Question 1

Which of the following groups would be most harmed by a UK government budget deficit?

Accepted Answer

A)  Foreigners who wish to buy assets in the UK. 
B)  A British company wishing to sell aircraft to Saudi Arabia. 
C)  UK residents wishing to buy foreign produced cars. 
D)  Lenders of loanable funds. 
A)  Foreigners who wish to buy assets in the UK. 
B)  A British company wishing to sell aircraft to Saudi Arabia. 
C)  UK residents wishing to buy foreign produced cars. 
D)  Lenders of loanable funds. B

Question 2

An increase in the UK government budget deficit

Accepted Answer

A)  Increases UK net exports and decreases UK net capital outflow. 
B)  Decreases UK net exports and UK net capital outflow the same amount. 
C)  Increases UK net exports and UK net capital outflow the same amount. 
D)  Decreases UK net exports and increases UK net capital outflow. 
A)  Increases UK net exports and decreases UK net capital outflow. 
B)  Decreases UK net exports and UK net capital outflow the same amount. 
C)  Increases UK net exports and UK net capital outflow the same amount. 
D)  Decreases UK net exports and increases UK net capital outflow. B

Question 3

An increase in the government's budget deficit shifts the supply of loanable funds to the right.

Accepted Answer

A) True 
 B)False  False

Question 4

State what, if anything, each of the following does to the supply or demand of loanable funds.
a. Net capital outflow increases at each interest rate
b. Domestic investment increases at each interest rate
c. The government deficit increases
d. Private saving increases

Accepted Answer

a. The demand for loanable fun

Question 5

Households make their savings available to borrowers through

Accepted Answer

A)  Resource markets. 
B)  The loanable funds market. 
C)  The labour market. 
D)  Taxes. 
A)  Resource markets. 
B)  The loanable funds market. 
C)  The labour market. 
D)  Taxes.

Question 6

An increase in UK net capital outflow increases the supply of pounds in the market for foreign currency exchange and decreases the real exchange rate of the pound.

Accepted Answer

A) True 
 B)False

Question 7

If a country's government increases its budget deficit, then the

Accepted Answer

A)  Supply of loanable funds will increase. 
B)  Supply of loanable funds will decrease. 
C)  Real interest rate will fall. 
D)  Real exchange rate will fall. 
A)  Supply of loanable funds will increase. 
B)  Supply of loanable funds will decrease. 
C)  Real interest rate will fall. 
D)  Real exchange rate will fall.

Question 8

Which of the following statement regarding the loanable funds market is true?

Accepted Answer

A)  A decrease in the government budget deficit increases the real interest rate. 
B)  An increase in the government budget deficit shifts the supply of loanable funds to the right. 
C)  An increase in private saving shifts the supply of loanable funds to the left. 
D)  An increase in the government budget deficit shifts the supply of loanable funds to the left. 
A)  A decrease in the government budget deficit increases the real interest rate. 
B)  An increase in the government budget deficit shifts the supply of loanable funds to the right. 
C)  An increase in private saving shifts the supply of loanable funds to the left. 
D)  An increase in the government budget deficit shifts the supply of loanable funds to the left.

Question 9

Suppose that UK 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 10

If the EU raises its tariff on imported sugar, domestic sugar growers will benefit, but the euro will appreciate and domestic producers of export goods will be harmed.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following could increase the supply of pounds in the foreign exchange market?

Accepted Answer

A)  A reduction in the rate of inflation in the UK. 
B)  A reduction in real interest rates in the UK. 
C)  An increase in the UK government budget deficit. 
D)  A depreciation of other currencies. 
A)  A reduction in the rate of inflation in the UK. 
B)  A reduction in real interest rates in the UK. 
C)  An increase in the UK government budget deficit. 
D)  A depreciation of other currencies.

Question 12

The link between the loanable funds market and the foreign exchange market is

Accepted Answer

A)  The governments of the countries involved. 
B)  The International Monetary Fund. 
C)  Net capital outflow. 
D)  Purchasing power parity. 
A)  The governments of the countries involved. 
B)  The International Monetary Fund. 
C)  Net capital outflow. 
D)  Purchasing power parity.

Question 13

Capital flight

Accepted Answer

A)  Decreases a country's net exports and increases its long-run growth path. 
B)  Increases a country's net exports and increases its long-run growth path. 
C)  Increases a country's net exports and decreases its long-run growth path. 
D)  Decreases a country's net exports and decreases its long-run growth path. 
A)  Decreases a country's net exports and increases its long-run growth path. 
B)  Increases a country's net exports and increases its long-run growth path. 
C)  Increases a country's net exports and decreases its long-run growth path. 
D)  Decreases a country's net exports and decreases its long-run growth path.

Question 14

If a country's government wants to eliminate a trade deficit, its most effective policy would be to

Accepted Answer

A)  Reduce tariffs. 
B)  Encourage imports. 
C)  Impose quotas on imports. 
D)  Reduce its budget deficit. 
A)  Reduce tariffs. 
B)  Encourage imports. 
C)  Impose quotas on imports. 
D)  Reduce its budget deficit.

