Exam 5: The Open Economy

The idea that the amount of any currency that can buy a particular good in one country should be able to buy (after being exchanged for the local currency)the same quantity of the same good anywhere in the world is called:

Assume that some large foreign countries begin to subsidize investment by instituting an investment tax credit.Then,if world saving does not depend on the interest rate,world investment:

When exports exceed imports,all of the following are true except:

Which of the following would decrease the real exchange rate in the basic model of a small open economy in the long run?

An increase in the trade deficit of a small open economy could be the result of:

Use the following to answer questions : Exhibit: Policies Influence Real Exchange Rate -(Exhibit: Policies Influence Real Exchange Rate)Which of the graphs illustrates the impact on the real exchange rate of contractionary fiscal at home,in the basic version of the small open economy model?

Net capital outflow is equal to the amount that:

Based on a Cobb-Douglas production function and perfect capital mobility,capital should flow to economies where:

If domestic saving exceeds domestic investment,then net exports are ______ and net capital outflows are ______.

In a country with a small open economy,the real interest rate will always be:

If the information technology boom increases investment demand in the basic model of a small open economy,then net exports ______ and the real exchange rate ______.

Use the following to answer questions : Exhibit: Saving and Investment in a Small Open Economy -(Exhibit: Saving and Investment in a Small Open Economy)In a small open economy if the world interest rate is r₃,then the economy has:

As the U.S.budget deficit shrank in the 1990s,the increase in U.S.national saving was ______ than the expansionary shift in the U.S.investment function,resulting in a trade ______.

The doctrine of purchasing-power parity:

If the nominal interest rates in the United States and Canada are 8 percent and 12 percent,respectively,the real interest rates are the same,and the real exchange rate is fixed,then the market's expectation about the number of Canadian dollars to be received for a U.S.dollar a year from now will be that it will:

The real interest rates and real exchanges rates are constant and equal in North Country and South Country.The Fisher equation and purchasing power parity hold in both countries.If the nominal interest rate is 8 percent in North Country and 10 percent in South Country,do you expect North Country's nominal exchange rate to appreciate,depreciate,or remain the same? Explain.

In a small open economy,if the world interest rate falls,then domestic investment will _____ and the real exchange rate will _____,holding all else constant.

In the basic version of a small open economy model,a reduction in the government's budget deficit ______ net exports and the real exchange rate ______.

If the government of a small open economy wishes to reduce a trade deficit,which policy action will be successful in achieving this goal?

In a small,open economy,if net exports are negative,then: