Exam 19: A Macroeconomic Theory of the Open Economy

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

If a country's budget deficit increases, then in the market for foreign­currency exchange,

When a country's government budget deficit increases,

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

If the U.S. government went from a budget deficit to a budget surplus then

If the supply of loanable funds curve shifts right, then the equilibrium

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

If the U.S. government imposes an import quota on beef, U.S. net exports will

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

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

If at a given real interest rate desired national saving is $60 billion, domestic investment is $30 billion, and net capital outflow is $20 billion, then at that real interest rate in the loanable funds market there is a

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

An increase in a country's budget deficit

Refer to Budget Reform. This policy change causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Which curve in the market for foreign-currency exchange shifts and which direction does it shift if the government budget deficit increases? Explain why an increase in the budget deficit shifts this curve.

Refer to Budget Reform. In the market for loanable funds which curves) does this policy change shift? Which direction does it shift?

In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital outflow decreased. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

When Mexico suffered from capital flight in 1994, Mexico's net exports

An increase in the budget deficit causes net capital outflow to