Question 1

When a country imposes a trade restriction,the real exchange rate of that country's currency appreciates.

Accepted Answer

A) True 
 B)False  True

Question 2

What is net capital outflow equal to?

Accepted Answer

A) national saving minus the trade balance 
B) domestic investment plus national saving 
C) national saving minus domestic investment 
D) domestic investment minus national saving 
A) national saving minus the trade balance 
B) domestic investment plus national saving 
C) national saving minus domestic investment 
D) domestic investment minus national saving C

Question 3

Which of the following is consistent with an above-the-equilibrium exchange rate of the dollar?

Accepted Answer

A) The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate. 
B) The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate. 
C) The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate. 
D) The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate. 
A) The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate. 
B) The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate. 
C) The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate. 
D) The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate. B

Question 4

Which of the following is consistent with capital flight from Mexico?

Accepted Answer

A) The Mexican capital outflow decreases. 
B) The real exchange rate of the peso depreciates. 
C) The Mexican real interest rate decreases. 
D) The Mexican demand for loanable funds increases. 
A) The Mexican capital outflow decreases. 
B) The real exchange rate of the peso depreciates. 
C) The Mexican real interest rate decreases. 
D) The Mexican demand for loanable funds increases.

Question 5

When Mexico suffered from capital flight in 1994,which of the following best describes the effects of this event on the Canadian economy?

Accepted Answer

A) Canadian demand for loanable funds and Canadian net capital outflow rose. 
B) Canadian demand for loanable funds and Canadian net capital outflow fell. 
C) Canadian demand for loanable funds fell, and Canadian net capital outflow rose. 
D) Canadian demand for loanable funds rose, and Canadian net capital outflow fell. 
A) Canadian demand for loanable funds and Canadian net capital outflow rose. 
B) Canadian demand for loanable funds and Canadian net capital outflow fell. 
C) Canadian demand for loanable funds fell, and Canadian net capital outflow rose. 
D) Canadian demand for loanable funds rose, and Canadian net capital outflow fell.

Question 6

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

Accepted Answer

S is national saving,which is the source

Question 7

Suppose the Federal Reserve,which is the central bank of the U.S.,decided to lower the monetary policy interest rate.Use the macroeconomic model studied in this chapter to analyze the possible effects of this event on Canada's net capital outflow,net exports,and exchange rate.(Hint: Consider the United States a large economy,which is able to influence the world interest rate.)

Accepted Answer

Since the United States is a large econo

Question 8

Suppose we measure Canada's net capital outflow by what Statistics Canada calls "net international investment position," and we approximate the real exchange rate of the dollar by the price of the Canadian dollar in terms of U.S.dollars.The following table gives some fictitious data on these two variables.
 $$\begin{array} { | l | l | l | l | l | l | } 
\hline & 2009 & 2010 & 2011 & 2012 & 2013 \
\hline \begin{array} { l } 
\text { Net international } \
\text { investment p05ition } \
\text { (4nillians) }
\end{array} & - 164,925 & - 90.884 & - 129.799 & - 30.787 & - 153.243 \
\hline \text { Exchange rate } & 0.825 & 0.882 & 0.931 & 0.937 & 0.876 \
\hline
\end{array}$$ 
a. What does our open-economy macroeconomic model predict with regard to the relationship between net capital outflow and the real exchange rate?
b. Do you find evidence in the data to support the theory?
c. If you find discrepancies between the data and the theory, what could cause them?

Accepted Answer

a.Our macro model predicts an inverse re

Question 9

If a country went from a government budget deficit to a surplus,which of the following best predicts the consequences?

Accepted Answer

A) National saving would increase, shifting the supply of loanable funds right. 
B) National saving would increase, shifting the supply of loanable funds left. 
C) National saving would decrease, shifting the demand for loanable funds right. 
D) National saving would decrease, shifting the demand for loanable funds left. 
A) National saving would increase, shifting the supply of loanable funds right. 
B) National saving would increase, shifting the supply of loanable funds left. 
C) National saving would decrease, shifting the demand for loanable funds right. 
D) National saving would decrease, shifting the demand for loanable funds left.

Question 10

If a government increases its budget deficit,which of the following best predicts the effects?

Accepted Answer

A) Interest rates rise, and the real exchange rate appreciates. 
B) Interest rates fall, and the real exchange rate depreciates. 
C) Interest rates rise, and the real exchange rate depreciates. 
D) Interest rates fall, and the real exchange rate appreciates. 
A) Interest rates rise, and the real exchange rate appreciates. 
B) Interest rates fall, and the real exchange rate depreciates. 
C) Interest rates rise, and the real exchange rate depreciates. 
D) Interest rates fall, and the real exchange rate appreciates.

Question 11

Suppose that Canada places higher tariffs on imports of steel.Which of the following would be the most likely result?

Accepted Answer

A) The tariffs would reduce imports into Canada, which would cause Canadian net exports to rise. 
B) The tariffs would reduce imports into Canada, which would cause the net supply of dollars in the foreign exchange market to rise. 
C) The tariffs would reduce imports of steel into Canada, but would reduce Canadian exports of other goods by an equal amount. 
D) The tariffs would reduce imports of steel into Canada, but would increase Canadian exports of other goods by an equal amount. 
A) The tariffs would reduce imports into Canada, which would cause Canadian net exports to rise. 
B) The tariffs would reduce imports into Canada, which would cause the net supply of dollars in the foreign exchange market to rise. 
C) The tariffs would reduce imports of steel into Canada, but would reduce Canadian exports of other goods by an equal amount. 
D) The tariffs would reduce imports of steel into Canada, but would increase Canadian exports of other goods by an equal amount.

Question 12

Suppose the market for loanable funds is described by the equations I = 180 ? 16r and S = 8 + 24r.Suppose also that the world interest rate is 6 percent.
a)Calculate domestic investment,domestic saving,and net capital outflow.
b)If the net exports curve is given by NX = 74 - 2X,where X is the real exchange rate,calculate the equilibrium real exchange rate and net exports.
c)How does the real exchange rate change when the world interest rate decreases to 5 percent?
d)Discuss your results.

Accepted Answer

a) Domestic saving at the world interest

Question 13

Suppose that Chile has a budget surplus,and then goes into deficit.Which of the following best predicts the consequences?

Accepted Answer

A) National saving would increase, and Chile's supply of loanable funds would shift to the left. 
B) National saving would increase, and Chile's demand for loanable funds would shift to the right. 
C) National saving would decrease, and Chile's supply of loanable funds would shift to the left. 
D) National saving would decrease, and Chile's demand for loanable funds would shift to the right. 
A) National saving would increase, and Chile's supply of loanable funds would shift to the left. 
B) National saving would increase, and Chile's demand for loanable funds would shift to the right. 
C) National saving would decrease, and Chile's supply of loanable funds would shift to the left. 
D) National saving would decrease, and Chile's demand for loanable funds would shift to the right.

Question 14

Suppose that Canadian citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases,a

Question 15

When Mexico suffered from capital flight in 1994,which of the following best describes the effects of this event on the Canadian economy?

Accepted Answer

A) The Canadian real interest rate rose, and the real exchange rate of the dollar appreciated. 
B) The Canadian real interest rate rose, and the real exchange rate of the dollar depreciated. 
C) The Canadian real interest rate fell, and the real exchange rate of the dollar appreciated. 
D) The Canadian real interest rate fell, and the real exchange rate of the dollar depreciated. 
A) The Canadian real interest rate rose, and the real exchange rate of the dollar appreciated. 
B) The Canadian real interest rate rose, and the real exchange rate of the dollar depreciated. 
C) The Canadian real interest rate fell, and the real exchange rate of the dollar appreciated. 
D) The Canadian real interest rate fell, and the real exchange rate of the dollar depreciated.

Question 16

If Canadian citizens decide to save a smaller fraction of their incomes,which of the following best describes the effects?

Accepted Answer

A) Canadian domestic investment increases, and Canadian net capital outflow increases. 
B) Canadian domestic investment increases, and Canadian net capital outflow decreases. 
C) Canadian domestic investment decreases, and Canadian net capital outflow increases. 
D) Canadian domestic investment decreases, and Canadian net capital outflow decreases. 
A) Canadian domestic investment increases, and Canadian net capital outflow increases. 
B) Canadian domestic investment increases, and Canadian net capital outflow decreases. 
C) Canadian domestic investment decreases, and Canadian net capital outflow increases. 
D) Canadian domestic investment decreases, and Canadian net capital outflow decreases.

