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

Explain how a decrease in the demand for capital goods in the U.S.can lead to a change in the U.S.exchange rate.

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S.citizens from investing in foreign companies and increase the value of the dollar.Evaluate this candidate's promise.

Suppose that U.S.citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Suppose that U.S.savers decide that holding Brazilian assets has become riskier.What happens to U.S.net capital outflow? What happens to the U.S.real interest rate?

If there is a shortage in the market for foreign-currency exchange,what happens to the exchange rate and to net exports?

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

If a country removes an import quota,what happens to its exchange rate,its exports,and its net exports?

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Define net capital outflow.

What happens to net capital outflow as the real interest rate falls? Explain your answer.

If for some reason U.S.residents increase their purchases of foreign assets,then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Suppose that the U.S.government budget deficit decreases.What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

What is the source of the demand for dollars in the market for foreign-currency exchange?

What is the source of the demand for loanable funds in the open-economy macroeconomic model ?

Suppose the U.S.government institutes a "Buy American" campaign,in order to encourage spending on domestic goods.What effect will this have on the U.S.trade balance?

What effect do protectionist policies have on the trade deficit?

What is the source of the supply of loanable funds in the open-economy macroeconomic model?

If the government budget deficit rises,what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

If a country makes political reforms so that people now believe this country's assets are less risky,what happens to its interest rate,its exchange rate,and its net exports?

If the exchange rate rises, foreign residents want to purchase ______ domestic goods and domestic residents want to purchase _____ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _______ in the quantity of dollars ______.