Question 1

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 2

Because a government budget deficit represents

Accepted Answer

A)  negative public saving, it increases national saving. 
B)  negative public saving, it decreases national saving. 
C)  positive public saving, it increases national saving. 
D)  positive public saving, it decreases national saving. 
A)  negative public saving, it increases national saving. 
B)  negative public saving, it decreases national saving. 
C)  positive public saving, it increases national saving. 
D)  positive public saving, it decreases national saving.

Question 3

In the open economy macroeconomic model, the amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if

Accepted Answer

A)  either U.S. imports or exports increase. 
B)  either U.S. imports or exports decrease. 
C)  either U.S. imports increase or U.S. exports decrease. 
D)  either U.S. imports decrease or U.S. exports increase. 
A)  either U.S. imports or exports increase. 
B)  either U.S. imports or exports decrease. 
C)  either U.S. imports increase or U.S. exports decrease. 
D)  either U.S. imports decrease or U.S. exports increase.

Question 4

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

Accepted Answer

A)  The demand for loanable funds shifts right. 
B)  The demand for loanable funds shifts left 
C)  The supply of loanable funds shifts right. 
D)  The supply of loanable funds shifts left. 
A)  The demand for loanable funds shifts right. 
B)  The demand for loanable funds shifts left 
C)  The supply of loanable funds shifts right. 
D)  The supply of loanable funds shifts left.

Question 5

Refer to U.S. Investment Tax Credit. In the market for loanable funds which curve shifts and which direction does it shift?

Accepted Answer

The demand

Question 6

Which of the following is the most likely response to a decrease in the U.S. real interest rate?

Accepted Answer

A)  a U.S. company decides to expand its factory 
B)  a U.S. citizen decides to purchase fewer foreign bonds 
C)  a German mutual fund decides to increase its deposits at a U.S. bank 
D)  All of the above are consistent. 
A)  a U.S. company decides to expand its factory 
B)  a U.S. citizen decides to purchase fewer foreign bonds 
C)  a German mutual fund decides to increase its deposits at a U.S. bank 
D)  All of the above are consistent.

Question 7

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 8

In the open-economy macroeconomic model, if the supply of loanable funds shifts left

Accepted Answer

A)  the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right. 
B)  the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left. 
C)  the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right. 
D)  the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left. 
A)  the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right. 
B)  the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left. 
C)  the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right. 
D)  the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left.

Question 9

When a country imposes an import quota, its

Accepted Answer

A)  net exports rise and its real exchange rate appreciates. 
B)  net exports rise and its real exchange rate depreciates. 
C)  net exports fall and its real exchange rate depreciates 
D)  None of the above is correct. 
A)  net exports rise and its real exchange rate appreciates. 
B)  net exports rise and its real exchange rate depreciates. 
C)  net exports fall and its real exchange rate depreciates 
D)  None of the above is correct.

Question 10

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

Accepted Answer

A)  U.S. exports and U.S. imports both increase 
B)  U.S. exports increase but U.S. imports are unchanged 
C)  U.S. imports increase but U.S. exports are unchanged 
D)  None of the above is correct. 
A)  U.S. exports and U.S. imports both increase 
B)  U.S. exports increase but U.S. imports are unchanged 
C)  U.S. imports increase but U.S. exports are unchanged 
D)  None of the above is correct.

Question 11

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?

Accepted Answer

A)  $20 billion 
B)  $30 billion 
C)  $50 billion 
D)  $60 billion 
A)  $20 billion 
B)  $30 billion 
C)  $50 billion 
D)  $60 billion

Question 12

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

Accepted Answer

A)  foreigners want to buy more U.S. bonds 
B)  foreigners want to buy fewer U.S. bonds 
C)  foreigners want to buy more U.S. goods and services. 
D)  foreigners want to buy fewer U.S. goods and services. 
A)  foreigners want to buy more U.S. bonds 
B)  foreigners want to buy fewer U.S. bonds 
C)  foreigners want to buy more U.S. goods and services. 
D)  foreigners want to buy fewer U.S. goods and services.

