Exam 13: A Macroeconomic Theory of the Small Open Economy

The People's Republic of China has had a large trade surplus in recent years. What is the most likely explanation of this surplus?

When a country suffers from capital flight, which statement best explains the effects?

Figure 13-1 -Refer to the FigurE13-1. If the world interest rate equals 4 percent, what is the net capital outflow?

If a country's imports are greater than its exports, what is the country said to have?

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

What is the effect of an increase in the Canadian real interest rate above the world interest rate?

If the Canadian government imposes an import quota on French Brie cheese, which statement would best predict the consequences?

In the open-economy macroeconomic model, what is the key determinant of net capital outflow?

How does the supply or demand for loanable funds shift when a country increases its budget deficit?

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.

Figure 13-2 -Refer to the FigurE13-2. If the interest rate was initially at r0 and an import quota was imposed, what would happen to the real interest rate?

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 Chile has a budget surplus, and then goes into deficit. Which statement best predicts the consequences?

Because depreciation of the real exchange rate of the dollar increases Canadian net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

The law of one price assumes that trade take place at no cost, so that prices across borders equalize. The result of this assumption is that the real interest rate is always constant. a) Draw a graph to show the demand for dollars in the foreign-currency exchange market under the assumption that purchasing-power parity holds. b) On the other hand, our model of real exchange rate determination shows a downward sloping demand-for-dollars curve. What could determine how steep or flat the demand for dollars is?

The country of Lexburgh is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, which statement would happen?

Suppose that the government of Jordan raises its budget deficit. Which statement best predicts the effects of this action?

If the quantity of loanable funds supplied is greater than the quantity demanded, what best describes the difference?

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

In an open economy, what does the market for loanable funds equate national saving with?