Question 1

Explain why saving need not equal domestic investment in an open economy.

Accepted Answer

This is because saving equals

Question 2

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

Accepted Answer

A)  a decrease in Canadian interest rates 
B)  a decrease in Panamanian interest rates 
C)  an appreciation of the Panamanian balboa 
D)  an increase in Panama's net exports 
A)  a decrease in Canadian interest rates 
B)  a decrease in Panamanian interest rates 
C)  an appreciation of the Panamanian balboa 
D)  an increase in Panama's net exports

Question 3

Which statement best describes the effects of trade policies?

Accepted Answer

A)  Trade policies affect the trade balance,plus all industries in the same ways. 
B)  Trade policies affect the trade balance,plus some industries differently than others. 
C)  Trade policies do not affect the trade balance,but they affect some industries differently than others. 
D)  Trade policies do not affect the trade balance,but they affect all industries in the same ways. 
A)  Trade policies affect the trade balance,plus all industries in the same ways. 
B)  Trade policies affect the trade balance,plus some industries differently than others. 
C)  Trade policies do not affect the trade balance,but they affect some industries differently than others. 
D)  Trade policies do not affect the trade balance,but they affect all industries in the same ways.

Question 4

Which statement best defines a trade policy?

Accepted Answer

A)  It is a government policy directed toward the goal of improving the tradeoff between equity and efficiency. 
B)  It is a government policy that directly influences the quantity of goods and services that a country imports or exports. 
C)  It is a government policy directed toward the goal of increasing domestic trade. 
D)  It is a government policy designed to limit the power of trade unions. 
A)  It is a government policy directed toward the goal of improving the tradeoff between equity and efficiency. 
B)  It is a government policy that directly influences the quantity of goods and services that a country imports or exports. 
C)  It is a government policy directed toward the goal of increasing domestic trade. 
D)  It is a government policy designed to limit the power of trade unions.

Question 5

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?

Accepted Answer

A)  The supply of loanable funds increases. 
B)  The demand for loanable funds increases. 
C)  The supply of loanable funds decreases. 
D)  The demand for loanable funds decreases. 
A)  The supply of loanable funds increases. 
B)  The demand for loanable funds increases. 
C)  The supply of loanable funds decreases. 
D)  The demand for loanable funds decreases.

Question 6

In the open-economy macroeconomic model,where does the supply of loanable funds come from?

Accepted Answer

A)  national saving 
B)  private saving 
C)  public saving 
D)  the sum of domestic investment and net capital outflow 
A)  national saving 
B)  private saving 
C)  public saving 
D)  the sum of domestic investment and net capital outflow

Question 7

According to the open-economy macroeconomic model,if the Canadian government decreased the government budget deficit,both Canadian domestic investment and Canadian net capital outflow would fall.

Accepted Answer

A) True 
 B)False

Question 8

What is consistent with capital flight from Mexico?

Accepted Answer

A)  Mexican net exports decrease. 
B)  Mexican investment increases. 
C)  Mexican savings increase. 
D)  Mexican real interest rate decreases. 
A)  Mexican net exports decrease. 
B)  Mexican investment increases. 
C)  Mexican savings increase. 
D)  Mexican real interest rate decreases.

Question 9

Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,what would be the most likely result?

Accepted Answer

A)  This policy would lower the real exchange rate and increase net exports. 
B)  This policy would lower the real exchange rate and have no effect on net exports. 
C)  This policy would raise the real exchange rate and decrease net exports. 
D)  This policy would raise the real exchange rate and have no effect on net exports. 
A)  This policy would lower the real exchange rate and increase net exports. 
B)  This policy would lower the real exchange rate and have no effect on net exports. 
C)  This policy would raise the real exchange rate and decrease net exports. 
D)  This policy would raise the real exchange rate and have no effect on net exports.

Question 10

Which of the following will decrease Canadian net capital outflow?

Accepted Answer

A)  capital flight from Canada 
B)  a decrease in the tax on investment income 
C)  the imposition of Canadian government import quotas 
D)  a decrease in the tax on capital gains 
A)  capital flight from Canada 
B)  a decrease in the tax on investment income 
C)  the imposition of Canadian government import quotas 
D)  a decrease in the tax on capital gains

Question 11

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

Accepted Answer

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

Question 12

Which statement best defines capital flight?

