Exam 5: The Open Economy

One consequence of high inflation is a(n):

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade and net capital outflow.

The lower the real exchange rate is, the expensive domestic goods are relative to foreign goods, and the the demand is for net exports.

Explain why government budget deficits crowd out private investment spending in a closed economy, but crowd out net exports in a small open economy. Assume prices are flexible and that factors of production are fully employed in both economies. Assume there is perfect capital mobility for the small open economy.

In a large open economy, the real interest rate is determined by:

The value of net exports is also the value of:

If the nominal exchange rate falls 10 percent, the domestic price level rises 4 percent, and the foreign price level rises 6 percent, the real exchange rate will fall:

If a U.S. corporation purchases a product made in Europe and the European producer uses the proceeds to purchase a U.S. government bond, then U.S. net exports and net capital outflows .

If a country has a high rate of inflation relative to the United States, the dollar will buy:

Protectionist policies in a small open economy do not alter the trade balance because the:

What determines the real exchange rate and what determines the nominal exchange rate in a small open economy with perfect capital mobility, fully employed factors of production, and flexible prices?

If the nominal interest rates in the United States and Canada are 8 percent and 12 percent, respectively, the real interest rates are the same, and the real exchange rate is fixed, then the market's expectation about the number of Canadian dollars to be received for a U.S. dollar a year from now will be that it will:

A depreciation of the real exchange rate in a small open economy could be the result of:

The nominal exchange rate between the U.S. dollar and the Japanese yen is the:

Which of the following would decrease the real exchange rate in a small open economy in the long run?

In a small open economy, when foreign governments reduce national saving in their countries, the equilibrium real exchange rate:

The currencies of countries with high inflation rates relative to the United States have tended to , and the currencies of countries with low inflation rates relative to the United States have tended to .

When the real exchange rate rises:

In a large but open economy, when a fiscal expansion takes place, the interest rate goes up and some investment is crowded out, and the expansion also causes a trade:

An increase in the trade surplus of a small open economy could be the result of: