Exam 29: Macroeconomics in an Open Economy

How does an increase in government purchases financed by an increase in the deficit affect exchange rates? Support your answer with graphs of the loanable funds market and the foreign exchange market.

How would a decrease in the U.S. budget deficit affect the exchange rate in the market for dollars?

Based on the following information, what is the balance on the current account? Exports of goods and services = $5 billion Imports of goods and services= $3 billion Net income on investments = -$2 billion Net transfers = -$2 billion Increase in foreign holdings of assets in the United States = $4 billion Increase in U.S. holdings of assets in foreign countries = -$1 billion

If net foreign investment in the United States is negative, how must national saving and domestic investment be related?

An increase in the government budget deficit will not lead to a current account deficit if domestic investment declines.

Suppose the Fed pursues a policy that leads to higher interest rates in the United States. How will this policy affect real GDP in the short run if the United States is an open economy? This policy

If the United States is a "net lender" abroad, ________. (Assume that the capital account is zero and net transfers are zero.)

How will an increase in federal government spending without an increase in taxes affect real GDP and the price level in the short run in a closed economy and in an open economy?

Figure 29-1 -Refer to Figure 29-1. Europe experiences an economic boom. Assuming all else remains constant, this would be represented as a movement from

The relative price of a country's goods and services in terms of foreign goods and services is the real exchange rate.

In an open economy, expansionary monetary policy will cause

Explain and show graphically the effect of a decrease in U.S. budget deficits that decrease U.S. interest rates on the demand and supply of U.S. dollars for euros.

If foreign holdings of U.S. dollars increase, holding all else constant,

Does the saving and investment equation imply that a country's national saving must always equal its domestic investment? Explain.

Investment (I) in the United States may increase with either an increase in national saving or an increase in net foreign investment.

A decision by foreign central banks to sell their holdings of U.S. Treasury bonds will

Which of the following would you expect to increase both interest rates and exchange rates?

What impact might a decrease in the U.S. federal budget deficit have on interest rates and exchange rates in the market for the U.S. dollar? (Assume the exchange rate is stated in terms of foreign currency per U.S. dollar.)

If Californians increase their purchases of Italian wine, assuming all else remains constant, this will ________ of the United States.

The current account deficits incurred by the United States in the 1980s were caused, in the opinion of many economists, by