Exam 32: A Macroeconomic Theory of the Open Economy

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

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign-currency exchange.

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

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Capital flight raises a country's interest rate.

Other things the same, which of the following would a rise in the real interest rate raise: desired investment spending, desired national saving, desired net capital outflow?

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. National saving is represented by the

The value of net exports equals the value of

A country produces two goods, soda and chips. It currently exports soda and imports chips. If it were to impose a tariff on chips,

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

In the long run import quotas do not affect the size of net exports.

Which of the following relationships is nicknamed the "twin deficits"?

The explanation for the slope of the

Capital flight raises a country's real exchange rate.

Scenario 32-2 ​ Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -Refer to Scenario 32-2. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?

If a country has a positive net capital outflow, then

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

The key determinant of net capital outflow is the real 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.

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.