Exam 13: A Macroeconomic Theory of the Small Open Economy

Suppose a foreign real estate company wants to build a number of new resort condominiums in Canada. How does this affect the Canadian market for loanable funds?

What is the supply and demand for loanable funds equation in an open economy?

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

How does an increase in the Canadian government budget deficit change the graph representing the Canadian market for loanable funds?

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand curve for foreign-currency exchange.

What are the effects of an increase in the supply of loanable funds?

What will decrease Canadian net capital outflow?

Mexico suffered from capital flight in 1994. What happened to Mexico's net exports?

Suppose that Canada places higher tariffs on imports of ice cream. What would be the most likely result?

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

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. 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?

If a government increases its budget deficit, which statement would best describe the consequences?

Following an increase in the Canadian budget deficit, it has been observed that the trade deficit has increased, the Canadian real exchange rate has appreciated, the net capital outflow has decreased, and the interest rate has decreased. Which event is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

What happens in Canada when the Canadian government imposes an import quota on Gouda cheese?

If the government started with a budget deficit and moved to a surplus, which statement would best describe the effects of these changes?

If Canadian firms decide to invest more domestically at each interest rate, which statement would best describe the results?

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

In the open-economy macroeconomic model, what would make Panama's net capital outflow decrease?

Which statement is the most accurate description of trade policy?

Mexico suffered from capital flight in 1994. What happened to Mexico's net capital outflow and net exports?