Question 1

What happens to net capital outflow as the real interest rate falls? Explain your answer.

Accepted Answer

As the real interest rate falls, domestic bonds become less attractive to both domestic and foreign residents and foreign bonds become more attractive. An increase in the purchase of foreign bonds by domestic residents and a decrease in the purchase of domestic bonds by foreign residents both increase net capital outflow.

Question 2

Trade policies

Accepted Answer

A) alter the trade balance because they alter imports of the country that implemented them. 
B) alter the trade balance because they alter net capital outflow of the country that implemented them. 
C) do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D) do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them. 
A) alter the trade balance because they alter imports of the country that implemented them. 
B) alter the trade balance because they alter net capital outflow of the country that implemented them. 
C) do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D) do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them. C

Question 3

Suppose the U.S. removes an import quota on steel. U.S. exports

Accepted Answer

A) increase, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow increases. 
B) increase, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow is unchanged. 
C) decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow is unchanged. 
D) decrease, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow decreases. 
A) increase, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow increases. 
B) increase, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow is unchanged. 
C) decrease, the real exchange rate of the U.S. dollar appreciates, and U.S. net capital outflow is unchanged. 
D) decrease, the real exchange rate of the U.S. dollar depreciates, and U.S. net capital outflow decreases. B

Question 4

If a government increases its budget deficit, then the real exchange rate

Accepted Answer

A) and domestic investment rise. 
B) and domestic investment fall. 
C) rises and domestic investment falls. 
D) falls and domestic investment rises. 
A) and domestic investment rise. 
B) and domestic investment fall. 
C) rises and domestic investment falls. 
D) falls and domestic investment rises.

Question 5

If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then

Accepted Answer

A) U.S. net capital outflow rises which increases the U.S. exchange rate. 
B) U.S. net capital outflow rises which decreases the U.S. exchange rate. 
C) U.S. net capital outflow falls which increases the U.S. exchange rate. 
D) U.S. net capital outflow falls which decreases the U.S. exchange rate. 
A) U.S. net capital outflow rises which increases the U.S. exchange rate. 
B) U.S. net capital outflow rises which decreases the U.S. exchange rate. 
C) U.S. net capital outflow falls which increases the U.S. exchange rate. 
D) U.S. net capital outflow falls which decreases the U.S. exchange rate.

Question 6

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Accepted Answer

A) left, which would make the real exchange rate of the Chinese yuan appreciate. 
B) left, which would make the real exchange rate of the Chinese yuan depreciate. 
C) right, which would make the real exchange rate of the Chinese yuan appreciate. 
D) right, which would make the real exchange rate of the Chinese yuan depreciate. 
A) left, which would make the real exchange rate of the Chinese yuan appreciate. 
B) left, which would make the real exchange rate of the Chinese yuan depreciate. 
C) right, which would make the real exchange rate of the Chinese yuan appreciate. 
D) right, which would make the real exchange rate of the Chinese yuan depreciate.

Question 7

If the U.S. imposed import quotas on cotton, then which of the following would rise?

Accepted Answer

A) the U.S. real exchange rate and U.S. net exports 
B) the U.S. real exchange rate but not U.S. net exports 
C) U.S. net exports but not the U.S. real exchange rate 
D) neither the U.S. real exchange rate nor U.S. net exports 
A) the U.S. real exchange rate and U.S. net exports 
B) the U.S. real exchange rate but not U.S. net exports 
C) U.S. net exports but not the U.S. real exchange rate 
D) neither the U.S. real exchange rate nor U.S. net exports

Question 8

In equilibrium which of the following happens if the U.S. imposes tariffs on power tools?

Accepted Answer

A) U.S. net exports rise 
B) the exchange rate falls 
C) U.S. production of power tools rises 
D) All of the above are correct. 
A) U.S. net exports rise 
B) the exchange rate falls 
C) U.S. production of power tools rises 
D) All of the above are correct.

Question 9

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

Accepted Answer

A) greater than the quantity demanded and the dollar will appreciate. 
B) greater than the quantity demanded and the dollar will depreciate. 
C) less than the quantity demanded and the dollar will appreciate. 
D) less than the quantity demanded and the dollar will depreciate. 
A) greater than the quantity demanded and the dollar will appreciate. 
B) greater than the quantity demanded and the dollar will depreciate. 
C) less than the quantity demanded and the dollar will appreciate. 
D) less than the quantity demanded and the dollar will depreciate.

