Exam 6: The Open Economy

In a small open economy, if the introduction of automatic teller machines reduces the demand for money, then net exports:

Exhibit: Policies Influence Real Exchange Rate Which of the panels illustrates the impact of contractionary fiscal policies abroad on the real exchange rate?

The government of a small open economy wishes to promote trade policies that will result in currency appreciation. a.Would protectionist policies (higher tariffs and more quotas) or freer trade policies (tariff reductions and quota eliminations) be more effective in generating currency appreciation? b.Graphically illustrate the impact of the trade policy on the exchange rate of the small open economy. c.What will happen to the trade balance of the small open economy as a result of the trade policies, assuming that the country started from a position of free trade? d.What will happen to the quantity of exports and imports as a result of the trade policies?​

In a large open economy, if political instability abroad lowers the net capital outflow function, then the real interest rate:

Exhibit: Saving and Investment in a Small Open Economy In a small open economy, if the world interest rate is r₁, then the economy has:

A "closed" economy is one in which the:

If a Canadian corporation sells a product to the United States and uses the proceeds to purchase a product manufactured in United States, then Canadian net exports _____, and net capital outflows _____.

If a Canadian corporation sells a product in Europe and uses the proceeds to purchase shares in a European corporation, then Canadian net exports _____, and net capital outflows _____.

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

Assume that the following equations characterize a large open economy: (1) Y = 5,000 (2) Y = C + I + G + NX (3) C = 1 / 2 (Y - T) (4) I = 2,000 - 100r (5) NX = 500 - 500ε (6) CF = -100r (7) CF = NX (8) G = 1,500 (9) T = 1,000 where NX is net exports, CF is net capital outflow, and ∈ is the real exchange rate. Solve these equations for the equilibrium values of C, I, NX, CF, r, and ε.

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

For a closed economy, when net capital outflow is measured along the horizontal axis and the real interest rate is measured along the vertical axis, net capital outflow is drawn as a:

In a small, open economy if net exports are negative, then:

A small open economy with perfect capital mobility is characterized by all of the following except that:

The nominal exchange rate between the Canadian dollar and the Japanese yen (measured in $ / yen) is the:

In a small open economy, if consumers shift their preference toward Japanese cars, then net exports:

If the real exchange rate depreciates from 1 Japanese good per Canadian good to 0.5 Japanese good per Canadian good, then Canadian exports _____, and Canadian imports _____.

In a small open economy, if the government adopts a policy that lowers imports, then that policy:

Assume that in a small open economy with full employment, consumption depends only on disposable income. National saving is 300, investment is given by I = 400 - 20r, where r is the real interest rate in percent, and the world interest rate is 10 percent. ​ a.If government spending rises by 100, does investment change? What is the level of investment after the change? b.Does the trade balance change if G rises by 100? If it changes, does it increase or decrease, and by how much? c.Does net capital outflow change if G rises by 100? If it changes, does it increase or decrease, and by how much? d.Will the real exchange rate rise, fall, or remain constant as a result of the change in G?

Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which: