Exam 32: A Macroeconomic Theory of the Open Economy

A country has domestic investment of $100 billion.Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets.What is national saving?

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save equals desired quantities of domestic investment and net capital outflow.

In the open-economy macroeconomic model,the supply of dollars in the market for foreign-currency exchange comes from

If a country raises its budget deficit then

In the 1980s,both the U.S.government budget and U.S.trade deficits increased.

Other things the same,which of the following would a drop in the real interest rate raise: desired investment spending,desired national saving,desired net capital outflow?

A large and sudden movement of funds out of a country is called

If the budget deficit increases,then

In the open economy macroeconomic model,the price that balances supply and demand in the market for foreign-currency exchange model is the

If there is a surplus in the U.S.loanable funds market,then the interest rate

If the risk of buying U.S.assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds,then

If the United States imposes an import quota on clothing,then U.S.exports

Suppose that the U.S.imposes an import quota on lumber.The quota makes the real exchange rate of the U.S.dollar

In the long run import quotas do not affect the size of net exports.

If a country went from a government budget deficit to a surplus,national saving would

At a given real exchange rate,which of the following,by itself,would increase the supply of dollars in the market for foreign-currency exchange?

Figure 19-4 -Refer to Figure 19-5.Starting from r₂ and E₃,an increase in the budget surplus can be illustrated as a move to

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Because the open-economy macroeconomic model focuses on the long run,it is assumed that