Question 1

If a country places tariffs on imported goods, then

Accepted Answer

A)   its currency appreciates which reduces exports.
B)   its currency appreciates which increases exports.
C)   its currency depreciates which reduces exports.
D)   its currency depreciates which increases exports.E) A) and C)
F) C) and D)

Question 2

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

Accepted Answer

A)   $50 billion
B)   $70 billion
C)   $90 billion
D)   $120 billionE) A) and B)
F) A) and C)

Question 3

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

Accepted Answer

A)   and the real exchange rate increase.
B)   and the real exchange rate decrease.
C)   increases and the real exchange rate decreases.
D)   decreases and the real exchange rate increases.E) B) and D)
F) B) and C)

Question 4

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Accepted Answer

A) True 
 B)False

Question 5

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

Accepted Answer

A)   net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right.
B)   net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right.
C)   net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left.
D)   net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.E) B) and C)
F) A) and B)

Question 6

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

Accepted Answer

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

Question 7

In which case(s)  does(do)  a country's demand for loanable funds shift right?

Accepted Answer

A)   both an increase in the budget deficit and capital flight
B)   an increase in the budget deficit, but not capital flight
C)   capital flight, but not an increase in the budget deficit
D)   neither an increase in the budget deficit nor capital flightE) B) and C)
F) A) and D)

Question 8

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

Accepted Answer

A)   U.S. citizens would buy more Japanese bonds and Japanese citizens would buy more U.S. bonds.
B)   U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds.
C)   U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy more U.S. bonds.
D)   U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy fewer U.S. bonds.E) A) and C)
F) B) and D)

Question 9

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Accepted Answer

A lower probability of default has the o...

Question 10

Which of the following is the most likely result from an increase in a country's government budget surplus?

Accepted Answer

A)   higher interest rates
B)   lower imports
C)   lower net capital outflows
D)   lower domestic investmentE) A) and D)
F) B) and C)

Question 11

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.E) C) and D)
F) None of the above

Question 12

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.E) All of the above
F) A) and B)

Question 13

If the U.S. imposes a quota on cotton, then

Accepted Answer

A)   both exports and imports of other goods will rise.
B)   exports of other goods will rise and imports of other goods will fall.
C)   exports of other goods will fall and imports of other goods will rise.
D)   both imports and exports of other goods will fall.E) A) and B)
F) A) and C)

Question 14

If people in the U.S. choose to save a smaller percentage of income, what will happen to the interest rate, net capital outflow, the exchange rate, and net exports?

Accepted Answer

The interest rate will rise, n...

Question 15

If there is a surplus in the market for loanable funds, the resulting change in the real interest rate

Accepted Answer

A)   reduces both the quantity of loanable funds supplied and the quantity of loanable funds demanded.
B)   reduces the quantity of loanable funds supplied and raises the quantity of loanable funds demanded
C)   raises both the quantity of loanable funds supplied and the quantity of loanable funds demanded.
D)   raises the quantity of loanable funds supplied and reduces the quantity of loanable funds demanded.E) None of the above
F) B) and C)

Question 16

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign- currency exchange.

Accepted Answer

A) True 
 B)False

Question 17

A decrease in the budget deficit causes domestic interest rates

Accepted Answer

A)   and investment to rise.
B)   to rise and investment to fall.
C)   to fall and investment to rise.
D)   and investment to fall.E) None of the above
F) A) and B)

Question 18

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 19

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Accepted Answer

A)   rise and the trade balance moves to a surplus.
B)   rise and the trade balance moves to a deficit.
C)   fall and the trade balance moves to a surplus.
D)   fall and the trade balance moves to a deficit.E) None of the above
F) All of the above

Question 20

Refer to Shoe Quota. Overall as a result of this change in policy, what happens to exports, imports, and net exports?

Accepted Answer

Exports and imports ...

Exam 32: A Macroeconomic Theory of the Open Economy

In which case(s) does(do) a country's demand for loanable funds shift right?

Correct AnswerverifiedShow Answer

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

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If people in the U.S. choose to save a smaller percentage of income, what will happen to the interest rate, net capital outflow, the exchange rate, and net exports?

Correct AnswerverifiedThe interest rate will rise, n...View AnswerShow Answer

Which of the following is the most likely result from an increase in a country's government budget surplus?

Correct AnswerverifiedShow Answer

If a county becomes less likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Correct AnswerverifiedA lower probability of default has the o...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Correct AnswerverifiedShow Answer

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

Refer to Shoe Quota. Overall as a result of this change in policy, what happens to exports, imports, and net exports?

Correct AnswerverifiedExports and imports ...View AnswerShow Answer

A decrease in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

If the U.S. imposes a quota on cotton, then

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

Correct AnswerverifiedShow Answer

If there is a surplus in the market for loanable funds, the resulting change in the real interest rate

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign- currency exchange.

Correct AnswerverifiedShow Answer

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Correct AnswerverifiedShow Answer

If a country places tariffs on imported goods, then

Correct AnswerverifiedShow Answer

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Correct AnswerverifiedShow Answer

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The interest rate will rise, n...
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A lower probability of default has the o...
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Exports and imports ...
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