Question 1

At the equilibrium real interest rate in the open-economy macroeconomic model, the equilibrium quantity of loanable funds equals

Accepted Answer

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

Question 2

In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from

Accepted Answer

A)   U.S. national saving and the demand for dollars for U.S. net exports.
B)   U.S. net capital outflow and the demand for dollars for U.S. net exports.
C)   domestic investment and the demand for U.S. net exports.
D)   foreign demand for U.S. goods and services and U.S. demand for foreign goods and services.

Question 3

The open-economy macroeconomic model takes

Accepted Answer

A)   GDP, but not the price level as given.
B)   the price level, but not GDP as given.
C)   both the price level and GDP as given.
D)   the price level and GDP as variables to be determined by the model.

Question 4

Figure 32-1 
-Refer to Figure 32-1. If the real interest rate is 6 percent, the quantity of loanable funds demanded is

Accepted Answer

A)   $20 billion, and the quantity supplied is $40 billion.
B)   $20 billion, and the quantity supplied is $60 billion.
C)   $60 billion, and the quantity supplied is $20 billion.
D)   $60 billion, and the quantity supplied is $40 billion.

Question 5

When a country experiences capital flight, its net capital outflow,

Accepted Answer

A)   which is part of the demand for loanable funds, increases.
B)   which is part of the supply of loanable funds, increases.
C)   which is part of the demand for loanable funds, decreases.
D)   which is part of the supply of loanable funds, decreases.

Question 6

Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflow falls because the do...

Question 7

The explanation for the slope of

Accepted Answer

A)   the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving.
B)   the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving.
C)   the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving.
D)   the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

Question 8

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.

Question 9

When fear of default on bonds issued by U.S. corporations decline, then

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

In an open economy, the source for the demand for loanable funds is

Accepted Answer

A)   national saving.
B)   national saving + net capital outflow.
C)   investment
D)   investment + net capital outflow

Question 12

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Accepted Answer

The supply of dollar...

Question 13

If U.S. net exports are negative, then net capital outflow is

Accepted Answer

A)   positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Question 14

Figure 32-1 
-Refer to Figure 32-1. 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.

Question 15

Which of the following is included in the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)   a U.S. bank loans dollars to Tom to buy a U.S. made motorcycle
B)   a U.S. tire maker wants to build a new factory in China
C)   a U.S. company wants to import goods to sell in its retail stores
D)   All of the above are correct.

Question 16

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

Accepted Answer

A)   The demand for loanable funds shifts right.
B)   The demand for loanable funds shifts left.
C)   The supply of loanable funds shifts right.
D)   The supply of loanable funds shifts left.

Question 17

In the open-economy macroeconomic model, which of the following increases net capital outflow?

Accepted Answer

A)   a fall in the real exchange rate, but not a fall in the real interest rate
B)   a fall in the real interest rate, but not a fall in the real exchange rate
C)   both a fall in the real exchange rate and a fall in the real interest rate
D)   neither a fall in the real exchange rate nor a fall in the real interest rate

Question 18

The value of net exports equals the value of

Accepted Answer

A)   national saving.
B)   public saving.
C)   national saving - net capital outflow.
D)   national saving - domestic investment.

Question 19

An increase in the budget deficit

Accepted Answer

A)   reduces net capital outflow and domestic investment.
B)   reduces net capital outflow and raises domestic investment.
C)   raises net capital outflow and domestic investment
D)   raises net capital outflow and reduces domestic investment.

Question 20

If the U.S. imposed import quotas on cotton, then which of the following would rise?

Accepted Answer

A)   the U.S. real exchange rate and U.S. net exports
B)   the U.S. real exchange rate but not U.S. net exports
C)   U.S. net exports but not the U.S. real exchange rate
D)   neither the U.S. real exchange rate nor U.S. net exports

Exam 32: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model, which of the following increases net capital outflow?

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In an open economy, the source for the demand for loanable funds is

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If the U.S. imposed import quotas on cotton, then which of the following would rise?

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The open-economy macroeconomic model takes

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In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from

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If U.S. net exports are negative, then net capital outflow is

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Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

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Which of the following is included in the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

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When a country experiences capital flight, its net capital outflow,

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At the equilibrium real interest rate in the open-economy macroeconomic model, the equilibrium quantity of loanable funds equals

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

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If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Correct AnswerverifiedThe supply of dollar...View AnswerShow Answer

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 6 percent, the quantity of loanable funds demanded is

Correct AnswerverifiedShow Answer

The value of net exports equals the value of

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Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Correct AnswerverifiedNet capital outflow falls because the do...View AnswerShow 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

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

Correct AnswerverifiedShow Answer

The explanation for the slope of

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An increase in the budget deficit

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When fear of default on bonds issued by U.S. corporations decline, then

Correct AnswerverifiedShow Answer

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The supply of dollar...
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Net capital outflow falls because the do...
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