Question 1

Fill in the table below with the direction of the variables that change in response to the events in the first column.

Accepted Answer

The answer of Fill in the table below with the...

Question 2

According to the theory of purchasing-power parity,what is the shape of the demand curve for foreign-currency exchange?

Accepted Answer

A) downward sloping 
B) upward sloping 
C) horizontal 
D) vertical 
A) downward sloping 
B) upward sloping 
C) horizontal 
D) vertical

Question 3

Which of the following is most likely to increase exports in the country of Aquilonia?

Accepted Answer

A) a reduction in political instability 
B) ending investment tax credits 
C) a reduction in the size of the government's budget surplus 
D) an import quota 
A) a reduction in political instability 
B) ending investment tax credits 
C) a reduction in the size of the government's budget surplus 
D) an import quota

Question 4

The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r;in country 2,it is I = 18 - 4r and S = 8 + 2r.
a)Find the relationships between net capital outflow and the world interest rate rw in the two countries.
b)What is the nature of these relationships? (Are they both positive,both negative,or one positive and the other negative?)
c)Calculate the world equilibrium interest rate.
d)How can you reconcile the result from part b with the one from part c?

Accepted Answer

a) In country 1,NCO1 = S - I when r = rʷ

Question 5

Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?

Accepted Answer

The next figure shows that the primary e

Question 6

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 7

In the open-economy macroeconomic model,which of the following would make Mexico's net capital outflow decrease?

Accepted Answer

A) a decrease in Canadian interest rates 
B) a decrease in Mexican interest rates 
C) an appreciation of the Mexican peso 
D) an increase in Mexico's net exports 
A) a decrease in Canadian interest rates 
B) a decrease in Mexican interest rates 
C) an appreciation of the Mexican peso 
D) an increase in Mexico's net exports

Question 8

In an open economy,where does the demand for loanable funds come from?

Accepted Answer

A) only from those who want to borrow funds to buy domestic capital goods 
B) only from those who want to borrow funds to buy foreign assets 
C) from those who want to borrow funds to buy either domestic capital goods or foreign assets 
D) from those who want to borrow funds to buy Canadian bonds or shares of stock in Canadian companies 
A) only from those who want to borrow funds to buy domestic capital goods 
B) only from those who want to borrow funds to buy foreign assets 
C) from those who want to borrow funds to buy either domestic capital goods or foreign assets 
D) from those who want to borrow funds to buy Canadian bonds or shares of stock in Canadian companies

Question 9

Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

Accepted Answer

A) A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing. 
B) Canadian firms decide, since interest rates are higher, to do more investment spending. 
C) Brad, a Canadian resident, decides to put less money in his savings account than he had planned to. 
D) Canadian net capital outflow increases. 
A) A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing. 
B) Canadian firms decide, since interest rates are higher, to do more investment spending. 
C) Brad, a Canadian resident, decides to put less money in his savings account than he had planned to. 
D) Canadian net capital outflow increases.

Question 10

Which of the following is consistent with a depreciation of the dollar?

Accepted Answer

A) Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall. 
B) Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise. 
C) Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall. 
D) Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise. 
A) Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall. 
B) Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise. 
C) Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall. 
D) Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.

Question 11

What term refers to a large and sudden reduction in the demand for assets located in a country?

Accepted Answer

A) arbitrage 
B) capital flight 
C) crowding out 
D) capital mobility 
A) arbitrage 
B) capital flight 
C) crowding out 
D) capital mobility

Question 12

When Mexico suffered from capital flight in 1994,what happened to Mexico's real interest rate and the peso?

Accepted Answer

A) The real interest rate fell, and the peso appreciated. 
B) The real interest rate fell, and the peso depreciated. 
C) The real interest rate rose, and the peso appreciated. 
D) The real interest rate rose, and the peso depreciated. 
A) The real interest rate fell, and the peso appreciated. 
B) The real interest rate fell, and the peso depreciated. 
C) The real interest rate rose, and the peso appreciated. 
D) The real interest rate rose, and the peso depreciated.

Question 13

Using the macroeconomic model studied,analyze the impact of the following events on the Canadian economy:
a. a voluntary export restraint (VER) by Japanese car producers
b. an export subsidy by Canadian government for Canadian lumber producers
c. an increase in U.S. GDP

Accepted Answer

a.This trade barrier is similar to an im

Question 14

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

Accepted Answer

A) A retail outlet in Afghanistan wants to buy watches from a Canadian manufacturer. 
B) A Canadian bank loans dollars to Blair, a Canadian resident, who wants to purchase a new car made in Canada. 
C) A Canadian-based mutual fund wants to purchase stock issued by a Polish company. 
D) A Canadian resident imports a car made in Japan. 
A) A retail outlet in Afghanistan wants to buy watches from a Canadian manufacturer. 
B) A Canadian bank loans dollars to Blair, a Canadian resident, who wants to purchase a new car made in Canada. 
C) A Canadian-based mutual fund wants to purchase stock issued by a Polish company. 
D) A Canadian resident imports a car made in Japan.

Question 15

In the open-economy macroeconomic model,other things the same,when a Canadian resident imports a foreign good,our model treats this as a decrease in the demand for dollars in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that Canada imposes an import quota on automobiles.Which of the following describes the most likely effects of this quota?

Accepted Answer

A) The quota would cause the real exchange rate of Canadian dollars to appreciate, but it would not change the real interest rate in Canada. 
B) The quota would cause the real exchange rate of Canadian dollars to appreciate and the real interest rate in Canada to increase. 
C) The quota would cause the real exchange rate of Canadian dollars to depreciate and the real interest rate in Canada to decrease. 
D) The quota would cause the real exchange rate of Canadian dollars to depreciate, but it would not change the real interest rate in Canada. 
A) The quota would cause the real exchange rate of Canadian dollars to appreciate, but it would not change the real interest rate in Canada. 
B) The quota would cause the real exchange rate of Canadian dollars to appreciate and the real interest rate in Canada to increase. 
C) The quota would cause the real exchange rate of Canadian dollars to depreciate and the real interest rate in Canada to decrease. 
D) The quota would cause the real exchange rate of Canadian dollars to depreciate, but it would not change the real interest rate in Canada.

Question 17

Which of the following is the most likely result from an increase in the government's budget surplus?

Accepted Answer

A) higher interest rates 
B) lower imports 
C) lower net capital outflows 
D) lower domestic investment 
A) higher interest rates 
B) lower imports 
C) lower net capital outflows 
D) lower domestic investment

Question 18

Which of the following is an effect of capital flight in a small economy such as Mexico?

Accepted Answer

A) a shift of the supply of loanable funds to the left 
B) a decrease of the Mexican interest rate 
C) a shift of the net capital outflow to the right 
D) a depreciation of the Mexican real exchange rate 
A) a shift of the supply of loanable funds to the left 
B) a decrease of the Mexican interest rate 
C) a shift of the net capital outflow to the right 
D) a depreciation of the Mexican real exchange rate

Question 19

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

Higher Canadian interest rates make Cana

Question 20

Using the macroeconomic model of a foreign-currency exchange market,(a)analyze the situation in which a government imposes a fixed exchange rate,and (b)determine what that government should do in order to maintain the fixed exchange.

Accepted Answer

a.According to our "exchange rate vs.qua

Fill in the table below with the direction of the variables that change in response to the events in the first column.

According to the theory of purchasing-power parity,what is the shape of the demand curve for foreign-currency exchange?

Which of the following is most likely to increase exports in the country of Aquilonia?

Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

In the open-economy macroeconomic model,which of the following would make Mexico's net capital outflow decrease?

In an open economy,where does the demand for loanable funds come from?

Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

Which of the following is consistent with a depreciation of the dollar?

What term refers to a large and sudden reduction in the demand for assets located in a country?

When Mexico suffered from capital flight in 1994,what happened to Mexico's real interest rate and the peso?

Using the macroeconomic model studied,analyze the impact of the following events on the Canadian economy: a. a voluntary export restraint (VER) by Japanese car producers b. an export subsidy by Canadian government for Canadian lumber producers c. an increase in U.S. GDP

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

In the open-economy macroeconomic model,other things the same,when a Canadian resident imports a foreign good,our model treats this as a decrease in the demand for dollars in the foreign-currency exchange market.

Suppose that Canada imposes an import quota on automobiles.Which of the following describes the most likely effects of this quota?

Which of the following is the most likely result from an increase in the government's budget surplus?

Which of the following is an effect of capital flight in a small economy such as Mexico?

Why do higher real interest rates lead to lower net capital outflow?

Using the macroeconomic model of a foreign-currency exchange market,(a)analyze the situation in which a government imposes a fixed exchange rate,and (b)determine what that government should do in order to maintain the fixed exchange.

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

Fill in the table below with the direction of the variables that change in response to the events in the first column.

According to the theory of purchasing-power parity,what is the shape of the demand curve for foreign-currency exchange?

Which of the following is most likely to increase exports in the country of Aquilonia?

Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

In the open-economy macroeconomic model,which of the following would make Mexico's net capital outflow decrease?

In an open economy,where does the demand for loanable funds come from?

Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

Which of the following is consistent with a depreciation of the dollar?

What term refers to a large and sudden reduction in the demand for assets located in a country?

When Mexico suffered from capital flight in 1994,what happened to Mexico's real interest rate and the peso?

Using the macroeconomic model studied,analyze the impact of the following events on the Canadian economy: a. a voluntary export restraint (VER) by Japanese car producers b. an export subsidy by Canadian government for Canadian lumber producers c. an increase in U.S. GDP

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

In the open-economy macroeconomic model,other things the same,when a Canadian resident imports a foreign good,our model treats this as a decrease in the demand for dollars in the foreign-currency exchange market.

Suppose that Canada imposes an import quota on automobiles.Which of the following describes the most likely effects of this quota?

Which of the following is the most likely result from an increase in the government's budget surplus?

Which of the following is an effect of capital flight in a small economy such as Mexico?

Why do higher real interest rates lead to lower net capital outflow?

Using the macroeconomic model of a foreign-currency exchange market,(a)analyze the situation in which a government imposes a fixed exchange rate,and (b)determine what that government should do in order to maintain the fixed exchange.

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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