Question 1

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S.citizens from investing in foreign companies and increase the value of the dollar.Evaluate this promise.

Accepted Answer

An increase in the government budget sur...

Question 2

Capital flight reduces a country's real exchange rate.

Accepted Answer

A) True 
 B)False

Question 3

If the government of Colombia made policy changes that increased national saving,the real exchange rate of the peso would

Accepted Answer

A)   depreciate and Colombian net exports would rise.
B)   depreciate and Colombian net exports would fall.
C)   appreciate and Colombian net exports would rise.
D)   appreciate and Colombian net exports would fall.

Question 4

If government policy encouraged households to save more at each interest rate,then

Accepted Answer

A)   the real exchange rate and net exports would rise.
B)   the real exchange rate and net exports would fall.
C)   the real exchange rate would rise and net exports would fall.
D)   the real exchange rate would fall and net exports would rise.

Question 5

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 6

If the real exchange rate of the U.S.dollar were above its equilibrium level,the real exchange rate of the U.S.dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 7

If U.S.residents want to buy more foreign bonds,then in the market for foreign-currency exchange the exchange rate

Accepted Answer

A)   and the quantity of dollars traded rises.
B)   rises and the quantity of dollars traded falls.
C)   falls and the quantity of dollars traded rises.
D)   and the quantity of dollars traded falls.

Question 8

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)   increase domestic saving
B)   increase domestic political stability and respect of property rights
C)   other countries reduce their trade restrictions
D)   raise tariffs

Question 9

If a country institutes policies that lead domestic firms to desire more capital stock

Accepted Answer

A)   net capital outflows rise and the real exchange rate rises.
B)   net capital outflows rise and the real exchange rate falls.
C)   net capital outflows fall and the real exchange rate rises.
D)   net capital outflows and the real exchange rate falls.

Question 10

Figure 32-1 
-Refer to Figure 32-1.In the Figure shown,if the real interest rate is 2 percent,there will be a

Accepted Answer

A)   surplus of $20 billion.
B)   surplus of $40 billion.
C)   shortage of $20 billion.
D)   shortage of $40 billion.

Question 11

If there is capital flight from the United States,then the demand for loanable funds

Accepted Answer

A)   and the supply of dollars in the foreign-exchange market shift right.
B)   and the supply of dollars in the foreign-exchange market shift left.
C)   shifts left while the supply of dollars in the foreign-exchange market shifts right.
D)   shifts right while the supply of dollars in the foreign-exchange market shifts left.

Question 12

In an open economy,

Accepted Answer

A)   net capital outflow = imports.
B)   net capital outflow = net exports.
C)   net capital outflow = exports.
D)   None of the above is correct.

Question 13

If a government increases its budget deficit,then domestic interest rates

Accepted Answer

A)   and net exports rise.
B)   rise and net exports fall.
C)   fall and net exports rise.
D)   and net exports fall.

Question 14

In the long run,import quotas increase net exports.

Accepted Answer

A) True 
 B)False

Question 15

When Mexico suffered from capital flight in 1994,U.S.demand for loanable funds

Accepted Answer

A)   and U.S.net capital outflow rose.
B)   and U.S.net capital outflow fell.
C)   fell and U.S.net capital outflow rose.
D)   rose and U.S.net capital outflow fell.

Question 16

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 17

From 2001 to 2004 the U.S.budget went from surplus to deficit.According to the open economy macroeconomic model,this change should have

Accepted Answer

A)   increased U.S.interest rates and increased the real exchange rate of the dollar.
B)   increased U.S.interest rates and decreased the real exchange rate of the dollar.
C)   decreased U.S.interest rates and increased the real exchange rate of the dollar.
D)   decreased U.S.interest rates and decreased the real exchange rate of the dollar.

Question 18

When the U.S.real interest rate falls,owning U.S.assets becomes

Accepted Answer

A)   less attractive and so U.S.net capital outflow rises.
B)   less attractive and so U.S.net capital outflow falls.
C)   more attractive and so U.S.net capital outflow rises.
D)   more attractive and so U.S.net capital outflow falls.

Question 19

In 2002,the United States placed higher tariffs on imports of steel.According to the open-economy macroeconomic model this policy should have

Accepted Answer

A)   reduced imports into the United States and made U.S.net exports rise.
B)   reduced imports into the United States and made the net supply of dollars in the foreign exchange market shift right.
C)   reduced imports of steel into the United States,but reduced U.S.exports of other goods by an equal amount.
D)   reduced imports of steel into the United States and increased U.S.exports of other goods by an equal amount.

Question 20

At the equilibrium real interest rate in the open-economy macroeconomic model,the amount that people want to save equals the desired quantity of

Accepted Answer

A)   net capital outflow.
B)   domestic investment.
C)   net capital outflow plus domestic investment.
D)   foreign currency supplied.

Exam 32: A Macroeconomic Theory of the Open Economy

If the government of Colombia made policy changes that increased national saving,the real exchange rate of the peso would

Correct AnswerverifiedShow Answer

When the U.S.real interest rate falls,owning U.S.assets becomes

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model,the amount that people want to save equals the desired quantity of

Correct AnswerverifiedShow Answer

If a country institutes policies that lead domestic firms to desire more capital stock

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 32-1 -Refer to Figure 32-1.In the Figure shown,if the real interest rate is 2 percent,there will be a

Correct AnswerverifiedShow Answer

If government policy encouraged households to save more at each interest rate,then

Correct AnswerverifiedShow Answer

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S.citizens from investing in foreign companies and increase the value of the dollar.Evaluate this promise.

Correct AnswerverifiedAn increase in the government budget sur...View AnswerShow Answer

In an open economy,

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

Correct AnswerverifiedShow Answer

Capital flight reduces a country's real exchange rate.

Correct AnswerverifiedShow Answer

From 2001 to 2004 the U.S.budget went from surplus to deficit.According to the open economy macroeconomic model,this change should have

Correct AnswerverifiedShow Answer

In the long run,import quotas increase net exports.

Correct AnswerverifiedShow Answer

In 2002,the United States placed higher tariffs on imports of steel.According to the open-economy macroeconomic model this policy should have

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994,U.S.demand for loanable funds

Correct AnswerverifiedShow Answer

Which of the following would do the most to reduce a trade deficit?

Correct AnswerverifiedShow Answer

If a government increases its budget deficit,then domestic interest rates

Correct AnswerverifiedShow Answer

If the real exchange rate of the U.S.dollar were above its equilibrium level,the real exchange rate of the U.S.dollar would appreciate.

Correct AnswerverifiedShow Answer

If U.S.residents want to buy more foreign bonds,then in the market for foreign-currency exchange the exchange rate

Correct AnswerverifiedShow Answer

If there is capital flight from the United States,then the demand for loanable funds

Correct AnswerverifiedShow Answer

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An increase in the government budget sur...
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