Question 1

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Accepted Answer

A) True 
 B)False

Question 2

Capital flight shifts the demand for loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 3

An increase in the budget surplus

Accepted Answer

A) raises net exports and domestic investment. 
B) raises net exports and reduces domestic investment. 
C) reduces net exports and raises domestic investment. 
D) reduces net exports and domestic investment. 
A) raises net exports and domestic investment. 
B) raises net exports and reduces domestic investment. 
C) reduces net exports and raises domestic investment. 
D) reduces net exports and domestic investment.

Question 4

If the supply of loanable funds shifts left, then

Accepted Answer

A) the real interest rate and the equilibrium quantity of loanable funds both fall. 
B) the real interest rate falls and the equilibrium quantity of loanable funds rises. 
C) the real interest rate and the equilibrium quantity of loanable funds both rise. 
D) the real interest rate rises and the equilibrium quantity of loanable funds falls. 
A) the real interest rate and the equilibrium quantity of loanable funds both fall. 
B) the real interest rate falls and the equilibrium quantity of loanable funds rises. 
C) the real interest rate and the equilibrium quantity of loanable funds both rise. 
D) the real interest rate rises and the equilibrium quantity of loanable funds falls.

Question 5

When a country imposes an import quota, its exchange rate

Accepted Answer

A) rises because the supply of dollars in the market for foreign-currency exchange falls. 
B) falls because the supply of dollars in the market for foreign-currency exchange rises. 
C) rises because the demand for dollars in the market for foreign-currency exchange rises. 
D) falls because the demand for dollars in the market for foreign-currency exchange falls. 
A) rises because the supply of dollars in the market for foreign-currency exchange falls. 
B) falls because the supply of dollars in the market for foreign-currency exchange rises. 
C) rises because the demand for dollars in the market for foreign-currency exchange rises. 
D) falls because the demand for dollars in the market for foreign-currency exchange falls.

Question 6

A government budget deficit

Accepted Answer

A) increases both net capital outflow and net exports. 
B) decreases both net capital outflow and net exports. 
C) increases net capital outflow and decreases net exports. 
D) decreases net capital outflow and increases net exports. 
A) increases both net capital outflow and net exports. 
B) decreases both net capital outflow and net exports. 
C) increases net capital outflow and decreases net exports. 
D) decreases net capital outflow and increases net exports.

Question 7

In the open-economy macroeconomic model, if investment demand increases, then

Accepted Answer

A) net exports and the real exchange rate rise. 
B) net exports rise and the real exchange rate falls. 
C) net exports fall and the real exchange rate rises. 
D) net exports and the real exchange rate fall. 
A) net exports and the real exchange rate rise. 
B) net exports rise and the real exchange rate falls. 
C) net exports fall and the real exchange rate rises. 
D) net exports and the real exchange rate fall.

Question 8

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Accepted Answer

A) True 
 B)False

Question 9

An increase in national saving reduces the interest rate and so reduces net capital outflow.

Accepted Answer

A) True 
 B)False

Question 10

Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

Accepted Answer

Desired net exports rise. The

Question 11

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Question 12

If there is a surplus in the market for loanable funds, then the interest rate

Accepted Answer

A) rises, so national saving rises. 
B) rises, so national saving falls. 
C) falls, so national saving rises. 
D) falls, so national saving falls. 
A) rises, so national saving rises. 
B) rises, so national saving falls. 
C) falls, so national saving rises. 
D) falls, so national saving falls.

Question 13

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Accepted Answer

A) True 
 B)False

Question 14

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A) and investment to rise. 
B) to rise and investment to fall. 
C) to fall and investment to rise. 
D) and investment to fall. 
A) and investment to rise. 
B) to rise and investment to fall. 
C) to fall and investment to rise. 
D) and investment to fall.

Question 15

When Mexico suffered from capital flight in 1994, Mexico's net exports

Accepted Answer

A) decreased. 
B) did not change. 
C) increased. 
D) decreased until the peso appreciated, then increased. 
A) decreased. 
B) did not change. 
C) increased. 
D) decreased until the peso appreciated, then increased.

Question 16

In the open-economy macroeconomic model, if net capital outflow increases then

Accepted Answer

A) the demand for dollars in the market for foreign-currency exchange shifts right. 
B) the demand for dollars in the market for foreign-currency exchange shifts left. 
C) the supply of dollars in the market for foreign-currency exchange shifts right. 
D) the supply of dollars in the market for foreign-currency exchange shifts left. 
A) the demand for dollars in the market for foreign-currency exchange shifts right. 
B) the demand for dollars in the market for foreign-currency exchange shifts left. 
C) the supply of dollars in the market for foreign-currency exchange shifts right. 
D) the supply of dollars in the market for foreign-currency exchange shifts left.

Question 17

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 18

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 19

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 20

If the French government increases its expenditures and reduces taxes, then France's interest rate

Accepted Answer

A) and its exchange rate rise. 
B) rises and its exchange rate falls. 
C) falls and its exchange rate rises. 
D) and its exchange rate fall. 
A) and its exchange rate rise. 
B) rises and its exchange rate falls. 
C) falls and its exchange rate rises. 
D) and its exchange rate fall.

Exam 32: A Macroeconomic Theory of the Open Economy

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Capital flight shifts the demand for loanable funds to the left.

An increase in the budget surplus

If the supply of loanable funds shifts left, then

When a country imposes an import quota, its exchange rate

A government budget deficit

In the open-economy macroeconomic model, if investment demand increases, then

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

An increase in national saving reduces the interest rate and so reduces net capital outflow.

Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

In an open economy, the supply of loanable funds comes from national saving.

If there is a surplus in the market for loanable funds, then the interest rate

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

An increase in the budget deficit causes domestic interest rates

When Mexico suffered from capital flight in 1994, Mexico's net exports

In the open-economy macroeconomic model, if net capital outflow increases then

An increase in the government budget deficit shifts the supply of loanable funds to the left.

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

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

If the French government increases its expenditures and reduces taxes, then France's interest rate

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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