Question 10

-Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

Accepted Answer

A) g 
B) h 
C) i 
D) None of the above is correct. 
A) g 
B) h 
C) i 
D) None of the above is correct.

Question 11

Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflow falls because the do

Question 12

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A) a company in Canada wants to buy oranges from the U.S 
B) a Japanese banks want to buy bonds from the U.S. government 
C) a U.S. citizen wants to buy stock a German company is selling 
D) None of the above is correct. 
A) a company in Canada wants to buy oranges from the U.S 
B) a Japanese banks want to buy bonds from the U.S. government 
C) a U.S. citizen wants to buy stock a German company is selling 
D) None of the above is correct.

Question 13

If there is a shortage of loanable funds, then

Accepted Answer

A) the demand for loanable funds will shift right so the real interest rate rises. 
B) the supply of loanable funds will shift left so the real interest rate falls. 
C) there will be no shifts of the curves, but the real interest rate rises. 
D) there will be no shifts of the curves, but the real interest rate falls. 
A) the demand for loanable funds will shift right so the real interest rate rises. 
B) the supply of loanable funds will shift left so the real interest rate falls. 
C) there will be no shifts of the curves, but the real interest rate rises. 
D) there will be no shifts of the curves, but the real interest rate falls.

Question 14

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 billion 
A) $50 billion 
B) $70 billion 
C) $90 billion 
D) $120 billion

Question 15

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

Accepted Answer

A) U.S. interest rates rise 
B) U.S. net capital outflow falls 
C) the real exchange rate of the U.S. dollar depreciates 
D) the U.S. supply of loanable funds shifts left 
A) U.S. interest rates rise 
B) U.S. net capital outflow falls 
C) the real exchange rate of the U.S. dollar depreciates 
D) the U.S. supply of loanable funds shifts left

Question 16

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

Accepted Answer

A) the real exchange rate. When the real exchange rate rises, net capital outflow rises. 
B) the real exchange rate. When the real exchange rate rises, net capital outflow falls. 
C) the real interest rate. When the real interest rate rises, net capital outflow rises. 
D) the real interest rate. When the real interest rate rises, net capital outflow falls. 
A) the real exchange rate. When the real exchange rate rises, net capital outflow rises. 
B) the real exchange rate. When the real exchange rate rises, net capital outflow falls. 
C) the real interest rate. When the real interest rate rises, net capital outflow rises. 
D) the real interest rate. When the real interest rate rises, net capital outflow falls.

Question 17

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

Accepted Answer

A) NCO > I. B) NCO S. D) NCO + I < S. A) NCO > I. B) NCO S. D) NCO + I < S.

Question 18

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 19

Which of the following is the most likely response to an increase in the U.S. real interest rate?

Accepted Answer

A) a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing 
B) U.S. firms decide to buy more capital goods 
C) a U.S. citizen decides to put less money in his savings account than he had planned. 
D) All of the above are consistent. 
A) a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing 
B) U.S. firms decide to buy more capital goods 
C) a U.S. citizen decides to put less money in his savings account than he had planned. 
D) All of the above are consistent.

Question 20

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

Accepted Answer

A) The demand for loanable funds shifts right. 
B) The demand for loanable funds shifts left. 
C) The supply of loanable funds shifts right. 
D) The supply of loanable funds shifts left. 
A) The demand for loanable funds shifts right. 
B) The demand for loanable funds shifts left. 
C) The supply of loanable funds shifts right. 
D) The supply of loanable funds shifts left.

Exam 32: A Macroeconomic Theory of the Open Economy

What happens to net capital outflow as the real interest rate falls? Explain your answer.

Trade policies

Suppose the U.S. removes an import quota on steel. U.S. exports

If a government increases its budget deficit, then the real exchange rate

If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

If the U.S. imposed import quotas on cotton, then which of the following would rise?

In equilibrium which of the following happens if the U.S. imposes tariffs on power tools?

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is

-Refer to Figure 32-6. If equilibrium were at point j and the government imposed import quotas the equilibrium moves to

Refer to Budget in Recession. What does this change in the deficit do to net capital outflows? Defend your answer.

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

If there is a shortage of loanable funds, then

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?

Which of the following would not be a consequence of an increase in the U.S. government budget deficit?

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

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

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 the most likely response to an increase in the U.S. real interest rate?

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

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

Applications: 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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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