Exam 32: A Macroeconomic Theory of the Open Economy

Figure 32-3 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) ​ -Refer to Figure 32-3. At an interest rate of 4 percent, the diagram indicates that

Scenario 32-3 ​ Concerns raised about the declining U.S. shoe industry and unfair labor practices in foreign shoe factories lead the Congress and President to impose a quota on shoe imports. -Refer to Scenario 32-3. Overall as a result of this change in policy, what happens to exports, imports, and net exports?

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

If there is a surplus of loanable funds, the quantity demanded is

In the open-economy macroeconomic model, the source of the supply of loanable funds is

Scenario 32-3 ​ Concerns raised about the declining U.S. shoe industry and unfair labor practices in foreign shoe factories lead the Congress and President to impose a quota on shoe imports. -Refer to Scenario 32-3. What is a quota? What is a tariff?

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

Other things the same, if the U.S. interest rate rises, U.S. assets become ____ attractive. So, desired net capital outflow _____. This change in net capital outflow, shifts the __________ curve in the market for foreign-currency exchange to the ______.

Other things the same, a higher real exchange rate raises net exports.

A country has domestic investment of $260 billion. Its citizens purchase $605 billion of foreign assets and foreign citizens purchase $315 billion of its assets. What is national saving?

Figure 32-1 ​ -Refer to Figure 32-1. If the real interest rate is 7 percent, there will be a

The open-economy macroeconomic model examines the determination of

When a country imposes a trade quota, the demand for currency in the market for foreign exchange shifts to the right

If the United States raised its tariff on tires, then at the original exchange rate there would be a

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

In the open-economy macroeconomic model, if there were a surplus in the market for foreign-currency exchange, the real exchange rate would appreciate.

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

In 1998, the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

If U.S. net exports are negative, then net capital outflow is

Scenario 32-5 ​ Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes. -Refer to Scenario 32-5. In the market for loanable funds which curve shifts and which direction does it shift?