Exam 13: A Macroeconomic Theory of the Open Economy

Use the figure below to answer the following questions. Figure 32-2 -Refer to Figure 32-2. If the interest rate were initially at r₀ and an import quota was imposed, what would happen to the interest rate?

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

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

State what, if anything, each of the following does to the supply or demand of loanable funds. a.net capital outflow increases at each interest rate b.domestic investment increases at each interest rate c.the government deficit increases d.private saving increases

In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following results from a higher real exchange rate?

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 Canadian dollar in terms of U.S. dollars. The following table gives data on these two variables, as provided by Statistics Canada. a.What does our open-economy macro 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?

Figure 32-3 -Refer to Figure 32-3. Suppose that the Mexican economy starts at r₀ and E₀. Which of the following are consistent with the effects of capital flight?

Other things the same, when the real exchange rate of the dollar appreciates, Canadian goods become more attractive to Canadian residents, but less attractive to foreign residents.

If Canadian firms decide to invest more domestically at each interest rate, which of the following best describes the results?

Which of the following will decrease Canadian net capital outflow?

According to the open-economy macroeconomic model, an increase in the Canadian government budget surplus increases Canadian net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases Canadian net exports.

Which of the following is the most accurate statement about trade policy?

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

Suppose the Canadian government institutes a "Buy Canadian" campaign, in order to encourage spending on domestic goods. What effect will this have on the Canadian trade balance?

A drop in the Peruvian real interest rate reduces Peruvian net capital outflow.

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

Use the figure below to answer the following questions. Figure 32-2 -Refer to Figure 32-2. Suppose that these diagrams refer to Canada. If the interest rate were initially at r₀ and China voluntarily restricted its exports to Canada, what would happen to the interest rate?

Use the figure below to answer the following questions. Figure 32-2 -Refer to Figure 32-2. If the economy were initially in equilibrium at r₀ and E₀ and the government removed import quotas, what would happen to the exchange rate?

In an open economy, which of the following does the market for loanable funds take as given?

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