macroeconomic model,the quantity of dollars demanded in the market for foreign-currency exchange

Accepted Answer

A)   depends on the real exchange rate.The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate.
B)   depends on the real interest rate.The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate.
C)   and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate.
D)   and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate.

Question 4

If U.S.citizens decide to save a larger fraction of their incomes,the real interest rate

Accepted Answer

A)   decreases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow increases.
B)   decreases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow decreases.
C)   increases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow decreases.
D)   increases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow increases.

Question 5

Which of the following is most likely to increase exports?

Accepted Answer

A)   a reduction in domestic political instability
B)   ending investment tax credits
C)   a reduction in the size of the government's budget surplus
D)   None of the above will increase exports.

Question 6

A firm produces manufacturing equipment,some of which it exports.Which of the following effects of a budget deficit would likely reduce the quantity of equipment it sells?

Accepted Answer

A)   the change in the interest rate and the change in the exchange rate
B)   the change in the interest rate but not the change in the exchange rate
C)   the change in the exchange rate but not the change in the interest rate
D)   neither the change in the interest rate nor the change in the exchange rate

Question 7

In the open-economy macroeconomic model,the market for loanable funds equates national saving with

Accepted Answer

A)   domestic investment.
B)   net capital outflow.
C)   national consumption minus domestic investment.
D)   None of the above is correct.

Question 8

A country has output of $700 billion,consumption of $500 billion,government expenditures of $100 and investment of $60 million.What is its supply of loanable funds?

Accepted Answer

A)   $140 billion
B)   $100 billion
C)   $60 billion
D)   $40 billion

Question 9

Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.

Accepted Answer

A) True 
 B)False

Question 10

In the open-economy macroeconomic model,if the supply of loanable funds shifts left

Accepted Answer

A)   the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right.
B)   the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left.
C)   the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right.
D)   the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left.

Question 11

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States?

Accepted Answer

A)   U.S.net exports will rise
B)   U.S.net capital outflow will fall.
C)   U.S.domestic investment will rise
D)   the dollar will appreciate

Question 12

The slope of the supply of loanable funds is based on an increase in

Accepted Answer

A)   only national saving when the interest rate rises.
B)   both national saving and net capital outflow when the interest rate rises.
C)   only national saving when the interest rate falls.
D)   both national saving and net capital outflow when the interest rate falls.

Question 13

Other things the same,as the real interest rate falls

Accepted Answer

A)   domestic investment and net capital outflow both rise.
B)   domestic investment and net capital outflow both fall.
C)   domestic investment rises and net capital outflow falls.
D)   domestic investment falls and net capital outflow rises.

Question 14

Which of the following is correct concerning the open-economy macroeconomic model?

Accepted Answer

A)   The net-capital-outflow curve slopes downward.
B)   The key determinant of net capital outflow is the real exchange rate.
C)   The supply of dollars in the market for foreign-currency exchange is horizontal.
D)   None of the above is correct.

Question 15

Other things the same,people in the U.S.would want to save more if the real interest rate in the U.S.

Accepted Answer

A)   fell.The increased saving would increase the quantity of loanable funds demanded.
B)   fell.The increased saving would increase the quantity of loanable funds supplied.
C)   rose.The increased saving would increase the quantity of loanable funds demanded.
D)   rose.The increased saving would increase the quantity of loanable funds supplied.

Question 16

An increase in a country's budget surplus shifts its

Accepted Answer

A)   demand for loanable funds right and decreases investment spending.
B)   supply of loanable funds right and increases investment spending.
C)   supply of loanable funds left and decreases investment spending.
D)   None of the above is correct.

Question 17

In the open-economy macroeconomic model,if the supply of loanable funds shifts right,then

Accepted Answer

A)   net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts right.
B)   net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right.
C)   net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
D)   net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right.

Question 18

The real exchange rate measures the

Accepted Answer

A)   price of domestic currency relative to foreign currency.
B)   price of domestic goods relative to the price of foreign goods.
C)   rate of domestic and foreign interest.
D)   None of the above is correct.

Question 19

A tax on imported goods is called a(n)

Accepted Answer

A)   excise tax.
B)   tariff.
C)   import quota.
D)   None of the above is correct.

Question 20

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.

Exam 32: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model,the market for loanable funds equates national saving with

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Other things the same,as the real interest rate falls

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Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.

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A country has output of $700 billion,consumption of $500 billion,government expenditures of $100 and investment of $60 million.What is its supply of loanable funds?

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The real exchange rate measures the

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

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If U.S.citizens decide to save a larger fraction of their incomes,the real interest rate

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The slope of the supply of loanable funds is based on an increase in

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In the open-economy macroeconomic model,the quantity of dollars demanded in the market for foreign-currency exchange

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An increase in a country's budget surplus shifts its

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model,if the supply of loanable funds shifts right,then

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A firm produces manufacturing equipment,some of which it exports.Which of the following effects of a budget deficit would likely reduce the quantity of equipment it sells?

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Which of the following is most likely to increase exports?

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Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States?

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In the open-economy macroeconomic model,if the supply of loanable funds shifts left

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Other things the same,people in the U.S.would want to save more if the real interest rate in the U.S.

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A tax on imported goods is called a(n)

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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.

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Which of the following is correct concerning the open-economy macroeconomic model?

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In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

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