Question 1

Figure 32-2  
-Refer to Figure 32-2. If the real exchange rate is 1, then there is a

Accepted Answer

A)  surplus of 100 so the real exchange rate will fall. 
B)  surplus of 100 so the real exchange rate will rise. 
C)  shortage of 100 so the real exchange rate will fall. 
D)  shortage of 100 so the real exchange rate will rise. 
A)  surplus of 100 so the real exchange rate will fall. 
B)  surplus of 100 so the real exchange rate will rise. 
C)  shortage of 100 so the real exchange rate will fall. 
D)  shortage of 100 so the real exchange rate will rise.

Question 2

Other things the same an increase in the interest rate

Accepted Answer

A)  increases national saving, this is shown by moving along the demand for loanable funds curve. 
B)  increases national saving, this is shown by moving along the supply of loanable funds curve. 
C)  decreases national saving, this is shown by moving along the demand for loanable funds curve. 
D)  decreases national saving, this is shown by moving along the supply of loanable funds curve. 
A)  increases national saving, this is shown by moving along the demand for loanable funds curve. 
B)  increases national saving, this is shown by moving along the supply of loanable funds curve. 
C)  decreases national saving, this is shown by moving along the demand for loanable funds curve. 
D)  decreases national saving, this is shown by moving along the supply of loanable funds curve.

Question 3

In which cases) doesdo) 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 4

If a country has a negative net capital outflow, then

Accepted Answer

A)  on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B)  on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C)  on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D)  on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds. 
A)  on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. 
B)  on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. 
C)  on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. 
D)  on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Question 5

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Accepted Answer

A) True 
 B)False

Question 6

Capital flight raises a country's interest rate.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
  
-Refer to Figure 32-5. In the market for foreign-currency exchange, the effects of an increase in the budget surplus can be illustrated as a move from j to

Accepted Answer

A)  g. 
B)  h. 
C)  i. 
D)  k. 
A)  g. 
B)  h. 
C)  i. 
D)  k.

Question 9

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Accepted Answer

A)  an increase in the demand for U.S. currency in the market for foreign-currency exchange 
B)  a decrease in the demand for U.S. currency in the market for foreign-currency exchange 
C)  an increase in the supply of loanable funds 
D)  a decrease in the supply of loanable funds 
A)  an increase in the demand for U.S. currency in the market for foreign-currency exchange 
B)  a decrease in the demand for U.S. currency in the market for foreign-currency exchange 
C)  an increase in the supply of loanable funds 
D)  a decrease in the supply of loanable funds

Question 10

Which of the following is correct concerning the open-economy macroeconomic model?

Accepted Answer

A)  The net-capital-outflow curve slopes upward. 
B)  The key determinant of net capital outflow is the real exchange rate. 
C)  The supply of dollars in the market for foreign-currency exchange is vertical. 
D)  None of the above is correct. 
A)  The net-capital-outflow curve slopes upward. 
B)  The key determinant of net capital outflow is the real exchange rate. 
C)  The supply of dollars in the market for foreign-currency exchange is vertical. 
D)  None of the above is correct.

Question 11

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Accepted Answer

A)  net capital outflow. 
B)  national saving. 
C)  exports. 
D)  domestic investment. 
A)  net capital outflow. 
B)  national saving. 
C)  exports. 
D)  domestic investment.

Question 12

Capital flight shifts the NCO curve to the left.

Accepted Answer

A) True 
 B)False

Question 13

In 1995 House Speaker Newt Gingrich threatened to send the United States into default on its debt. During the day of this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of these changes is consistent with the results of the open-economy macroeconomic model?

Accepted Answer

A)  the increase in U.S. interest rates 
B)  the depreciation of the real exchange rate of the U.S. dollar 
C)  Both a and b are consistent. 
D)  Neither a nor b are consistent. 
A)  the increase in U.S. interest rates 
B)  the depreciation of the real exchange rate of the U.S. dollar 
C)  Both a and b are consistent. 
D)  Neither a nor b are consistent.

Question 14

If at a given real interest rate desired national saving is $140 billion, domestic investment is $90 billion, and net capital outflow is $60 billion, then at that real interest rate in the loanable funds market there is a

Accepted Answer

A)  surplus. The real interest rate will rise. 
B)  surplus. The real interest rate will fall. 
C)  shortage. The real interest rate will rise. 
D)  shortage. The real interest rate will fall. 
A)  surplus. The real interest rate will rise. 
B)  surplus. The real interest rate will fall. 
C)  shortage. The real interest rate will rise. 
D)  shortage. The real interest rate will fall.

Question 15

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 16

The explanation for the slope of

Accepted Answer

A)  the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving. 
B)  the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving. 
C)  the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving. 
D)  the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving. 
A)  the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving. 
B)  the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving. 
C)  the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving. 
D)  the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

Question 17

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

Accepted Answer

A)  supplied for the purpose of selling assets domestically. 
B)  supplied for the purpose of buying foreign assets. 
C)  demanded for the purpose of buying U.S. net exports of goods and services. 
D)  demanded for the purpose of importing foreign goods and services. 
A)  supplied for the purpose of selling assets domestically. 
B)  supplied for the purpose of buying foreign assets. 
C)  demanded for the purpose of buying U.S. net exports of goods and services. 
D)  demanded for the purpose of importing foreign goods and services.

Question 18

If the government of India implemented a policy that decreased national saving, its real exchange rate would

Accepted Answer

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

Question 19

If net exports are positive, then

Accepted Answer

A)  exports are greater than imports. 
B)  net capital outflow is negative. 
C)  Both of the above are correct. 
D)  Neither of the above is correct. 
A)  exports are greater than imports. 
B)  net capital outflow is negative. 
C)  Both of the above are correct. 
D)  Neither of the above is correct.

Question 20

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Accepted Answer

A) True 
 B)False

Exam 19: A Macroeconomic Theory of the Open Economy

Figure 32-2 -Refer to Figure 32-2. If the real exchange rate is 1, then there is a

Other things the same an increase in the interest rate

In which cases) doesdo) a country's demand for loanable funds shift left?

If a country has a negative net capital outflow, then

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Capital flight raises a country's interest rate.

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

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. In the market for foreign-currency exchange, the effects of an increase in the budget surplus can be illustrated as a move from j to

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Which of the following is correct concerning the open-economy macroeconomic model?

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Capital flight shifts the NCO curve to the left.

If at a given real interest rate desired national saving is $140 billion, domestic investment is $90 billion, and net capital outflow is $60 billion, then at that real interest rate in the loanable funds market there is a

An increase in the government budget deficit shifts the supply of loanable funds to the left.

The explanation for the slope of

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

If the government of India implemented a policy that decreased national saving, its real exchange rate would

If net exports are positive, then

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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