Exam 32: A Macroeconomic Theory of the Open Economy

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

-Refer to Figure 32-3. National saving is represented by the

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

When a country imposes an import quota, its

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

When a country's government budget deficit decreases,

In the open-economy macroeconomic model, the supply of loanable funds comes from

Refer to Figure 32-3. At an interest rate of 4 percent, the diagram indicates that

Which of the following is always correct in an open economy?

Capital flight raises both a country's exchange rate and its interest rate.

If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate

In the open-economy macroeconomic model, if a country's interest rate falls, then its

Other things the same, as the real interest rate rises

Other things the same an increase in the interest rate

What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?

In the market for foreign-currency exchange, capital flight shifts

If the supply of loanable funds shifts right, then