Question 1

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

Accepted Answer

The sources of the demand for

Question 2

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Accepted Answer

Its exchange rate fa

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 5

Other things the same, a higher real interest rate

Accepted Answer

A) decreases the quantity of loanable funds supplied. 
B) raises domestic investment. 
C) raises loanable funds demanded. 
D) raises the quantity of loanable funds supplied. 
A) decreases the quantity of loanable funds supplied. 
B) raises domestic investment. 
C) raises loanable funds demanded. 
D) raises the quantity of loanable funds supplied.

Question 6

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

Accepted Answer

The interest rate ri

Question 7

Define net capital outflow.

Accepted Answer

Net capital outflow equals the

Question 8

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

Accepted Answer

A) True 
 B)False

Question 9

If imports = 500 billion euros, exports = 700 billion euros, purchases of domestic assets by foreign residents = 600 billion euros, and purchases of foreign assets by domestic residents = 800 billion euros, what is the quantity of euros demanded in the market for foreign-currency exchange?

Accepted Answer

A) 1,100 billion euros 
B) 600 billion euros 
C) 500 billion euros 
D) 200 billion euros 
A) 1,100 billion euros 
B) 600 billion euros 
C) 500 billion euros 
D) 200 billion euros

Question 10

Other things the same, which of the following would cause the real exchange rate to rise?

Accepted Answer

A) Both an increase in the real interest rate and an increase in foreign demand for U.S.goods and services. 
B) An increase in the real interest rate, but not an increase in foreign demand for U.S.goods and services. 
C) An increase in foreign demand for U.S.goods and service, but not an increase in the U.S.real interest rate. 
D) Neither an increase in the U.S.real interest rate nor an increase in the demand for U.S.goods and services. 
A) Both an increase in the real interest rate and an increase in foreign demand for U.S.goods and services. 
B) An increase in the real interest rate, but not an increase in foreign demand for U.S.goods and services. 
C) An increase in foreign demand for U.S.goods and service, but not an increase in the U.S.real interest rate. 
D) Neither an increase in the U.S.real interest rate nor an increase in the demand for U.S.goods and services.

Question 11

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

Accepted Answer

A) rises and the quantity of dollars exchanged for foreign currency falls. 
B) rises and the quantity of dollars exchanged for foreign currency does not change. 
C) rises and the quantity of dollars exchanged for foreign currency rises. 
D) falls and the quantity of dollars exchanged for foreign currency does not change. 
A) rises and the quantity of dollars exchanged for foreign currency falls. 
B) rises and the quantity of dollars exchanged for foreign currency does not change. 
C) rises and the quantity of dollars exchanged for foreign currency rises. 
D) falls and the quantity of dollars exchanged for foreign currency does not change.

Question 12

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Accepted Answer

The supply

Question 13

Scenario 32-4
​
In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks.
-Refer to Scenario 32-4. What happened to the domestic equilibrium interest rate and quantity of loanable funds supplied?

Accepted Answer

Both the equilibrium

Question 14

If a country places tariffs on imported goods, then its

Accepted Answer

A) currency appreciates which reduces exports leaving the trade balance unchanged. 
B) currency appreciates which increases exports improving the trade balance. 
C) currency depreciates which reduces exports leaving the trade balance unchanged. 
D) currency depreciates which increases exports improving the trade balance. 
A) currency appreciates which reduces exports leaving the trade balance unchanged. 
B) currency appreciates which increases exports improving the trade balance. 
C) currency depreciates which reduces exports leaving the trade balance unchanged. 
D) currency depreciates which increases exports improving the trade balance.

Question 15

Scenario 32-1
​
During a recession government revenues from the income tax fall and government transfers rise as the reduction in income and the rise in unemployment raise the number of people who qualify for benefits.
-Refer to Scenario 32-1. This change in the deficit causes the exchange rate to change. What does the change in the exchange rate do to net exports?

Accepted Answer

Because the exchange

Question 16

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, _______ ______.

Accepted Answer

more, less

Question 17

In the long run, import quotas increase net exports.

Accepted Answer

A) True 
 B)False

Question 18

Over the past two decades the U.S. has persistently had trade deficits.

Accepted Answer

A) True 
 B)False

Question 19

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. Which curve shows the relation between the exchange rate and net exports?

Accepted Answer

A) The demand curve in graph (a). 
B) The demand curve in graph (c). 
C) The supply curve in graph (a). 
D) The supply curve in graph (c). 
A) The demand curve in graph (a). 
B) The demand curve in graph (c). 
C) The supply curve in graph (a). 
D) The supply curve in graph (c).

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 32: A Macroeconomic Theory of the Open Economy

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

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

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.

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Other things the same, a higher real interest rate

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

Define net capital outflow.

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

If imports = 500 billion euros, exports = 700 billion euros, purchases of domestic assets by foreign residents = 600 billion euros, and purchases of foreign assets by domestic residents = 800 billion euros, what is the quantity of euros demanded in the market for foreign-currency exchange?

Other things the same, which of the following would cause the real exchange rate to rise?

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

If a country places tariffs on imported goods, then its

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, _______ ______.

In the long run, import quotas increase net exports.

Over the past two decades the U.S. has persistently had trade deficits.

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. Which curve shows the relation between the exchange rate and net exports?

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.

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 Nations 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

Filters

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, _ __.

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. Which curve shows the relation between the exchange rate and net exports?