Question 1

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

Accepted Answer

A) Increase domestic saving. 
B) Increase political stability and respect for property rights. 
C) Negotiate with other countries to get them to reduce their trade restrictions. 
D) Impose higher tariffs on imported goods. 
A) Increase domestic saving. 
B) Increase political stability and respect for property rights. 
C) Negotiate with other countries to get them to reduce their trade restrictions. 
D) Impose higher tariffs on imported goods.

Question 2

A large and sudden movement of funds out of a country is called

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 3

U.S.corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela.

Accepted Answer

A) The borrowing for the well in the U.S.and the well in Venezuela both count as part of the demand for loanable funds in the U.S.market. 
B) Neither the borrowing for the well in the U.S.nor the well in Venezuela count as part of the demand for loanable funds in the U.S.market. 
C) The borrowing for the well in the U.S.counts as part of the demand for loanable funds in the U.S.The borrowing for the well in Venezuela does not count as part of the demand for loanable funds in the U.S.market. 
D) The borrowing for the well in Venezuela counts as part of the demand for loanable funds in the U.S.The borrowing for the well in the US.does not counts as part of the demand for loanable funds in the U.S.market. 
A) The borrowing for the well in the U.S.and the well in Venezuela both count as part of the demand for loanable funds in the U.S.market. 
B) Neither the borrowing for the well in the U.S.nor the well in Venezuela count as part of the demand for loanable funds in the U.S.market. 
C) The borrowing for the well in the U.S.counts as part of the demand for loanable funds in the U.S.The borrowing for the well in Venezuela does not count as part of the demand for loanable funds in the U.S.market. 
D) The borrowing for the well in Venezuela counts as part of the demand for loanable funds in the U.S.The borrowing for the well in the US.does not counts as part of the demand for loanable funds in the U.S.market.

Question 4

Figure 32-1
  
-Refer to Figure 32-1.The loanable funds market is in equilibrium at

Accepted Answer

A) 1 percent, $30 billion. 
B) 2 percent, $20 billion. 
C) 4 percent, $10 billion. 
D) None of the above is correct. 
A) 1 percent, $30 billion. 
B) 2 percent, $20 billion. 
C) 4 percent, $10 billion. 
D) None of the above is correct.

Question 5

The diagram below represents the market for loanable funds and the market for foreign-currency exchange in Mexico. Use the diagram to answer the following questions.
Figure 32-6
  
-Refer to Figure 32-6.Supposing that the Mexican economy starts at r₀ and E₁.Which of the following is consistent with the effects of capital flight?

Accepted Answer

A) the shift from D₀ to D₁ in Panel A 
B) the shift from NCO₀ to NCO₁ in Panel B 
C) the shift from S₀ to S₁ in Panel C 
D) All of the above shifts are consistent with the effects of capital flight. 
A) the shift from D₀ to D₁ in Panel A 
B) the shift from NCO₀ to NCO₁ in Panel B 
C) the shift from S₀ to S₁ in Panel C 
D) All of the above shifts are consistent with the effects of capital flight.

Question 6

A tax on imported goods is called a(n)

Accepted Answer

A) excise tax. 
B) tariff. 
C) import quota. 
D) None of the above is correct. 
A) excise tax. 
B) tariff. 
C) import quota. 
D) None of the above is correct.

Question 7

Other things the same,if the Canadian real interest rate were to increase,Canadian net capital outflow

Accepted Answer

A) and net capital outflow of other countries would rise. 
B) and net capital outflow of other countries would fall. 
C) would rise, while net capital outflow of other countries would fall. 
D) would fall, while net capital outflow of other countries would rise. 
A) and net capital outflow of other countries would rise. 
B) and net capital outflow of other countries would fall. 
C) would rise, while net capital outflow of other countries would fall. 
D) would fall, while net capital outflow of other countries would rise.

Question 8

-Refer to Figure 32-5.If the interest rate were initially at r₂ and an import quota were imposed,the interest rate would

Accepted Answer

A) stay at r₂. 
B) decrease because supply would shift right. 
C) increase because supply would shift left. 
D) decrease because demand would shift left. 
A) stay at r₂. 
B) decrease because supply would shift right. 
C) increase because supply would shift left. 
D) decrease because demand would shift left.

Question 9

If the U.S.were to impose restrictions on imports

Accepted Answer

A) the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange would both increase. 
B) nether the demand for loanable funds nor the demand for dollars in the market for foreign-currency exchange would increase. 
C) the demand for loanable funds would increase, but the demand for dollars in the market for foreign-currency exchange would not. 
D) the demand for dollars in the market for foreign-currency exchange would increase, but the demand for loanable funds would not. 
A) the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange would both increase. 
B) nether the demand for loanable funds nor the demand for dollars in the market for foreign-currency exchange would increase. 
C) the demand for loanable funds would increase, but the demand for dollars in the market for foreign-currency exchange would not. 
D) the demand for dollars in the market for foreign-currency exchange would increase, but the demand for loanable funds would not.

Question 10

Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds increase?

Accepted Answer

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

Question 11

If a government increases its budget deficit,then the real exchange rate

Accepted Answer

A) and domestic investment rise. 
B) and domestic investment fall. 
C) rises and domestic investment falls. 
D) falls and domestic investment rises. 
A) and domestic investment rise. 
B) and domestic investment fall. 
C) rises and domestic investment falls. 
D) falls and domestic investment rises.

Question 12

Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds decrease?

Accepted Answer

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

Question 13

Figure 32-3
  
-Refer to Figure 32-4.Starting from r₂ and E₃,an increase in the budget deficit can be illustrated as a move to

Accepted Answer

A) r₁ and E₄. 
B) r₁ and E₂. 
C) r₃ and E₄. 
D) r₃ and E₂. 
A) r₁ and E₄. 
B) r₁ and E₂. 
C) r₃ and E₄. 
D) r₃ and E₂.

Question 14

In an open economy,the demand for loanable funds comes from both domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 15

In the market for foreign-currency exchange in the open-economy macroeconomic model,a higher U.S.real exchange rate makes

Accepted Answer

A) U.S.goods more expensive relative to foreign goods and reduces the quantity of dollars supplied. 
B) U.S.goods more expensive relative to foreign goods and reduces the quantity of dollars demanded. 
C) foreign goods more expensive relative to U.S.goods and reduces the quantity of dollars supplied. 
D) foreign goods more expensive relative to U.S.goods and reduces the quantity of dollars demanded. 
A) U.S.goods more expensive relative to foreign goods and reduces the quantity of dollars supplied. 
B) U.S.goods more expensive relative to foreign goods and reduces the quantity of dollars demanded. 
C) foreign goods more expensive relative to U.S.goods and reduces the quantity of dollars supplied. 
D) foreign goods more expensive relative to U.S.goods and reduces the quantity of dollars demanded.

Question 16

If the real exchange rate for the dollar is below the equilibrium level,the quantity of dollars supplied in the market for foreign-currency exchange is

Accepted Answer

A) less than the quantity demanded and the dollar will appreciate. 
B) less than the quantity demanded and the dollar will depreciate. 
C) greater than the quantity demanded and the dollar will appreciate. 
D) greater than the quantity demanded and the dollar will depreciate. 
A) less than the quantity demanded and the dollar will appreciate. 
B) less than the quantity demanded and the dollar will depreciate. 
C) greater than the quantity demanded and the dollar will appreciate. 
D) greater than the quantity demanded and the dollar will depreciate.

Question 17

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

Accepted Answer

A) nominal exchange rate. 
B) nominal interest rate. 
C) real exchange rate. 
D) real interest rate. 
A) nominal exchange rate. 
B) nominal interest rate. 
C) real exchange rate. 
D) real interest rate.

Question 18

Suppose that U.S.citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases,a

Question 19

If the U.S.government went from a budget deficit to a budget surplus then

Accepted Answer

A) the interest rate and the real exchange rate would increase. 
B) the interest rate and the real exchange rate would decrease. 
C) the interest rate would increase and the real exchange rate would decrease. 
D) the interest rate would decrease and the real exchange rate would increase. 
A) the interest rate and the real exchange rate would increase. 
B) the interest rate and the real exchange rate would decrease. 
C) the interest rate would increase and the real exchange rate would decrease. 
D) the interest rate would decrease and the real exchange rate would increase.

Question 20

At the equilibrium interest rate in the open economy macroeconomic model,the amount that people want to save equals the desired quantity of

Accepted Answer

A) net capital outflow. 
B) domestic investment. 
C) net capital outflow plus domestic investment. 
D) foreign currency supplied. 
A) net capital outflow. 
B) domestic investment. 
C) net capital outflow plus domestic investment. 
D) foreign currency supplied.

Exam 32: A Macroeconomic Theory of the Open Economy

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

A large and sudden movement of funds out of a country is called

U.S.corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela.

Figure 32-1 -Refer to Figure 32-1.The loanable funds market is in equilibrium at

A tax on imported goods is called a(n)

Other things the same,if the Canadian real interest rate were to increase,Canadian net capital outflow

-Refer to Figure 32-5.If the interest rate were initially at r₂ and an import quota were imposed,the interest rate would

If the U.S.were to impose restrictions on imports

Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds increase?

If a government increases its budget deficit,then the real exchange rate

Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds decrease?

Figure 32-3 -Refer to Figure 32-4.Starting from r₂ and E₃,an increase in the budget deficit can be illustrated as a move to

In an open economy,the demand for loanable funds comes from both domestic investment and net capital outflow.

In the market for foreign-currency exchange in the open-economy macroeconomic model,a higher U.S.real exchange rate makes

If the real exchange rate for the dollar is below the equilibrium level,the quantity of dollars supplied in the market for foreign-currency exchange is

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

Suppose that U.S.citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

If the U.S.government went from a budget deficit to a budget surplus then

At the equilibrium interest rate in the open economy macroeconomic model,the amount that people want to save equals the desired quantity of

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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