Question 1

The key determinant of net capital outflow is the real interest rate.

Accepted Answer

A) True 
 B)False

Question 2

Capital flight refers to

Accepted Answer

A)  the movement of workers across international borders in response to exchange rate changes. 
B)  the movement of funds between financial intermediaries when interest rates change. 
C)  the ability of foreign direct investment to lift a country out of poverty. 
D)  a large and sudden movement of funds out of a country. 
A)  the movement of workers across international borders in response to exchange rate changes. 
B)  the movement of funds between financial intermediaries when interest rates change. 
C)  the ability of foreign direct investment to lift a country out of poverty. 
D)  a large and sudden movement of funds out of a country.

Question 3

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 fund

Question 4

Other things the same,a higher real interest rate raises the quantity of

Accepted Answer

A)  domestic investment. 
B)  net capital outflow. 
C)  loanable funds demanded. 
D)  loanable funds supplied. 
A)  domestic investment. 
B)  net capital outflow. 
C)  loanable funds demanded. 
D)  loanable funds supplied.

Question 5

A country has I = $200 billion,S = $400 billion,and purchased $600 billion of foreign assets,how many of its assets did foreigners purchase?

Accepted Answer

A)  $0 
B)  $200 billion 
C)  $400 billion 
D)  $800 billion 
A)  $0 
B)  $200 billion 
C)  $400 billion 
D)  $800 billion

Question 6

In the open-economy macroeconomic model,the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A)  foreign residents want to buy more U.S.goods and services. 
B)  U.S.residents want to buy fewer foreign goods and services. 
C)  Both A and B are correct. 
D)  None of the above is correct. 
A)  foreign residents want to buy more U.S.goods and services. 
B)  U.S.residents want to buy fewer foreign goods and services. 
C)  Both A and B are correct. 
D)  None of the above is correct.

Question 7

Figure 19-2  
-Refer to Figure 19-2.If the real exchange rate is .6,then there is a

Accepted Answer

A)  surplus of 100 so the real exchange rate will fall. 
B)  surplus of 100 so the real exchange rate will rise. 
C)  shortage of 100 so the real exchange rate will fall. 
D)  shortage of 100 so the real exchange rate will rise. 
A)  surplus of 100 so the real exchange rate will fall. 
B)  surplus of 100 so the real exchange rate will rise. 
C)  shortage of 100 so the real exchange rate will fall. 
D)  shortage of 100 so the real exchange rate will rise.

Question 8

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

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 flight 
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 flight

Question 9

Other things the same,if the interest rate falls,then

Accepted Answer

A)  firms will want to borrow more,which increases the quantity of loanable funds demanded. 
B)  firms will want to borrow less,which decreases the quantity of loanable funds demanded. 
C)  firms will want to borrow more,which increase the quantity of loanable funds supplied. 
D)  firms will want to borrow less,which decreases the quantity of loanable funds supplied. 
A)  firms will want to borrow more,which increases the quantity of loanable funds demanded. 
B)  firms will want to borrow less,which decreases the quantity of loanable funds demanded. 
C)  firms will want to borrow more,which increase the quantity of loanable funds supplied. 
D)  firms will want to borrow less,which decreases the quantity of loanable funds supplied.

Question 10

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.

Question 11

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

Accepted Answer

A)  the exchange rate falls so foreign residents want to buy more U.S.goods and services 
B)  the exchange rate falls so foreign residents want to buy fewer U.S.goods and services 
C)  the exchange rate rises so foreign residents want to buy more U.S.goods and services 
D)  the exchange rate rises so foreign residents want to buy fewer U.S.goods and services 
A)  the exchange rate falls so foreign residents want to buy more U.S.goods and services 
B)  the exchange rate falls so foreign residents want to buy fewer U.S.goods and services 
C)  the exchange rate rises so foreign residents want to buy more U.S.goods and services 
D)  the exchange rate rises so foreign residents want to buy fewer U.S.goods and services

Question 12

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Accepted Answer

A)  the interest rate 
B)  net exports 
C)  the exchange rate 
D)  All of the above are correct. 
A)  the interest rate 
B)  net exports 
C)  the exchange rate 
D)  All of the above are correct.

Question 13

Which of the following is most likely to increase the exports of a country?

Accepted Answer

A)  The government gives subsidies to firms that export goods or services. 
B)  The government reduces the size of the budget surplus. 
C)  Political instability within the country increases modestly. 
D)  None of the above will increase exports. 
A)  The government gives subsidies to firms that export goods or services. 
B)  The government reduces the size of the budget surplus. 
C)  Political instability within the country increases modestly. 
D)  None of the above will increase exports.

Question 14

If at a given real interest rate desired national saving were $50 billion,domestic investment were $40 billion,and net capital outflow were $20 billion,then at that real interest rate in the loanable funds market there would be a

Accepted Answer

A)  surplus;the real interest rate would rise. 
B)  surplus;the real interest rate would fall. 
C)  shortage;the real interest rate would rise. 
D)  shortage;the real interest rate would fall. 
A)  surplus;the real interest rate would rise. 
B)  surplus;the real interest rate would fall. 
C)  shortage;the real interest rate would rise. 
D)  shortage;the real interest rate would fall.

Question 15

In the 1980s,the U.S.government budget deficit rose.At the same time the U.S.trade deficit grew larger,the real exchange rate of the dollar appreciated,and U.S.net capital outflow decreased.Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

Accepted Answer

A)  The U.S.trade deficit grew. 
B)  The real exchange rate of the dollar appreciated. 
C)  U.S.net capital outflow fell. 
D)  None of the above is contrary to the predictions of the model. 
A)  The U.S.trade deficit grew. 
B)  The real exchange rate of the dollar appreciated. 
C)  U.S.net capital outflow fell. 
D)  None of the above is contrary to the predictions of the model.

Question 16

If the U.S.put an import quota on clothing,it would

Accepted Answer

A)  raise U.S.net exports of clothing and raise net exports of other U.S.goods. 
B)  raise U.S.net exports of clothing and lower net exports of other U.S.goods. 
C)  lower U.S.net exports of clothing and raise net exports of other U.S.goods. 
D)  lower U.S.net exports of clothing and lower net exports of other U.S.goods. 
A)  raise U.S.net exports of clothing and raise net exports of other U.S.goods. 
B)  raise U.S.net exports of clothing and lower net exports of other U.S.goods. 
C)  lower U.S.net exports of clothing and raise net exports of other U.S.goods. 
D)  lower U.S.net exports of clothing and lower net exports of other U.S.goods.

Question 17

In an open economy,the demand for loanable funds comes from

Accepted Answer

A)  only those who want to borrow funds to buy domestic capital goods. 
B)  only those who want to borrow funds to buy foreign assets. 
C)  those who want to borrow funds to buy either domestic capital goods or foreign assets. 
D)  neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets. 
A)  only those who want to borrow funds to buy domestic capital goods. 
B)  only those who want to borrow funds to buy foreign assets. 
C)  those who want to borrow funds to buy either domestic capital goods or foreign assets. 
D)  neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets.

Question 18

If a country raises its budget deficit,then in the market for foreign-currency exchange

Accepted Answer

A)  supply shifts left 
B)  supply shifts right . 
C)  demand shifts left. 
D)  supply shifts right. 
A)  supply shifts left 
B)  supply shifts right . 
C)  demand shifts left. 
D)  supply shifts right.

Question 19

When the U.S.real exchange rate appreciates,U.S.goods become

Accepted Answer

A)  more attractive to consumers in the U.S.and abroad. 
B)  more attractive to consumers in the U.S.and less attractive to consumers abroad. 
C)  less attractive to consumers in the U.S.and abroad. 
D)  less attractive to consumers in the U.S.and more attractive to consumers abroad. 
A)  more attractive to consumers in the U.S.and abroad. 
B)  more attractive to consumers in the U.S.and less attractive to consumers abroad. 
C)  less attractive to consumers in the U.S.and abroad. 
D)  less attractive to consumers in the U.S.and more attractive to consumers abroad.

Question 20

If a country has a negative net capital outflow,then

Accepted Answer

A)  on net it is purchasing assets from abroad.This adds to its demand for domestically generated loanable funds. 
B)  on net it is purchasing assets from abroad.This subtracts from its demand for domestically generated loanable funds. 
C)  on net other countries are purchasing assets from it.This adds to its demand for domestically generated loanable funds. 
D)  on net other countries are purchasing assets from it.This subtracts from its demand for domestically generated loanable funds. 
A)  on net it is purchasing assets from abroad.This adds to its demand for domestically generated loanable funds. 
B)  on net it is purchasing assets from abroad.This subtracts from its demand for domestically generated loanable funds. 
C)  on net other countries are purchasing assets from it.This adds to its demand for domestically generated loanable funds. 
D)  on net other countries are purchasing assets from it.This subtracts from its demand for domestically generated loanable funds.

Exam 32: A Macroeconomic Theory of the Open Economy

The key determinant of net capital outflow is the real interest rate.

Capital flight refers to

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

Other things the same,a higher real interest rate raises the quantity of

A country has I = $200 billion,S = $400 billion,and purchased $600 billion of foreign assets,how many of its assets did foreigners purchase?

In the open-economy macroeconomic model,the demand for dollars shifts right if at any given exchange rate

Figure 19-2 -Refer to Figure 19-2.If the real exchange rate is .6,then there is a

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

Other things the same,if the interest rate falls,then

The open-economy macroeconomic model examines the determination of

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Which of the following is most likely to increase the exports of a country?

If at a given real interest rate desired national saving were $50 billion,domestic investment were $40 billion,and net capital outflow were $20 billion,then at that real interest rate in the loanable funds market there would be a

If the U.S.put an import quota on clothing,it would

In an open economy,the demand for loanable funds comes from

If a country raises its budget deficit,then in the market for foreign-currency exchange

When the U.S.real exchange rate appreciates,U.S.goods become

If a country has a negative net capital outflow,then

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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