Question 13

State what, if anything, each of the following does to the supply or demand of loanable funds.
a. net capital outflow increases at each interest rate
b. domestic investment increases at each interest rate
c. the government deficit increases
d. private saving increases

Accepted Answer

a. the demand for loanable fun

Question 14

When fear of default on bonds issued by U.S. corporations decline, then

Accepted Answer

A)  net capital outflow and the exchange rate both rise. 
B)  net capital outflow rises and the exchange rate falls. 
C)  net capital outflow falls and the exchange rate rises. 
D)  net capital outflow and the exchange rate both fall. 
A)  net capital outflow and the exchange rate both rise. 
B)  net capital outflow rises and the exchange rate falls. 
C)  net capital outflow falls and the exchange rate rises. 
D)  net capital outflow and the exchange rate both fall.

Question 15

Refer to Budget Reform. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?

Accepted Answer

Because the exchange

Question 16

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

Accepted Answer

A)  the real exchange rate depreciates and net exports fall. 
B)  the real exchange rate depreciates and net exports rise. 
C)  the real exchange rate appreciates and net exports fall. 
D)  the real exchange rate appreciates and net exports rise. 
A)  the real exchange rate depreciates and net exports fall. 
B)  the real exchange rate depreciates and net exports rise. 
C)  the real exchange rate appreciates and net exports fall. 
D)  the real exchange rate appreciates and net exports rise.

Question 17

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

Accepted Answer

A)  desired net exports and desired net capital outflow 
B)  desired net exports but not desired net capital outflow 
C)  desired net capital outflow but not desired net exports 
D)  neither desired net exports nor desired net capital outflow 
A)  desired net exports and desired net capital outflow 
B)  desired net exports but not desired net capital outflow 
C)  desired net capital outflow but not desired net exports 
D)  neither desired net exports nor desired net capital outflow

Question 18

Which of the following is correct?

Accepted Answer

A)  capital flight from the United States decreases net capital outflow 
B)  an increase in the government budget deficit creates no change in net capital outflow 
C)  if the U.S. imposes a restriction on imports, net capital outflow increases 
D)  None of the above is correct. 
A)  capital flight from the United States decreases net capital outflow 
B)  an increase in the government budget deficit creates no change in net capital outflow 
C)  if the U.S. imposes a restriction on imports, net capital outflow increases 
D)  None of the above is correct.

Question 19

If U.S. net exports are positive, then net capital outflow is

Accepted Answer

A)  positive, so foreign assets bought by Americans are greater than American assets bought by foreigners. 
B)  positive, so American assets bought by foreigners are greater than foreign assets bought by Americans. 
C)  negative, so foreign assets bought by Americans are greater than American assets bought by foreigners. 
D)  negative, so American assets bought by foreigners are greater than foreign assets bought by Americans. 
A)  positive, so foreign assets bought by Americans are greater than American assets bought by foreigners. 
B)  positive, so American assets bought by foreigners are greater than foreign assets bought by Americans. 
C)  negative, so foreign assets bought by Americans are greater than American assets bought by foreigners. 
D)  negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Question 20

Which of the following leads to an increase in net exports in the long run?

Accepted Answer

A)  either a decrease in the budget deficit or imposing an import quota 
B)  a decrease in the budget deficit but not imposing an import quota 
C)  imposing an import quota but not a decrease in the budget deficit 
D)  neither a decrease in the budget deficit nor imposing an import quota 
A)  either a decrease in the budget deficit or imposing an import quota 
B)  a decrease in the budget deficit but not imposing an import quota 
C)  imposing an import quota but not a decrease in the budget deficit 
D)  neither a decrease in the budget deficit nor imposing an import quota

Exam 19: A Macroeconomic Theory of the Open Economy

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

Because a government budget deficit represents

In the open economy macroeconomic model, the amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

Refer to U.S. Investment Tax Credit. In the market for loanable funds which curve shifts and which direction does it shift?

Which of the following is the most likely response to a decrease in the U.S. real interest rate?

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

In the open-economy macroeconomic model, if the supply of loanable funds shifts left

When a country imposes an import quota, its

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

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?

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

State what, if anything, each of the following does to the supply or demand of loanable funds. a. net capital outflow increases at each interest rate b. domestic investment increases at each interest rate c. the government deficit increases d. private saving increases

When fear of default on bonds issued by U.S. corporations decline, then

Refer to Budget Reform. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

Which of the following is correct?

If U.S. net exports are positive, then net capital outflow is

Which of the following leads to an increase in net exports in the long run?

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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