Exam 32: A Macroeconomic Theory of the Open Economy

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more equipment and build more factories and stores in the U.S. The effects of this are illustrated by

A rise in the budget deficit

In equilibrium a country has a net capital outflow of $200 billion and domestic investment of $150 billion. What is the quantity of loanable funds demanded?

When a country experiences capital flight its

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

Other things the same, if foreign residents desired to purchase more U.S. wheat

An increase in the budget deficit

Which of the following will decrease U.S. net capital outflow?

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 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.

An increase in the budget deficit causes net capital outflow to

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this candidate's promise.

If the U.S. imposed an import quota on corn, then in the U.S.

What happens to each of the following if investment becomes less desirable at each interest rate? A. the interest rate B. net capital outflow C. the exchange rate

-Refer to Figure 32-6. If the economy were originally in equilibrium at a and g and the government removed import quotas on autos the economy would move to

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

Other things the same, as the real interest rate falls

If for some reason Americans desired to increase their purchases of foreign assets, then other things the same

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?