Question 15

Equilibrium in an open economy is characterized by

Accepted Answer

A)  Net exports = net capital outflow. 
B)  Net exports + net capital outflow = savings. 
C)  Domestic investment + net capital outflow = savings. 
D)  Both a and c are correct. 
A)  Net exports = net capital outflow. 
B)  Net exports + net capital outflow = savings. 
C)  Domestic investment + net capital outflow = savings. 
D)  Both a and c are correct.

Question 16

Suppose, due to political instability, Russians suddenly choose to purchase UK assets as opposed to Russian assets. Which of the following statements is true regarding the value of the pound and UK net exports? The pound:

Accepted Answer

A)  Appreciates, and UK net exports rise. 
B)  Appreciates, and UK net exports fall. 
C)  Depreciates, and UK net exports rise. 
D)  Depreciates, and UK net exports fall. 
A)  Appreciates, and UK net exports rise. 
B)  Appreciates, and UK net exports fall. 
C)  Depreciates, and UK net exports rise. 
D)  Depreciates, and UK net exports fall.

Question 17

If a country had capital flight, then the real exchange rate would

Accepted Answer

A)  Fall. To offset this fall the government could increase the budget deficit. 
B)  Fall. To offset this fall the government could decrease the budget deficit. 
C)  Rise. To offset this rise the government could increase the budget deficit. 
D)  Rise. To offset this rise the government could decrease the budget deficit. 
A)  Fall. To offset this fall the government could increase the budget deficit. 
B)  Fall. To offset this fall the government could decrease the budget deficit. 
C)  Rise. To offset this rise the government could increase the budget deficit. 
D)  Rise. To offset this rise the government could decrease the budget deficit.

Question 18

An increase in the government budget deficit

Accepted Answer

A)  Has no impact on the real interest rate and fails to crowd out investment because foreigners buy assets in the deficit country. 
B)  Decreases the real interest rate and crowds out investment. 
C)  None of these answers 
D)  Increases the real interest rate and crowds out investment. 
A)  Has no impact on the real interest rate and fails to crowd out investment because foreigners buy assets in the deficit country. 
B)  Decreases the real interest rate and crowds out investment. 
C)  None of these answers 
D)  Increases the real interest rate and crowds out investment.

Question 19

Which of the following statements regarding the loanable funds market is not true?

Accepted Answer

A)  A decrease in a country's net capital outflow shifts the demand for loanable funds to the left. 
B)  An increase in domestic investment shifts the demand for loanable funds to the right. 
C)  An increase in a country's net capital outflow shifts the supply of loanable funds to the left. 
D)  An increase in a country's net capital outflow raises its real interest rate. 
A)  A decrease in a country's net capital outflow shifts the demand for loanable funds to the left. 
B)  An increase in domestic investment shifts the demand for loanable funds to the right. 
C)  An increase in a country's net capital outflow shifts the supply of loanable funds to the left. 
D)  An increase in a country's net capital outflow raises its real interest rate.

Question 20

The open-economy macroeconomic model examines the determination of

Accepted Answer

A)  The output growth rate and the real interest rate. 
B)  Unemployment and the exchange rate. 
C)  The output growth rate and the inflation rate. 
D)  The trade balance and the exchange rate. 
A)  The output growth rate and the real interest rate. 
B)  Unemployment and the exchange rate. 
C)  The output growth rate and the inflation rate. 
D)  The trade balance and the exchange rate.

Exam 30: A Macroeconomic Theory of the Open Economy

Which of the following groups would be most harmed by a UK government budget deficit?

An increase in the UK government budget deficit

An increase in the government's budget deficit shifts the supply of loanable funds to the right.

State what, if anything, each of the following does to the supply or demand of loanable funds. a. Net capital outflow increases at each interest rate b. Domestic investment increases at each interest rate c. The government deficit increases d. Private saving increases

Households make their savings available to borrowers through

An increase in UK net capital outflow increases the supply of pounds in the market for foreign currency exchange and decreases the real exchange rate of the pound.

If a country's government increases its budget deficit, then the

Which of the following statement regarding the loanable funds market is true?

Suppose that UK 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?

If the EU raises its tariff on imported sugar, domestic sugar growers will benefit, but the euro will appreciate and domestic producers of export goods will be harmed.

Which of the following could increase the supply of pounds in the foreign exchange market?

The link between the loanable funds market and the foreign exchange market is

Capital flight

If a country's government wants to eliminate a trade deficit, its most effective policy would be to

Equilibrium in an open economy is characterized by

Suppose, due to political instability, Russians suddenly choose to purchase UK assets as opposed to Russian assets. Which of the following statements is true regarding the value of the pound and UK net exports? The pound:

If a country had capital flight, then the real exchange rate would

An increase in the government budget deficit

Which of the following statements regarding the loanable funds market is not true?

The open-economy macroeconomic model examines the determination of

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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