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

In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Capital flight raises a country's real exchange rate.

If Argentina suffers from capital flight,Argentinean domestic investment and Argentinean net exports will both decline.

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

In the open-economy macroeconomic model,net exports equal the quantity of dollars demanded in the market for foreign currency exchange.

Capital flight increases a country's interest rate.This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

In an open economy,the demand for loanable funds comes from both domestic investment and net capital outflow.

Capital flight shifts the NCO curve to the left.

In the open economy model,the supply of loanable funds comes from national saving and net capital outflow.

If C+I+G>Y,then net exports and net capital outflow are both greater than zero.

In the open-economy macroeconomic model,the supply of dollars in the market for foreign-currency exchange is upward sloping.

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Over the past two decades,the U.S.has persistently exported more goods and services than it has imported.

When the government budget deficit increases,national saving decreases.

In the 1980s,both the U.S.government budget and U.S.trade deficits increased.

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Capital flight shifts the demand for loanable funds to the left.

When a country imposes a trade quota,the demand for currency in the market for foreign exchange shifts to the right

Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.