Question 1

-Refer to Figure 32-6. If the interest rate were initially at r2 and an import quota were imposed, the interest rate would

Accepted Answer

A) stay at r2. 
B) decrease because supply would shift right. 
C) increase because supply would shift left. 
D) decrease because demand would shift left. 
A) stay at r2. 
B) decrease because supply would shift right. 
C) increase because supply would shift left. 
D) decrease because demand would shift left.

Question 2

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

Accepted Answer

The exchange rate ri

Question 3

What happens to each of the following if the supply of loanable funds shifts right?
A. the interest rate
B. net capital outflow
C. the exchange rate

Accepted Answer

The interest rate fa

Question 4

Which of the following would both make a country's real exchange rate rise?

Accepted Answer

A) its budget deficit increases and bonds issued in the country become riskier 
B) bonds issued in that country become riskier and it imposes an import quota 
C) it imposes an import quota and the budget deficit increases 
D) None of the above are correct. 
A) its budget deficit increases and bonds issued in the country become riskier 
B) bonds issued in that country become riskier and it imposes an import quota 
C) it imposes an import quota and the budget deficit increases 
D) None of the above are correct.

Question 5

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc

Question 6

When a country suffers from capital flight, the exchange rate

Accepted Answer

A) depreciates, because demand in the market for foreign-currency exchange shifts left. 
B) depreciates, because supply in the market for foreign-currency exchange shifts right. 
C) appreciates, because demand in the market for foreign-currency exchange shifts right. 
D) appreciates, because supply in the market for foreign-currency exchange shifts left. 
A) depreciates, because demand in the market for foreign-currency exchange shifts left. 
B) depreciates, because supply in the market for foreign-currency exchange shifts right. 
C) appreciates, because demand in the market for foreign-currency exchange shifts right. 
D) appreciates, because supply in the market for foreign-currency exchange shifts left.

Question 7

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

Accepted Answer

A) $40 billion 
B) $60 billion 
C) $90 billion 
D) $130 billion 
A) $40 billion 
B) $60 billion 
C) $90 billion 
D) $130 billion

Question 8

An increase in a country's real interest rate reduces that country's net capital outflow.

Accepted Answer

A) True 
 B)False

Question 9

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A) foreign residents want to buy more U.S. goods and services. 
B) U.S. residents want to buy fewer foreign goods and services. 
C) Both A and B are correct. 
D) None of the above is correct. 
A) foreign residents want to buy more U.S. goods and services. 
B) U.S. residents want to buy fewer foreign goods and services. 
C) Both A and B are correct. 
D) None of the above is correct.

Question 10

Define net capital outflow.

Accepted Answer

Net capital outflow equals the

Question 11

Figure 32-1  
-Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a

Accepted Answer

A) surplus of $20 billion. 
B) surplus of $40 billion. 
C) shortage of $20 billion. 
D) shortage of $40 billion. 
A) surplus of $20 billion. 
B) surplus of $40 billion. 
C) shortage of $20 billion. 
D) shortage of $40 billion.

Question 12

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the U.S.?

Accepted Answer

A) both the one in Ohio and the one in Italy 
B) only the one in Ohio 
C) only the one in Italy 
D) neither the one in Ohio nor the one in Italy 
A) both the one in Ohio and the one in Italy 
B) only the one in Ohio 
C) only the one in Italy 
D) neither the one in Ohio nor the one in Italy

Question 13

Refer to Figure 32-3. Domestic investment plus net capital outflow is represented by the

Accepted Answer

A)  demand curve in panel a. 
B)  demand curve in panel c. 
C)  supply curve in panel a. 
D)  None of the above is correct. 
A)  demand curve in panel a. 
B)  demand curve in panel c. 
C)  supply curve in panel a. 
D)  None of the above is correct.

Question 14

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Accepted Answer

A) rise and exports of other industries would increase. 
B) rise and exports of other industries would decrease. 
C) not change, exports of other industries would increase. 
D) not change, exports of other industries would decrease. 
A) rise and exports of other industries would increase. 
B) rise and exports of other industries would decrease. 
C) not change, exports of other industries would increase. 
D) not change, exports of other industries would decrease.

Question 15

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

Accepted Answer

The interest rate ri

Question 16

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget surplus can be illustrated as a move to

Accepted Answer

A) 4% and 1 
B) 4% and .5 
C) 2% and 1 
D) 2% and .5 
A) 4% and 1 
B) 4% and .5 
C) 2% and 1 
D) 2% and .5

Question 17

Other things the same, if foreign companies desired to buy more U.S. medical equipment and U.S. residents desired to buy more foreign bonds

Accepted Answer

A) net exports and the exchange rate would rise. 
B) net exports would rise, but what would happen to the exchange rate is uncertain. 
C) net exports would fall, but what would happen to the exchange rate is uncertain. 
D) net exports and the exchange rate would fall. 
A) net exports and the exchange rate would rise. 
B) net exports would rise, but what would happen to the exchange rate is uncertain. 
C) net exports would fall, but what would happen to the exchange rate is uncertain. 
D) net exports and the exchange rate would fall.

Question 18

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

Accepted Answer

A) either the exchange rate rises or the real interest rate falls. 
B) either the exchange rate falls or the real interest rate rises. 
C) the real interest rate rises. Net capital outflow does not depend on the exchange rate. 
D) the real interest rate falls. Net capital outflow does not depend on the exchange rate. 
A) either the exchange rate rises or the real interest rate falls. 
B) either the exchange rate falls or the real interest rate rises. 
C) the real interest rate rises. Net capital outflow does not depend on the exchange rate. 
D) the real interest rate falls. Net capital outflow does not depend on the exchange rate.

Question 19

If a country's budget deficit rises, then its exchange rate

Accepted Answer

A) rises, so its imports rise. 
B) rises, so its imports fall. 
C) falls, so its imports rise. 
D) falls so its imports fall. 
A) rises, so its imports rise. 
B) rises, so its imports fall. 
C) falls, so its imports rise. 
D) falls so its imports fall.

Question 20

If after a country experiences capital flight, people become more confident about the safety of its assets, then in that country

Accepted Answer

A) the real exchange rate and the real interest rate will rise. 
B) the real exchange rate will rise and the real interest rate will fall. 
C) the real exchange rate will fall and the real interest rate will rise. 
D) the real exchange rate and the real interest rate will fall. 
A) the real exchange rate and the real interest rate will rise. 
B) the real exchange rate will rise and the real interest rate will fall. 
C) the real exchange rate will fall and the real interest rate will rise. 
D) the real exchange rate and the real interest rate will fall.

Exam 32: A Macroeconomic Theory of the Open Economy

-Refer to Figure 32-6. If the interest rate were initially at r2 and an import quota were imposed, the interest rate would

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

What happens to each of the following if the supply of loanable funds shifts right? A. the interest rate B. net capital outflow C. the exchange rate

Which of the following would both make a country's real exchange rate rise?

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

When a country suffers from capital flight, the exchange rate

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

An increase in a country's real interest rate reduces that country's net capital outflow.

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Define net capital outflow.

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the U.S.?

Refer to Figure 32-3. Domestic investment plus net capital outflow is represented by the

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

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

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget surplus can be illustrated as a move to

Other things the same, if foreign companies desired to buy more U.S. medical equipment and U.S. residents desired to buy more foreign bonds

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

If a country's budget deficit rises, then its exchange rate

If after a country experiences capital flight, people become more confident about the safety of its assets, then in that country

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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