Exam 14: A Macroeconomic Theory of the Open Economy

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. In the market for loanable funds which curve shifts and which direction does it shift?

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.

Which of the following would both raise the U.S. exchange rate?

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

If a government increases its budget deficit, then the real exchange rate

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

In the open-economy macroeconomic model, the supply of loanable funds equals

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

The quantity of U.S. bonds foreigners want to buy is taken into account

Because a government budget deficit represents

If a country had capital flight, then the real exchange rate would

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. As a result of the quota, is there initially a surplus or a shortage in the market for foreign- currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

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 government of a country with a zero trade balances increases its budget deficit, then interest rates

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. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

The open-economy macroeconomic model includes

A rise in the budget deficit

Which of the following results if the U.S. removes an import quota on computer components?

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