Question 17

Suppose that Canada imposes an import quota on automobiles.In the open-economy macroeconomic model,which of the following curves would this quota shift?

Accepted Answer

A) supply of loanable funds left 
B) demand for loanable funds left 
C) demand for Canadian dollars right 
D) supply of Canadian dollars left 
A) supply of loanable funds left 
B) demand for loanable funds left 
C) demand for Canadian dollars right 
D) supply of Canadian dollars left

Question 18

In an open economy,which of the following best identifies the sources of loanable funds?

Accepted Answer

A) Canadians who consume less than their income and government budget deficit 
B) Canadians who consume less than their income and government budget surplus 
C) foreigners who buy Canadian bonds and shares of stock and Canadian government surplus 
D) foreigners who invest in Canada and Canadian government surplus 
A) Canadians who consume less than their income and government budget deficit 
B) Canadians who consume less than their income and government budget surplus 
C) foreigners who buy Canadian bonds and shares of stock and Canadian government surplus 
D) foreigners who invest in Canada and Canadian government surplus

Question 19

What does the identity "net capital outflow = net exports" imply?

Accepted Answer

A) The supply of dollars equals the demand in the foreign-currency market. 
B) National saving equals domestic investment. 
C) The volume of exports equals the volume of imports. 
D) Canadian investment abroad is equal to foreign investment in Canada. 
A) The supply of dollars equals the demand in the foreign-currency market. 
B) National saving equals domestic investment. 
C) The volume of exports equals the volume of imports. 
D) Canadian investment abroad is equal to foreign investment in Canada.

Question 20

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

Accepted Answer

A) True 
 B)False

When a country imposes a trade restriction,the real exchange rate of that country's currency appreciates.

What is net capital outflow equal to?

Which of the following is consistent with an above-the-equilibrium exchange rate of the dollar?

Which of the following is consistent with capital flight from Mexico?

When Mexico suffered from capital flight in 1994,which of the following best describes the effects of this event on the Canadian economy?

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

If a country went from a government budget deficit to a surplus,which of the following best predicts the consequences?

If a government increases its budget deficit,which of the following best predicts the effects?

Suppose that Canada places higher tariffs on imports of steel.Which of the following would be the most likely result?

Suppose that Chile has a budget surplus,and then goes into deficit.Which of the following best predicts the consequences?

Suppose that Canadian citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

When Mexico suffered from capital flight in 1994,which of the following best describes the effects of this event on the Canadian economy?

If Canadian citizens decide to save a smaller fraction of their incomes,which of the following best describes the effects?

Suppose that Canada imposes an import quota on automobiles.In the open-economy macroeconomic model,which of the following curves would this quota shift?

In an open economy,which of the following best identifies the sources of loanable funds?

What does the identity "net capital outflow = net exports" imply?

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

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

Five Debates over Macroeconomic Policy

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Exam 13: A Macroeconomic Theory of the Small Open Economy

When a country imposes a trade restriction,the real exchange rate of that country's currency appreciates.

What is net capital outflow equal to?

Which of the following is consistent with an above-the-equilibrium exchange rate of the dollar?

Which of the following is consistent with capital flight from Mexico?

When Mexico suffered from capital flight in 1994,which of the following best describes the effects of this event on the Canadian economy?

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

If a country went from a government budget deficit to a surplus,which of the following best predicts the consequences?

If a government increases its budget deficit,which of the following best predicts the effects?

Suppose that Canada places higher tariffs on imports of steel.Which of the following would be the most likely result?

Suppose that Chile has a budget surplus,and then goes into deficit.Which of the following best predicts the consequences?

Suppose that Canadian citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

When Mexico suffered from capital flight in 1994,which of the following best describes the effects of this event on the Canadian economy?

If Canadian citizens decide to save a smaller fraction of their incomes,which of the following best describes the effects?

Suppose that Canada imposes an import quota on automobiles.In the open-economy macroeconomic model,which of the following curves would this quota shift?

In an open economy,which of the following best identifies the sources of loanable funds?

What does the identity "net capital outflow = net exports" imply?

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains from Trade

The Market Forces of Supply and Demand (PART 1)

The Market Forces of Supply and Demand (PART 2)

Measuring a Nation's Income

Measuring the Cost of Living

Production and Growth

Saving,Investment,and the Financial System

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

Five Debates over Macroeconomic Policy

Filters