Question 1

When a country experiences capital flight its interest rate

Accepted Answer

A)  and net capital outflow rise.
B)  rises and net capital outflow falls.
C)  falls and net capital outflow rises.
D)  interest rate and net capital outflow fall.

Question 2

Because a government budget deficit represents

Accepted Answer

A)  negative public saving, it increases national saving.
B)  negative public saving, it decreases national saving.
C)  positive public saving, it increases national saving.
D)  positive public saving, it decreases national saving.

Question 3

Other things the same, a decrease in the real interest rate raises the quantity of

Accepted Answer

A)  domestic investment and net capital outflow.
B)  domestic investment but not net capital outflow.
C)  net capital outflow but not domestic investment.
D)  neither domestic investment nor net capital outflow.

Question 4

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

Accepted Answer

A)  net capital outflow rises, so the exchange rate rises.
B)  net capital outflow rises, so the exchange rate falls.
C)  net capital outflow falls, so the exchange rate rises.
D)  net capital outflow falls, so the exchange rate falls.

Question 5

U.S. net capital outflow

Accepted Answer

A)  is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market.
B)  is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market.
C)  is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market.
D)  is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market.

Question 6

Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflows rise because a lowe...

Question 7

Refer to Shoe Quota. As a result of the quota, is there initially a surplus or a shortage in the market for foreign-currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

Accepted Answer

Since the demand for dollars increases, ...

Question 8

If the U.S. government imposes a quota on imports of jet planes, then

Accepted Answer

A)  net capital outflow rises.
B)  net exports rise.
C)  the exchange rate rises.
D)  All of the above are correct.

Question 9

If at a given exchange rate U.S. citizens wanted to buy more foreign bonds

Accepted Answer

A)  the demand for dollars in the market for foreign-currency exchange would shift right.
B)  the demand for dollars in the market for foreign-currency exchange would shift left.
C)  the supply of dollars in the market for foreign-currency exchange shifts right.
D)  the supply of dollars in the market for foreign-currency exchange shifts left.

Question 10

If interest rates rose more in the U.S. than in France, then other things the same

Accepted Answer

A)  U.S. citizens would buy more French bonds and French citizens would buy more U.S. bonds.
B)  U.S. citizens would buy more French bonds and French citizens would buy fewer U.S. bonds.
C)  U.S. citizens would buy fewer French bonds and French citizens would buy more U.S. bonds.
D)  U.S. citizens would buy fewer French bonds and French citizens would buy fewer U.S. bonds.

Question 11

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

Accepted Answer

A)  shortage of loanable funds and the interest rate will fall.
B)  shortage of loanable funds and the interest rate will rise.
C)  surplus of loanable funds and the interest rate will fall.
D)  surplus of loanable funds and the interest rate will rise.

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.

Question 13

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

Accepted Answer

A)  the exchange rate falls so foreign residents want to buy more U.S. goods and services
B)  the exchange rate falls so foreign residents want to buy fewer U.S. goods and services
C)  the exchange rate rises so foreign residents want to buy more U.S. goods and services
D)  the exchange rate rises so foreign residents want to buy fewer U.S. goods and services

Question 14

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Accepted Answer

A)  an increase in the demand for U.S. currency in the market for foreign-currency exchange
B)  a decrease in the demand for U.S. currency in the market for foreign-currency exchange
C)  an increase in the supply of loanable funds
D)  a decrease in the supply of loanable funds

Question 15

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?

Accepted Answer

Its interest rate fa...

Question 16

If the demand for loanable funds shifts left, then

Accepted Answer

A)  the real interest rate and the equilibrium quantity of loanable funds both fall.
B)  the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)  the real interest rate and the equilibrium quantity of loanable funds both rise.
D)  the real interest rate rises and the equilibrium quantity of loanable funds falls.

Question 17

If the budget deficit increases, then

Accepted Answer

A)  an increase in the interest rate increases net capital outflow.
B)  an increase in the interest rate decreases net capital outflow.
C)  a decrease in the interest rate increases net capital outflow.
D)  a decrease in the interest rate decreases net capital outflow.

Question 18

What effect do protectionist policies have on the trade deficit?

Accepted Answer

Protectionist policies increase the dema...

Question 19

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.

Question 20

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

Accepted Answer

A) True 
 B)False

Exam 32: A Macroeconomic Theory of the Open Economy

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What effect do protectionist policies have on the trade deficit?

Correct AnswerverifiedProtectionist policies increase the dema...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

Correct AnswerverifiedShow Answer

Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Correct AnswerverifiedNet capital outflows rise because a lowe...View AnswerShow Answer

If at a given exchange rate U.S. citizens wanted to buy more foreign bonds

Correct AnswerverifiedShow Answer

Other things the same, a decrease in the real interest rate raises the quantity of

Correct AnswerverifiedShow Answer

If the U.S. government imposes a quota on imports of jet planes, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the budget deficit increases, then

Correct AnswerverifiedShow Answer

When a country experiences capital flight its interest rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If interest rates rose more in the U.S. than in France, then other things the same

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts left, then

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedIts interest rate fa...View AnswerShow Answer

Refer to Shoe Quota. As a result of the quota, is there initially a surplus or a shortage in the market for foreign-currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

Correct AnswerverifiedSince the demand for dollars increases, ...View AnswerShow Answer

Because a government budget deficit represents

Correct AnswerverifiedShow Answer

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

Correct AnswerverifiedShow Answer

U.S. net capital outflow

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Protectionist policies increase the dema...
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Net capital outflows rise because a lowe...
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Its interest rate fa...
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Since the demand for dollars increases, ...
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