Question 1

If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would

Accepted Answer

A) depreciate and Kenyan net exports would rise. 
B) depreciate and Kenyan net exports would fall. 
C) appreciate and Kenyan net exports would rise. 
D) appreciate and Kenyan net exports would fall. 
A) depreciate and Kenyan net exports would rise. 
B) depreciate and Kenyan net exports would fall. 
C) appreciate and Kenyan net exports would rise. 
D) appreciate and Kenyan net exports would fall.

Question 2

U.S. net capital outflow

Accepted Answer

A) is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market. 
B) is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market. 
C) is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market. 
D) is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market. 
A) is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market. 
B) is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market. 
C) is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market. 
D) is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market.

Question 3

U.S. corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. Borrowing for which well is included in the demand for loanable funds in the U.S.?

Accepted Answer

A) The U.S. and Venezuela. 
B) The U.S. only. 
C) Venezuela only. 
D) Neither the U.S. or Venezuela. 
A) The U.S. and Venezuela. 
B) The U.S. only. 
C) Venezuela only. 
D) Neither the U.S. or Venezuela.

Question 4

If a country has a positive net capital outflow, then

Accepted Answer

A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds. 
A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Question 5

If a country has a negative net capital outflow, then

Accepted Answer

A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds. 
A) on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B) on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C) on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D) on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Question 6

U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?

Accepted Answer

A) The U.S. only. 
B) Denmark only. 
C) The U.S. and Denmark. 
D) Neither the U.S. nor Denmark. 
A) The U.S. only. 
B) Denmark only. 
C) The U.S. and Denmark. 
D) Neither the U.S. nor Denmark.

Question 7

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 8

A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Accepted Answer

A) $30 billion 
B) $40 billion 
C) $50 billion 
D) $70 billion 
A) $30 billion 
B) $40 billion 
C) $50 billion 
D) $70 billion

Question 9

From 2001 to 2004 the U.S. budget went from surplus to deficit. According to the open economy macroeconomic model, this change should have

Accepted Answer

A) increased U.S. interest rates and increased the real exchange rate of the dollar. 
B) increased U.S. interest rates and decreased the real exchange rate of the dollar. 
C) decreased U.S. interest rates and increased the real exchange rate of the dollar. 
D) decreased U.S. interest rates and decreased the real exchange rate of the dollar. 
A) increased U.S. interest rates and increased the real exchange rate of the dollar. 
B) increased U.S. interest rates and decreased the real exchange rate of the dollar. 
C) decreased U.S. interest rates and increased the real exchange rate of the dollar. 
D) decreased U.S. interest rates and decreased the real exchange rate of the dollar.

Question 10

If a country experiences capital flight, which of the following curves shift right?

Accepted Answer

A) only the demand for loanable funds. 
B) only the supply of dollars in the market for foreign-currency exchange. 
C) only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange. 
D) the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange. 
A) only the demand for loanable funds. 
B) only the supply of dollars in the market for foreign-currency exchange. 
C) only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange. 
D) the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.

Question 11

If a country's budget deficit rises, then its exchange rate

Accepted Answer

A) rises, so its imports rise. 
B) rises, so its imports fall. 
C) falls, so its imports rise. 
D) falls so its imports fall. 
A) rises, so its imports rise. 
B) rises, so its imports fall. 
C) falls, so its imports rise. 
D) falls so its imports fall.

Question 12

In the open-economy macroeconomic model, other things the same, which of the following both make the exchange rate fall?

Accepted Answer

A) U.S. investment demand falls and foreign demand for U.S. goods falls 
B) U.S. investment demand falls and foreign demand for U.S. goods rises 
C) U.S. investment demand rises and foreign demand for U.S. goods falls 
D) U.S. investment demand rises and foreign demand for U.S. goods rises 
A) U.S. investment demand falls and foreign demand for U.S. goods falls 
B) U.S. investment demand falls and foreign demand for U.S. goods rises 
C) U.S. investment demand rises and foreign demand for U.S. goods falls 
D) U.S. investment demand rises and foreign demand for U.S. goods rises

Question 13

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

Accepted Answer

A) increase domestic saving 
B) increase domestic political stability and respect of property rights 
C) other countries reduce their trade restrictions 
D) raise tariffs 
A) increase domestic saving 
B) increase domestic political stability and respect of property rights 
C) other countries reduce their trade restrictions 
D) raise tariffs

Question 14

Other things the same, a lower real interest rate decreases the quantity of

Accepted Answer

A) loanable funds demanded. 
B) loanable funds supplied. 
C) domestic investment. 
D) net capital outflow. 
A) loanable funds demanded. 
B) loanable funds supplied. 
C) domestic investment. 
D) net capital outflow.

Question 15

In the open-economy macroeconomic model, which of the following increases net capital outflow?

Accepted Answer

A) a fall in the real exchange rate, but not a fall in the real interest rate 
B) a fall in the real interest rate, but not a fall in the real exchange rate 
C) both a fall in the real exchange rate and a fall in the real interest rate 
D) neither a fall in the real exchange rate nor a fall in the real interest rate 
A) a fall in the real exchange rate, but not a fall in the real interest rate 
B) a fall in the real interest rate, but not a fall in the real exchange rate 
C) both a fall in the real exchange rate and a fall in the real interest rate 
D) neither a fall in the real exchange rate nor a fall in the real interest rate

Question 16

A U.S. company wants to buy yen in order to buy Japanese bonds. In the open-economy macroeconomic model, this transaction would be part of

Accepted Answer

A) the supply of currency in the foreign exchange market, and part of the supply of loanable funds. 
B) the demand for currency in the foreign exchange market, and part of the supply of loanable funds. 
C) the supply of currency in the foreign exchange market, and part of the demand for loanable funds. 
D) the demand for currency in the foreign exchange market, and part of the demand for loanable funds. 
A) the supply of currency in the foreign exchange market, and part of the supply of loanable funds. 
B) the demand for currency in the foreign exchange market, and part of the supply of loanable funds. 
C) the supply of currency in the foreign exchange market, and part of the demand for loanable funds. 
D) the demand for currency in the foreign exchange market, and part of the demand for loanable funds.

Question 17

If the budget deficit increases, then

Accepted Answer

A) U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase more U.S. assets 
B) U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase fewer U.S. assets 
C) U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets 
D) U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase fewer U.S. assets 
A) U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase more U.S. assets 
B) U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase fewer U.S. assets 
C) U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets 
D) U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase fewer U.S. assets

Question 18

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Question 19

If a U.S. resident purchases a foreign bond, her transactions are included

Accepted Answer

A) in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange. 
B) in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange. 
C) in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange. 
D) in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange. 
A) in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange. 
B) in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange. 
C) in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange. 
D) in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.

Question 20

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then

Accepted Answer

A) the demand for dollars in the market for foreign-currency exchange shifts right. 
B) the demand for dollars in the market for foreign-currency exchange shifts left. 
C) the supply of dollars in the market for foreign-currency exchange shifts right. 
D) the supply of dollars in the market for foreign-currency exchange shifts left. 
A) the demand for dollars in the market for foreign-currency exchange shifts right. 
B) the demand for dollars in the market for foreign-currency exchange shifts left. 
C) the supply of dollars in the market for foreign-currency exchange shifts right. 
D) the supply of dollars in the market for foreign-currency exchange shifts left.

Exam 19: A Macroeconomic Theory of the Open Economy

If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would

U.S. net capital outflow

U.S. corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. Borrowing for which well is included in the demand for loanable funds in the U.S.?

If a country has a positive net capital outflow, then

If a country has a negative net capital outflow, then

U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign-currency exchange.

A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

From 2001 to 2004 the U.S. budget went from surplus to deficit. According to the open economy macroeconomic model, this change should have

If a country experiences capital flight, which of the following curves shift right?

If a country's budget deficit rises, then its exchange rate

In the open-economy macroeconomic model, other things the same, which of the following both make the exchange rate fall?

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

Other things the same, a lower real interest rate decreases the quantity of

In the open-economy macroeconomic model, which of the following increases net capital outflow?

A U.S. company wants to buy yen in order to buy Japanese bonds. In the open-economy macroeconomic model, this transaction would be part of

If the budget deficit increases, then

In an open economy, the supply of loanable funds comes from national saving.

If a U.S. resident purchases a foreign bond, her transactions are included

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters