Question 1

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as an increase in the quantity of dollars demanded in the U.S. foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 2

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.E) A) and B)
F) A) and C)

Question 3

Figure 14-1
 
-Refer to Figure 14-1. The loanable funds market is in equilibrium at

Accepted Answer

A)   2 percent, $20 billion.
B)   4 percent, $40 billion.
C)   6 percent, $60 billion.
D)   None of the above is correct.E) A) and C)
F) A) and D)

Question 4

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 retail outlet in Canada wants to buy handbags from a U.S. manufacturer.
B)   A U.S. bank loans dollars to Karen, a U.S. resident, who wants to purchase a car in the U.S.
C)   A U.S. based law firm wants to build a new office in Japan.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 5

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.E) None of the above
F) All of the above

Question 6

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

Accepted Answer

A)   foreigners want to buy more U.S. bonds
B)   foreigners want to buy fewer U.S. bonds
C)   foreigners want to buy more U.S. goods and services.
D)   foreigners want to buy fewer U.S. goods and services.E) A) and B)
F) B) and C)

Question 7

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Accepted Answer

A)   shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right
B)   shift the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left
C)   shift the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right
D)   shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange leftE) All of the above
F) A) and B)

Question 8

When a country experiences capital flight, the interest rate

Accepted Answer

A)   falls because the demand for loanable funds shifts left.
B)   falls because the supply for loanable funds shifts right.
C)   rises because the demand for loanable funds shifts right.
D)   rises because the supply for loanable funds shifts left.E) A) and B)
F) B) and C)

Question 9

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

Accepted Answer

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

Question 10

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases, ...

Question 12

In the open-economy macroeconomic model, a higher U.S. real exchange rate makes

Accepted Answer

A)   U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B)   U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C)   foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars supplied.
D)   foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars demanded.E) B) and D)
F) A) and B)

Question 13

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Accepted Answer

A)   rise and exports of other industries would increase.
B)   rise and exports of other industries would decline.
C)   not change, exports of other industries would increase.
D)   not change, exports of other industries would decline.E) B) and D)
F) A) and D)

Question 14

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 15

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) None of the above
F) All of the above

Question 16

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

Higher U.S. interest rates make U.S. ass...

Question 17

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

Question 18

When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Accepted Answer

A)   fell and the peso appreciated.
B)   fell and the peso depreciated.
C)   rose and the peso appreciated.
D)   rose and the peso depreciated.E) A) and B)
F) A) and C)

Question 19

Figure 14-7
 0 and E1. Which of the following is consistent with the effects of capital flight? A)  the shift from D0 to D1 in Panel A B)  the shift from NCO0 to NCO1 in Panel B C)  the shift from S0 to S1 in Panel C D)  All of the above shifts are consistent with the effects of capital flight. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 14-7. Supposing that the Mexican economy starts at r0 and E1. Which of the following is consistent with the effects of capital flight?

Accepted Answer

A)   the shift from D0 to D1 in Panel A
B)   the shift from NCO0 to NCO1 in Panel B
C)   the shift from S0 to S1 in Panel C
D)   All of the above shifts are consistent with the effects of capital flight.E) A) and B)
F) A) and C)

Question 20

Figure 14-7
 0 to E1. B)  The real exchange rate of the peso depreciates from E0 to E1. C)  The real exchange rate of the peso appreciates from E1 to E0. D)  The real exchange rate of the peso depreciates from E1 to E0. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 14-7. Which of the following is consistent with capital flight from Mexico?

Accepted Answer

A)   The real exchange rate of the peso appreciates from E0 to E1.
B)   The real exchange rate of the peso depreciates from E0 to E1.
C)   The real exchange rate of the peso appreciates from E1 to E0.
D)   The real exchange rate of the peso depreciates from E1 to E0.E) A) and B)
F) C) and D)

Exam 14: A Macroeconomic Theory of the Open Economy

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Correct AnswerverifiedThe supply of loanable funds increases, ...View AnswerShow Answer

Figure 14-7 -Refer to Figure 14-7. Which of the following is consistent with capital flight from Mexico?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Why do higher real interest rates lead to lower net capital outflow?

Correct AnswerverifiedHigher U.S. interest rates make U.S. ass...View AnswerShow Answer

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as an increase in the quantity of dollars demanded in the U.S. foreign-currency exchange market.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 14-1 -Refer to Figure 14-1. The loanable funds market is in equilibrium at

Correct AnswerverifiedShow Answer

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

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

Figure 14-7 -Refer to Figure 14-7. Supposing that the Mexican economy starts at r0 and E1. Which of the following is consistent with the effects of capital flight?

Correct AnswerverifiedShow Answer

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Correct AnswerverifiedShow Answer

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

Correct AnswerverifiedShow Answer

The value of net exports equals the value of

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the foreign-currency exchange market.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, a higher U.S. real exchange rate makes

Correct AnswerverifiedShow Answer

When a country experiences capital flight, the interest rate

Correct AnswerverifiedShow Answer

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The supply of loanable funds increases, ...
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Higher U.S. interest rates make U.S. ass...
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Figure 14-7 -Refer to Figure 14-7. Supposing that the Mexican economy starts at r₀ and E₁. Which of the following is consistent with the effects of capital flight?

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