Exam 14: A Macroeconomic Theory of the Open Economy

Shoe Quota Concerns raised about the declining U.S. shoe industry and unfair labor practices in foreign shoe factories lead the Congress and President to impose a quota on shoe imports. -Refer to Shoe Quota. Overall as a result of this change in policy, what happens to exports, imports, and net exports?

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

According to the open-economy macroeconomic model, import quotas increase which of the following

If a country experiences capital flight, which of the following curves shift right?

From 2001 to 2004, the U.S. government went from a budget surplus to a budget deficit. According to the open- economy macroeconomic model, this should have decreased

Budget in Recession During a recession government revenues from the income tax fall and government transfers rise as the reduction in income and the rise in unemployment raise the number of people who qualify for benefits. -Refer to Budget in Recession. This change in the deficit causes the exchange rate to change. What does the change in the exchange rate do to net exports?

If there is capital flight from the United States, then the demand for loanable funds

If the Japanese government raised its budget deficit, then the yen would

Other things the same, in the open-economy macroeconomic model, if the exchange rate rises,

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

If the Canadian government raises it budget deficit, then Canada's net capital outflows will

Figure 32-7 Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. -Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

If a country removed an import quota on cotton, then overall that country's

In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to continue to make payments on its debt. Which of these events raise a country's interest rates?

Fill in the table below with the direction of the variables that change in response to the events in the first column.

U.S. Investment Tax Credit Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes. -Refer to U.S. Investment Tax Credit. What happens to the exchange rate, U.S. net exports, and the net exports of foreign countries?

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

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

U.S. net capital outflow

In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts