Question 1

What changes will a shortage of loanable funds induce in a savings-investment diagram in a closed economy?

Accepted Answer

A)  The demand for loanable funds curve will shift right, so the interest rate will rise. 
B)  The supply of loanable funds curve will shift left, so the interest rate will fall. 
C)  There will be no shifts of the curves, but the interest rate will rise. 
D)  There will be no shifts of the curves, but the interest rate will fall. 
A)  The demand for loanable funds curve will shift right, so the interest rate will rise. 
B)  The supply of loanable funds curve will shift left, so the interest rate will fall. 
C)  There will be no shifts of the curves, but the interest rate will rise. 
D)  There will be no shifts of the curves, but the interest rate will fall.

Question 2

Suppose that Canada imposes restrictions on the importation of steel into Canada. According to the open-economy macroeconomic model, what would be the most likely result?

Accepted Answer

A)  This policy would lower the real exchange rate and increase net exports. 
B)  This policy would lower the real exchange rate and have no effect on net exports. 
C)  This policy would raise the real exchange rate and decrease net exports. 
D)  This policy would raise the real exchange rate and have no effect on net exports. 
A)  This policy would lower the real exchange rate and increase net exports. 
B)  This policy would lower the real exchange rate and have no effect on net exports. 
C)  This policy would raise the real exchange rate and decrease net exports. 
D)  This policy would raise the real exchange rate and have no effect on net exports.

Question 3

If Canadian citizens decide to save a smaller fraction of their incomes, which statement would best describe 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 4

Figure 13-1
  
-Refer to the FigurE13-1. In the figure shown, if the real interest rate is 4 percent, what is the quantity of loanable funds demanded?

Accepted Answer

A)  $3000 
B)  $4000 
C)  $5000 
D)  $6000 
A)  $3000 
B)  $4000 
C)  $5000 
D)  $6000

Question 5

If a government increases its budget deficit, which statement would best predict the effects?

Accepted Answer

A)  Interest rates rise, and the trade balance moves toward surplus. 
B)  Interest rates rise, and the trade balance moves toward deficit. 
C)  Interest rates fall, and the trade balance moves toward surplus. 
D)  Interest rates fall, and the trade balance moves toward deficit. 
A)  Interest rates rise, and the trade balance moves toward surplus. 
B)  Interest rates rise, and the trade balance moves toward deficit. 
C)  Interest rates fall, and the trade balance moves toward surplus. 
D)  Interest rates fall, and the trade balance moves toward deficit.

Question 6

In the open-economy macroeconomic model, net exports represent the quantity of dollars demanded in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 7

If a country went from a government budget deficit to a surplus, which statement would best predict 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 8

Where does the supply of dollars in the foreign-currency exchange market come from?

Accepted Answer

A)  from Canadian national saving 
B)  from Canadian net capital outflow 
C)  from domestic investment 
D)  from foreign demand for Canadian goods 
A)  from Canadian national saving 
B)  from Canadian net capital outflow 
C)  from domestic investment 
D)  from foreign demand for Canadian goods

Question 9

What is the real exchange rate equal to?

Accepted Answer

A)  the relative price of domestic and foreign currency 
B)  the relative price of domestic and foreign goods 
C)  the ratio between the domestic and foreign interest rates 
D)  the nominal exchange rate minus the inflation rate 
A)  the relative price of domestic and foreign currency 
B)  the relative price of domestic and foreign goods 
C)  the ratio between the domestic and foreign interest rates 
D)  the nominal exchange rate minus the inflation rate

Question 10

What does the open-economy macroeconomic model take as given?

Accepted Answer

A)  GDP, but not the price level 
B)  the price level, but not GDP 
C)  both the price level and GDP 
D)  the exchange rate 
A)  GDP, but not the price level 
B)  the price level, but not GDP 
C)  both the price level and GDP 
D)  the exchange rate

Question 11

Which of the following will decrease Canadian net capital outflow?

Accepted Answer

A)  capital flight from Canada 
B)  a decrease in the tax on investment income 
C)  the imposition of Canadian government import quotas 
D)  a decrease in the tax on capital gains 
A)  capital flight from Canada 
B)  a decrease in the tax on investment income 
C)  the imposition of Canadian government import quotas 
D)  a decrease in the tax on capital gains

Question 12

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.

Accepted Answer

a)NCO = S - I when r = rw: NCO = 8 + 4rw

Question 13

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 14

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 i

Question 15

If the quantity of loanable funds supplied is greater than the quantity demanded, what does the excess measure?

Accepted Answer

A)  purchase of domestic investments 
B)  net capital outflow 
C)  net capital inflow. 
D)  foreigners purchase of Canadian goods 
A)  purchase of domestic investments 
B)  net capital outflow 
C)  net capital inflow. 
D)  foreigners purchase of Canadian goods

Question 16

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign-currency exchange market diagram, which outcome would most likely result?

Accepted Answer

A)  Both the demand and supply curves would shift right. 
B)  Both the demand and supply curves would shift left. 
C)  Only the demand curve would shift right. 
D)  Only the supply curve would shift right. 
A)  Both the demand and supply curves would shift right. 
B)  Both the demand and supply curves would shift left. 
C)  Only the demand curve would shift right. 
D)  Only the supply curve would shift right.

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

What is consistent with capital flight from Mexico?

Accepted Answer

A)  Mexican net exports decrease. 
B)  Mexican investment increases. 
C)  Mexican savings increase. 
D)  Mexican real interest rate decreases. 
A)  Mexican net exports decrease. 
B)  Mexican investment increases. 
C)  Mexican savings increase. 
D)  Mexican real interest rate decreases.

Question 19

What would make the equilibrium interest rate increase and the equilibrium quantity of funds decrease?

Accepted Answer

A)  The supply of loanable funds shifts right. 
B)  The supply of loanable funds shifts left. 
C)  The demand for loanable funds shifts right. 
D)  The demand for loanable funds shifts left. 
A)  The supply of loanable funds shifts right. 
B)  The supply of loanable funds shifts left. 
C)  The demand for loanable funds shifts right. 
D)  The demand for loanable funds shifts left.

Question 20

Which statement is consistent with an appreciation 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.

What changes will a shortage of loanable funds induce in a savings-investment diagram in a closed economy?

Suppose that Canada imposes restrictions on the importation of steel into Canada. According to the open-economy macroeconomic model, what would be the most likely result?

If Canadian citizens decide to save a smaller fraction of their incomes, which statement would best describe the effects?

Figure 13-1 -Refer to the FigurE13-1. In the figure shown, if the real interest rate is 4 percent, what is the quantity of loanable funds demanded?

If a government increases its budget deficit, which statement would best predict the effects?

In the open-economy macroeconomic model, net exports represent the quantity of dollars demanded in the foreign-currency exchange market.

If a country went from a government budget deficit to a surplus, which statement would best predict the consequences?

Where does the supply of dollars in the foreign-currency exchange market come from?

What is the real exchange rate equal to?

What does the open-economy macroeconomic model take as given?

Which of the following will decrease Canadian net capital outflow?

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

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

If the quantity of loanable funds supplied is greater than the quantity demanded, what does the excess measure?

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign-currency exchange market diagram, which outcome would most likely result?

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.

What is consistent with capital flight from Mexico?

What would make the equilibrium interest rate increase and the equilibrium quantity of funds decrease?

Which statement is consistent with an appreciation of the dollar?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations 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

What changes will a shortage of loanable funds induce in a savings-investment diagram in a closed economy?

Suppose that Canada imposes restrictions on the importation of steel into Canada. According to the open-economy macroeconomic model, what would be the most likely result?

If Canadian citizens decide to save a smaller fraction of their incomes, which statement would best describe the effects?

Figure 13-1 -Refer to the FigurE13-1. In the figure shown, if the real interest rate is 4 percent, what is the quantity of loanable funds demanded?

If a government increases its budget deficit, which statement would best predict the effects?

In the open-economy macroeconomic model, net exports represent the quantity of dollars demanded in the foreign-currency exchange market.

If a country went from a government budget deficit to a surplus, which statement would best predict the consequences?

Where does the supply of dollars in the foreign-currency exchange market come from?

What is the real exchange rate equal to?

What does the open-economy macroeconomic model take as given?

Which of the following will decrease Canadian net capital outflow?

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

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

If the quantity of loanable funds supplied is greater than the quantity demanded, what does the excess measure?

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign-currency exchange market diagram, which outcome would most likely result?

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.

What is consistent with capital flight from Mexico?

What would make the equilibrium interest rate increase and the equilibrium quantity of funds decrease?

Which statement is consistent with an appreciation of the dollar?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations 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