Exam 19: A Macroeconomic Theory of the Open Economy

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?

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

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

If the U.S. imposed an import quota on corn, then in the U.S.

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

Trade policies

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

The slope of the supply of loanable funds is based on an increase in

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

A large and sudden movement of funds out of a country is called

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget deficit can be illustrated as a move to

In the open­economy macroeconomic model, if a country's interest rate rises, then its

When Mexico suffered from capital flight in 1994, the U.S. real interest rate

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?

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

Figure 32-4 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

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

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

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?