Exam 13: A Macroeconomic Theory of the Small Open Economy

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model?

Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r. a)Find the relationship between net capital outflow and the world interest rate rw. b)If net exports are described by NX = 16 - 4X,find the relationship between NX and the world interest rate at the equilibrium exchange rate. c)For rʷ = 1.4,what is the elasticity of NX with respect to rʷ? d)What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

What does the open-economy macroeconomic model examine?

Which of the following is consistent with negative net exports?

According to the open-economy macroeconomic model,an increase in the Canadian government budget surplus increases Canadian net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases Canadian net exports.

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

What is the effect of an increase in Canadian government deficit?

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

Which of the following would cause the real exchange rate of the Canadian dollar to depreciate?

In the market for foreign-currency exchange in the open-economy macroeconomic model,which of the following results from a higher real exchange rate?

Figure 13-1 -Refer to the FigurE₁3-1.If the world interest rate equals 6 percent,what is the net capital outflow?

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.

Which of the following would do the most to reduce a trade deficit?

What is the variable that links the loanable funds market and the foreign-currency exchange market?

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

At the equilibrium interest rate in the open-macroeconomic model,which of the following is the amount that people want to save?

Which of the following best predicts the effects of an increase in a country's real interest rate?

Which of the following is the correct way to show the effects of a new import quota?

Explain why saving need not equal domestic investment in an open economy.

Figure 13-2 -Refer to the FigurE₁3-2.Suppose that these diagrams refer to Canada.If the interest rate was initially at r₀ and China voluntarily restricted its exports to Canada,what would happen to the interest rate?