Exam 19: A Macroeconomic Theory of the Open Economy: Part B

When a country imposes a trade restriction,the real exchange rate of that country's currency appreciates.

According to the open-economy macroeconomic model,if the U.S.government budget deficit decreases,then both U.S.domestic investment and net capital outflow increase.

In the long run import quotas do not affect the size of net exports.

Other things the same,when a Canadian company imports bicycles from the U.S. ,the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S.foreign-currency exchange market.

An import quota imposed by the U.S.would reduce U.S.imports,but have no impact on U.S.exports.

According to the open-economy macroeconomic model,a decrease in the U.S.government budget deficit increases U.S.net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases U.S.net exports.

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save equals desired quantities of domestic investment and net capital outflow.

If the real interest rate were above the equilibrium rate,there would be a shortage of loanable funds.

In the open-economy macroeconomic model,if there were a surplus in the market for foreign-currency exchange,the real exchange rate would appreciate.

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

In the long run,import quotas increase net exports.

Over the past two decades the U.S.has persistently had trade deficits.

In the open-economy macroeconomic model,other things the same,when a U.S.resident imports a foreign good,the demand for dollars in the foreign-currency exchange market decreases.

According to the open-economy macroeconomic model,if the U.S.government budget deficit increases,then both U.S.domestic investment and U.S.net capital outflow decrease.

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

An increase in the U.S.interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S.assets.

Other things the same,if foreigners desire to purchase more U.S.bonds,then the demand for loanable funds shifts left.

Capital flight raises both a country's exchange rate and its interest rate.

An increase in national saving reduces the interest rate and so reduces net capital outflow.

An increase in the government budget deficit shifts the supply of domestic currency in the market for foreign exchange to the right.