Question 1

Trade policies that directly affect exports or imports:

Accepted Answer

A)  also affect net exports 
B)  also affect net foreign investment 
C)  also affect real interest rates 
D)  also affect national saving and domestic investment 
E)  none of the above 
A)  also affect net exports 
B)  also affect net foreign investment 
C)  also affect real interest rates 
D)  also affect national saving and domestic investment 
E)  none of the above E

Question 2

Fears about governments in Europe being able to finance their debts are unfounded, as they have a strong economy.

Accepted Answer

A) True 
 B)False  False

Question 3

In the graph below, if the real interest rate is R1, the quantity of loanable funds demanded is:

Accepted Answer

A)  Q0 and the quantity supplied is Q0 
B)  Q2 and the quantity supplied is Q0 
C)  Q2 and the quantity supplied is Q1 
D)  Q0and the quantity supplied is Q1 
E)  Q1 and the quantity supplied is Q2 
A)  Q0 and the quantity supplied is Q0 
B)  Q2 and the quantity supplied is Q0 
C)  Q2 and the quantity supplied is Q1 
D)  Q0and the quantity supplied is Q1 
E)  Q1 and the quantity supplied is Q2 E

Question 4

How does an increase in the money supply affect the nominal exchange rate if the real exchange rate is not affected by the monetary shock?

Accepted Answer

The domestic price level will

Question 5

In the open economy:

Accepted Answer

A)  Net foreign investment = Exports 
B)  Net foreign investment = Imports 
C)  Net foreign investment = Net exports 
D)  Net foreign investment = Exports - Imports 
E)  both C and D 
A)  Net foreign investment = Exports 
B)  Net foreign investment = Imports 
C)  Net foreign investment = Net exports 
D)  Net foreign investment = Exports - Imports 
E)  both C and D

Question 6

In the market for loanable funds, r0 is:

Accepted Answer

A)  the price of goods and services in the present relative to goods and services in the future 
B)  the price of domestic goods and services relative to foreign goods and services 
C)  the price of goods and services in the future relative to goods and services in the present 
D)  the price of foreign goods and services relative to domestic goods and services 
A)  the price of goods and services in the present relative to goods and services in the future 
B)  the price of domestic goods and services relative to foreign goods and services 
C)  the price of goods and services in the future relative to goods and services in the present 
D)  the price of foreign goods and services relative to domestic goods and services

Question 7

Whereas in the long-run macroeconomic model of a closed economy, monetary changes affect only nominal variables, in the long-run macroeconomic model of an open economy, monetary changes also affect real variables.

Accepted Answer

A) True 
 B)False

Question 8

A removal of trade restrictions:

Accepted Answer

A)  reduces the interference upon gains from trade and therefore increases overall economic wellbeing 
B)  alters a country's balance of trade and therefore are fully justified 
C)  can be used to punish other countries and therefore are fully justified 
D)  protect domestic jobs and therefore are fully justified 
A)  reduces the interference upon gains from trade and therefore increases overall economic wellbeing 
B)  alters a country's balance of trade and therefore are fully justified 
C)  can be used to punish other countries and therefore are fully justified 
D)  protect domestic jobs and therefore are fully justified

Question 9

Net foreign investment represents the quantity of dollars demanded in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 10

If political instability in Egypt causes capital flight, Egyptian net foreign investment will increase, the demand for loanable funds will increase, the real interest rate will increase and the real exchange rate will appreciate.

Accepted Answer

A) True 
 B)False

Question 11

In the market for foreign-currency exchange, supply comes from net foreign investment, demand comes from the current account balance, and the real exchange rate balances supply and demand.

Accepted Answer

A) True 
 B)False

Question 12

The demand for loanable funds comes from domestic investment and net foreign investment.

Accepted Answer

A) True 
 B)False

Question 13

NARRBEGIN 32-2
Graph 32-2
  
-When a government imposes a tariff on imports, the current account for a given real exchange rate:

Accepted Answer

A)  rises 
B)  falls 
C)  does not change 
D)  fluctuates 
A)  rises 
B)  falls 
C)  does not change 
D)  fluctuates

Question 14

An appreciation of the Australian real exchange rate _____ the quantity of dollars demanded in the market for foreign-currency exchange.

Accepted Answer

A)  reduces 
B)  increases 
C)  leaves unchanged 
D)  could have any effect on 
A)  reduces 
B)  increases 
C)  leaves unchanged 
D)  could have any effect on

Question 15

Ceteris paribus, if the Australian real interest rate were to increase, Australian net foreign investment would:

Accepted Answer

A)  rise 
B)  be unaffected 
C)  fall 
D)  it is impossible to tell 
A)  rise 
B)  be unaffected 
C)  fall 
D)  it is impossible to tell

Question 16

Graph 32-1
  
-In Graph 32-1, an increase in the government budget deficit causes the equilibrium interest rate to:

Accepted Answer

A)  be unchanged 
B)  increase from r1 to r2 in panel (a) 
C)  increase from E1 to E2 in panel (c) 
D)  decrease from r2 to r1 in panel (a) 
E)  both B and C 
A)  be unchanged 
B)  increase from r1 to r2 in panel (a) 
C)  increase from E1 to E2 in panel (c) 
D)  decrease from r2 to r1 in panel (a) 
E)  both B and C

Question 17

If exports are greater than imports, the country is said to have a:

Accepted Answer

A)  trade advantage 
B)  trade balance 
C)  trade surplus 
D)  trade deficit 
A)  trade advantage 
B)  trade balance 
C)  trade surplus 
D)  trade deficit

Question 18

In an open economy, a government budget deficit:

Accepted Answer

A)  lowers net foreign investment and pushes the trade balance towards deficit 
B)  raises net foreign investment and pushes the trade balance towards surplus 
C)  raises net foreign investment and pushes the trade balance towards deficit 
D)  lowers net foreign investment and pushes the trade balance towards surplus 
A)  lowers net foreign investment and pushes the trade balance towards deficit 
B)  raises net foreign investment and pushes the trade balance towards surplus 
C)  raises net foreign investment and pushes the trade balance towards deficit 
D)  lowers net foreign investment and pushes the trade balance towards surplus

Question 19

A strong domestic dollar, ceteris paribus, may have minimal impact on export industries.

Accepted Answer

A) True 
 B)False

Question 20

NARRBEGIN 32-2
Graph 32-2
  
-Capital flight from a country:

Accepted Answer

A)  decreases its interest rates and increases the value of its currency in the foreign exchange market 
B)  decreases its interest rates and decreases the value of its currency in the foreign exchange market 
C)  increases its interest rates and increases the value of its currency in the foreign exchange market 
D)  increases its interest rates and decreases the value of its currency in the foreign exchange market 
A)  decreases its interest rates and increases the value of its currency in the foreign exchange market 
B)  decreases its interest rates and decreases the value of its currency in the foreign exchange market 
C)  increases its interest rates and increases the value of its currency in the foreign exchange market 
D)  increases its interest rates and decreases the value of its currency in the foreign exchange market

Exam 32: A Macroeconomic Theory of the Open Economy

Trade policies that directly affect exports or imports:

Fears about governments in Europe being able to finance their debts are unfounded, as they have a strong economy.

In the graph below, if the real interest rate is R1, the quantity of loanable funds demanded is:

How does an increase in the money supply affect the nominal exchange rate if the real exchange rate is not affected by the monetary shock?

In the open economy:

In the market for loanable funds, r0 is:

Whereas in the long-run macroeconomic model of a closed economy, monetary changes affect only nominal variables, in the long-run macroeconomic model of an open economy, monetary changes also affect real variables.

A removal of trade restrictions:

Net foreign investment represents the quantity of dollars demanded in the foreign-currency exchange market.

If political instability in Egypt causes capital flight, Egyptian net foreign investment will increase, the demand for loanable funds will increase, the real interest rate will increase and the real exchange rate will appreciate.

In the market for foreign-currency exchange, supply comes from net foreign investment, demand comes from the current account balance, and the real exchange rate balances supply and demand.

The demand for loanable funds comes from domestic investment and net foreign investment.

NARRBEGIN 32-2 Graph 32-2 -When a government imposes a tariff on imports, the current account for a given real exchange rate:

An appreciation of the Australian real exchange rate _____ the quantity of dollars demanded in the market for foreign-currency exchange.

Ceteris paribus, if the Australian real interest rate were to increase, Australian net foreign investment would:

Graph 32-1 -In Graph 32-1, an increase in the government budget deficit causes the equilibrium interest rate to:

If exports are greater than imports, the country is said to have a:

In an open economy, a government budget deficit:

A strong domestic dollar, ceteris paribus, may have minimal impact on export industries.

NARRBEGIN 32-2 Graph 32-2 -Capital flight from a country:

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity 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 Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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

Filters

In the graph below, if the real interest rate is R₁, the quantity of loanable funds demanded is: