Question 1

In which cases does/do a country's demand for loanable funds shift left?

Accepted Answer

A)  both an increase in the budget deficit and capital flight 
B)  an increase in the budget deficit, but not capital flight 
C)  capital flight, but not an increase in the budget deficit 
D)  neither an increase in the budget deficit nor capital flight 
A)  both an increase in the budget deficit and capital flight 
B)  an increase in the budget deficit, but not capital flight 
C)  capital flight, but not an increase in the budget deficit 
D)  neither an increase in the budget deficit nor capital flight

Question 2

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Accepted Answer

A)  $350 billion 
B)  $250 billion 
C)  $200 billion 
D)  $150 billion 
A)  $350 billion 
B)  $250 billion 
C)  $200 billion 
D)  $150 billion

Question 3

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Accepted Answer

more, less

Question 4

Budget Reform
Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes.
-Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

Accepted Answer

Net capital outflows rise because a lowe

Question 5

If the government of Canada increased its budget deficit, then domestic investment

Accepted Answer

A)  and net exports would rise. 
B)  would rise and net exports would fall. 
C)  would fall and net exports would rise. 
D)  and net exports would fall. 
A)  and net exports would rise. 
B)  would rise and net exports would fall. 
C)  would fall and net exports would rise. 
D)  and net exports would fall.

Question 6

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

Accepted Answer

A)  increased Russian interest rates and net exports. 
B)  reduced Russian interest rates and net exports. 
C)  increased Russian interest rates and reduced Russian net exports. 
D)  reduced Russian interest rates and increased Russian net exports. 
A)  increased Russian interest rates and net exports. 
B)  reduced Russian interest rates and net exports. 
C)  increased Russian interest rates and reduced Russian net exports. 
D)  reduced Russian interest rates and increased Russian net exports.

Question 7

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.

Accepted Answer

The interest rate rises. The increase in

Question 8

In the open-economy macroeconomic model, net capital outflow rises if

Accepted Answer

A)  either the exchange rate rises or the real interest rate falls. 
B)  either the exchange rate falls or the real interest rate rises. 
C)  the real interest rate rises. Net capital outflow does not depend on the exchange rate. 
D)  the real interest rate falls. Net capital outflow does not depend on the exchange rate. 
A)  either the exchange rate rises or the real interest rate falls. 
B)  either the exchange rate falls or the real interest rate rises. 
C)  the real interest rate rises. Net capital outflow does not depend on the exchange rate. 
D)  the real interest rate falls. Net capital outflow does not depend on the exchange rate.

Question 9

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Accepted Answer

A)  rise because national saving rises. 
B)  rise because domestic investment rises. 
C)  fall because national saving falls. 
D)  fall because domestic investment falls. 
A)  rise because national saving rises. 
B)  rise because domestic investment rises. 
C)  fall because national saving falls. 
D)  fall because domestic investment falls.

Question 10

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

Accepted Answer

The quantity of loanable funds

Question 11

If a country raises its budget deficit, then in the market for foreign-currency exchange

Accepted Answer

A)  supply shifts left. 
B)  supply shifts right. 
C)  demand shifts left. 
D)  supply shifts right 
A)  supply shifts left. 
B)  supply shifts right. 
C)  demand shifts left. 
D)  supply shifts right

Question 12

If a country raises its budget deficit, then net capital outflow

Accepted Answer

A)  rises, so the supply of its currency shifts right in the market for foreign-currency exchange. 
B)  rises, so the demand for its currency shifts right in the market for foreign-currency exchange. 
C)  falls, so the supply of its currency shifts left in the market for foreign-currency exchange. 
D)  falls, so the demand for its currency shifts right in the market for foreign-currency exchange. 
A)  rises, so the supply of its currency shifts right in the market for foreign-currency exchange. 
B)  rises, so the demand for its currency shifts right in the market for foreign-currency exchange. 
C)  falls, so the supply of its currency shifts left in the market for foreign-currency exchange. 
D)  falls, so the demand for its currency shifts right in the market for foreign-currency exchange.

Question 13

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A)  foreign residents want to buy more U.S. goods and services. 
B)  U.S. residents want to buy fewer foreign goods and services. 
C)  Both A and B are correct. 
D)  None of the above is correct. 
A)  foreign residents want to buy more U.S. goods and services. 
B)  U.S. residents want to buy fewer foreign goods and services. 
C)  Both A and B are correct. 
D)  None of the above is correct.

Question 14

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

Accepted Answer

A)  U.S. residents will want to buy more foreign assets. 
B)  Foreign residents will want to buy more U.S. goods and services. 
C)  U.S. firms will want to purchase fewer U.S. capital goods. 
D)  All of the above are correct. 
A)  U.S. residents will want to buy more foreign assets. 
B)  Foreign residents will want to buy more U.S. goods and services. 
C)  U.S. firms will want to purchase fewer U.S. capital goods. 
D)  All of the above are correct.

Question 15

Which of the following is always correct in an open economy?

Accepted Answer

A)  S = I 
B)  S = NX + NCO 
C)  S = NCO 
D)  S = I + NCO 
A)  S = I 
B)  S = NX + NCO 
C)  S = NCO 
D)  S = I + NCO

Question 16

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Accepted Answer

A)  lower the real exchange rate and increase net exports. 
B)  lower the real exchange rate and have no effect on net exports. 
C)  raise the real exchange rate and decrease net exports. 
D)  raise the real exchange rate and have no effect on net exports. 
A)  lower the real exchange rate and increase net exports. 
B)  lower the real exchange rate and have no effect on net exports. 
C)  raise the real exchange rate and decrease net exports. 
D)  raise the real exchange rate and have no effect on net exports.

Question 17

Over the past three decades, the United States has

Accepted Answer

A)  generally had, or been very near to a trade balance. 
B)  had trade deficits in about as many years as it has trade surpluses. 
C)  persistently had a trade deficit. 
D)  persistently had a trade surplus. 
A)  generally had, or been very near to a trade balance. 
B)  had trade deficits in about as many years as it has trade surpluses. 
C)  persistently had a trade deficit. 
D)  persistently had a trade surplus.

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.

Accepted Answer

A)  net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right. 
B)  net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. 
C)  net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. 
D)  net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left. 
A)  net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right. 
B)  net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right. 
C)  net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left. 
D)  net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.

Question 20

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)  increase domestic saving 
B)  increase domestic political stability and respect of property rights 
C)  other countries reduce their trade restrictions 
D)  raise tariffs 
A)  increase domestic saving 
B)  increase domestic political stability and respect of property rights 
C)  other countries reduce their trade restrictions 
D)  raise tariffs

In which cases does/do a country's demand for loanable funds shift left?

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

If the exchange rate rises, domestic goods become relatively ____ expensive. This change in the affordability of domestic goods makes domestic goods _ attractive to foreigners. So, _ __.

Budget Reform Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

If the government of Canada increased its budget deficit, then domestic investment

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

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.

In the open-economy macroeconomic model, net capital outflow rises if

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

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

If a country raises its budget deficit, then in the market for foreign-currency exchange

If a country raises its budget deficit, then net capital outflow

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

Which of the following is always correct in an open economy?

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Over the past three decades, the United States has

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, if the U.S. interest rate rises, then U.S.

Which of the following would do the most to reduce a trade deficit?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Exam 14: A Macroeconomic Theory of the Open Economy

In which cases does/do a country's demand for loanable funds shift left?

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Budget Reform Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -Refer to Budget Reform. What does this policy change do to net capital outflows? Defend your answer.

If the government of Canada increased its budget deficit, then domestic investment

In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this should have

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.

In the open-economy macroeconomic model, net capital outflow rises if

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

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

If a country raises its budget deficit, then in the market for foreign-currency exchange

If a country raises its budget deficit, then net capital outflow

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

Which of the following is always correct in an open economy?

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such a policy would

Over the past three decades, the United States has

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, if the U.S. interest rate rises, then U.S.

Which of the following would do the most to reduce a trade deficit?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

If the exchange rate rises, domestic goods become relatively ____ expensive. This change in the affordability of domestic goods makes domestic goods _ attractive to foreigners. So, _ __.