Accepted Answer

A)  The process of taking advantage of differences in prices in different markets 
B)  The movement of funds between financial intermediaries when interest rates change 
C)  The ability of investment expenditures to lift a country out of poverty 
D)  The large and sudden reduction in the demand for assets located in a country 
A)  The process of taking advantage of differences in prices in different markets 
B)  The movement of funds between financial intermediaries when interest rates change 
C)  The ability of investment expenditures to lift a country out of poverty 
D)  The large and sudden reduction in the demand for assets located in a country

Question 13

Suppose the Federal Reserve,which is the central bank of the U.S.,decided to lower the monetary policy interest rate.Use the macroeconomic model studied in thisChapter to analyze the possible effects of this event on Canada's net capital outflow,net exports,and exchange rate.(Hint: Consider the United States a large economy,which is able to influence the world interest rate.)

Accepted Answer

Since the United States is a large econo

Question 14

What is the most likely result from an increase in the government's budget surplus?

Accepted Answer

A)  higher interest rates 
B)  lower imports 
C)  lower net capital outflows 
D)  lower domestic investment 
A)  higher interest rates 
B)  lower imports 
C)  lower net capital outflows 
D)  lower domestic investment

Question 15

The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r; in country 2,it is I = 18 - 4r and S = 8 + 2r.
a)Find the relationships between net capital outflow and the world interest rate (rw)in the two countries.
b)What is the nature of these relationships? (Are they both positive,both negative,or one positive and the other negative?)
c)Calculate the world equilibrium interest rate.
d)How can you reconcile the result from part b with the one from part c?

Accepted Answer

a)In country 1,NCO1 = S - I when r = rw:

Question 16

Figure 13-1  
-Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

Accepted Answer

A)  There would be an increase in net capital outflow. 
B)  The demand for loanable funds curve to shift right. 
C)  The supply for loanable funds curve to shift left. 
D)  There would be a decrease in net capital outflow. 
A)  There would be an increase in net capital outflow. 
B)  The demand for loanable funds curve to shift right. 
C)  The supply for loanable funds curve to shift left. 
D)  There would be a decrease in net capital outflow.

Question 17

Figure 13-1  
-Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

Accepted Answer

A)  surplus of $4000 
B)  surplus of $2000 
C)  shortage of $4000 
D)  shortage of $2000 
A)  surplus of $4000 
B)  surplus of $2000 
C)  shortage of $4000 
D)  shortage of $2000

Question 18

What does the value of net exports equal?

Accepted Answer

A)  the value of national saving-net capital outflow 
B)  the value of public saving 
C)  the value of national saving minus imports 
D)  the value of national saving minus domestic investment 
A)  the value of national saving-net capital outflow 
B)  the value of public saving 
C)  the value of national saving minus imports 
D)  the value of national saving minus domestic investment

Question 19

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

Accepted Answer

A)  Canadian interest rates rise. 
B)  Canadian net capital outflow falls. 
C)  The real exchange rate of the Canadian dollar depreciates. 
D)  The Canadian supply of loanable funds shifts left. 
A)  Canadian interest rates rise. 
B)  Canadian net capital outflow falls. 
C)  The real exchange rate of the Canadian dollar depreciates. 
D)  The Canadian supply of loanable funds shifts left.

Question 20

Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r.
a)Find the relationship between net capital outflow and the world interest rate rw.
b)If net exports are described by NX = 16 - 4X,find the relationship between NX and the world interest rate at the equilibrium exchange rate.
c)For rw = 1.4,what is the elasticity of NX with respect to rw?
d)What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

Accepted Answer

a)NCO = S - I when r = rw:NCO = 8 + 4rw

Explain why saving need not equal domestic investment in an open economy.

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

Which statement best describes the effects of trade policies?

Which statement best defines a trade policy?

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?

In the open-economy macroeconomic model,where does the supply of loanable funds come from?

According to the open-economy macroeconomic model,if the Canadian government decreased the government budget deficit,both Canadian domestic investment and Canadian net capital outflow would fall.

What is consistent with capital flight from Mexico?

Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,what would be the most likely result?

Which of the following will decrease Canadian net capital outflow?

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

Which statement best defines capital flight?

What is the most likely result from an increase in the government's budget surplus?

Figure 13-1 -Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

Figure 13-1 -Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

What does the value of net exports equal?

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 13: A Macroeconomic Theory of the Small Open Economy

Explain why saving need not equal domestic investment in an open economy.

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

Which statement best describes the effects of trade policies?

Which statement best defines a trade policy?

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?

In the open-economy macroeconomic model,where does the supply of loanable funds come from?

According to the open-economy macroeconomic model,if the Canadian government decreased the government budget deficit,both Canadian domestic investment and Canadian net capital outflow would fall.

What is consistent with capital flight from Mexico?

Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,what would be the most likely result?

Which of the following will decrease Canadian net capital outflow?

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

Which statement best defines capital flight?

What is the most likely result from an increase in the government's budget surplus?

Figure 13-1 -Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

Figure 13-1 -Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

What does the value of net exports equal?

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

Unemployment and Its Natural Rate

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters