Question 1

If the world real interest rate were to fall below the rate at which domestic saving and investment would be equal ________.

Accepted Answer

A) saving would be greater than investment so the economy would be running a trade deficit 
B) investment would be greater than saving so the economy would be running a trade deficit 
C) investment would be greater than saving so the economy would be running a trade surplus 
D) saving would be greater than investment so the economy would be running a trade surplus 
E) none of the above 
A) saving would be greater than investment so the economy would be running a trade deficit 
B) investment would be greater than saving so the economy would be running a trade deficit 
C) investment would be greater than saving so the economy would be running a trade surplus 
D) saving would be greater than investment so the economy would be running a trade surplus 
E) none of the above

Question 2

If a U.S.citizen deposits $10,000 in a foreign bank,and the bank uses the $10,000 to buy assets in the U.S. ,then ________.

Accepted Answer

A) the U.S.has experienced a net capital outflow 
B) the U.S.has experienced an increase in net exports 
C) the foreign economy has experienced a net capital outflow 
D) the foreign economy has experienced an increase in net exports 
E) none of the above 
A) the U.S.has experienced a net capital outflow 
B) the U.S.has experienced an increase in net exports 
C) the foreign economy has experienced a net capital outflow 
D) the foreign economy has experienced an increase in net exports 
E) none of the above

Question 3

Suppose the world economy is divided into two halves.In Region A,all economies experience a decrease in desired saving,while desired saving is unchanged in Region B.If there is open trade and perfect capital mobility across the two regions,which of the following is true?

Accepted Answer

A) Actual investment in Region B has increased. 
B) There is a net capital flow from Region B to Region A. 
C) Actual investment in Region A has increased. 
D) all of the above 
E) none of the above 
A) Actual investment in Region B has increased. 
B) There is a net capital flow from Region B to Region A. 
C) Actual investment in Region A has increased. 
D) all of the above 
E) none of the above

Question 4

An increase in autonomous investment in a small open economy will cause ________.

Accepted Answer

A) a trade surplus to shrink 
B) a trade deficit to shrink 
C) higher net capital outflows 
D) all of the above 
E) none of the above 
A) a trade surplus to shrink 
B) a trade deficit to shrink 
C) higher net capital outflows 
D) all of the above 
E) none of the above

Question 5

If we observe an economy in which desired saving has changed,but there has been no change in actual investment,we may infer that ________.

Accepted Answer

A) this is a closed economy 
B) this is a large economy 
C) the world real interest rate has not changed 
D) all of the above 
E) none of the above 
A) this is a closed economy 
B) this is a large economy 
C) the world real interest rate has not changed 
D) all of the above 
E) none of the above

Question 6

If there is a decrease in world investment ________.

Accepted Answer

A) domestic investment would fall 
B) net capital outflow would increase 
C) the domestic interest rate would go up 
D) all of the above 
E) none of the above 
A) domestic investment would fall 
B) net capital outflow would increase 
C) the domestic interest rate would go up 
D) all of the above 
E) none of the above

Question 7

The real interest rate ________.

Accepted Answer

A) is the cost of borrowing adjusted for inflation 
B) keeps the market for saving and investment in equilibrium 
C) describes the real benefit of saving 
D) all of the above 
E) none of the above 
A) is the cost of borrowing adjusted for inflation 
B) keeps the market for saving and investment in equilibrium 
C) describes the real benefit of saving 
D) all of the above 
E) none of the above

Question 8

In a large open economy ________.

Accepted Answer

A) the effect of shifts in saving and investment on the trade balance are in the same direction as in a small open economy 
B) the effect of shifts in saving and investment on net capital flows are in the same direction as in a small open economy 
C) the effect of shifts in saving and investment on the domestic real interest rate and the actual levels of saving and investment are in the same direction as in a closed economy 
D) all of the above 
E) none of the above 
A) the effect of shifts in saving and investment on the trade balance are in the same direction as in a small open economy 
B) the effect of shifts in saving and investment on net capital flows are in the same direction as in a small open economy 
C) the effect of shifts in saving and investment on the domestic real interest rate and the actual levels of saving and investment are in the same direction as in a closed economy 
D) all of the above 
E) none of the above

Question 9

In an open economy,an increase in saving might not cause an increase in domestic investment.Why not? Does that mean that an increase in saving is undesirable?

Accepted Answer

An increase in saving can affect the dom

Question 10

The saving-investment analysis for large open economies is somewhat more complicated than the analysis for small open economies mainly because ________.

Accepted Answer

A) there is more information to keep track of for larger economies 
B) there are more unknowns in larger economies 
C) a larger economy may actually affect the world economy 
D) all of the above 
E) none of the above 
A) there is more information to keep track of for larger economies 
B) there are more unknowns in larger economies 
C) a larger economy may actually affect the world economy 
D) all of the above 
E) none of the above

Question 11

Which of the following would lead domestic investment to rise?

Accepted Answer

A) a decline of government spending throughout the world 
B) an increase in world taxes 
C) a decrease in world autonomous consumption 
D) all of the above 
E) none of the above 
A) a decline of government spending throughout the world 
B) an increase in world taxes 
C) a decrease in world autonomous consumption 
D) all of the above 
E) none of the above

Question 12

In the long run,if government increases spending ________.

Accepted Answer

A) interest rates decrease 
B) it crowds out private investment 
C) saving increases 
D) all of the above 
E) none of the above 
A) interest rates decrease 
B) it crowds out private investment 
C) saving increases 
D) all of the above 
E) none of the above

Question 13

If there is a decline in world autonomous consumption ________.

Accepted Answer

A) the domestic real interest rate would fall 
B) domestic investment would rise 
C) net exports would fall 
D) all of the above 
E) none of the above 
A) the domestic real interest rate would fall 
B) domestic investment would rise 
C) net exports would fall 
D) all of the above 
E) none of the above

Question 14

In the model for desired saving,autonomous is roughly synonymous with ________.

Accepted Answer

A) policy-determined 
B) endogenous 
C) intended 
D) inflation-adjusted 
E) exogenous 
A) policy-determined 
B) endogenous 
C) intended 
D) inflation-adjusted 
E) exogenous

Question 15

In a large open economy ________.

Accepted Answer

A) the effect of shifts in saving and investment on the trade balance are in the same direction as in a closed economy 
B) the effect of shifts in saving and investment on net capital flows are in the same direction as in a closed economy 
C) the effect of shifts in saving and investment on the domestic real interest rate and the actual levels of saving and investment are in the same direction as in a closed economy 
D) all of the above 
E) none of the above 
A) the effect of shifts in saving and investment on the trade balance are in the same direction as in a closed economy 
B) the effect of shifts in saving and investment on net capital flows are in the same direction as in a closed economy 
C) the effect of shifts in saving and investment on the domestic real interest rate and the actual levels of saving and investment are in the same direction as in a closed economy 
D) all of the above 
E) none of the above

Question 16

In the equation S =   -   - C   -   ,which of the following is an endogenous variable?

Accepted Answer

A) r 
B)    
C)    
D) all of the above 
E) none of the above 
A) r 
B)    
C)    
D) all of the above 
E) none of the above

Question 17

Which of the following is an exogenous variable in the model of a small open economy,but an endogenous variable in the model of a large open economy?

Accepted Answer

A)    
B) C 
C) Y 
D) NX 
E) G 
A)    
B) C 
C) Y 
D) NX 
E) G

Question 18

If policymakers in an open economy want to increase the wealth of their citizens,should they seek to increase saving,or to increase investment? Explain.

Accepted Answer

Policies to increase investment will inc

Question 19

Increases in ________ typically lead to decreases in private saving.

Accepted Answer

A) the interest rate 
B) disposable income 
C) autonomous consumption 
D) all of the above 
E) none of the above 
A) the interest rate 
B) disposable income 
C) autonomous consumption 
D) all of the above 
E) none of the above

Question 20

Saving-Investment Diagram  
-Based on the Saving-Investment Diagram,if the world real interest rate declines from A to C,then the change in net exports is measured by the difference between values ________.

Accepted Answer

A) G and E 
B) H and G plus E and D 
C) H and G minus E and D 
D) G and F plus F and E 
E) none of the above 
A) G and E 
B) H and G plus E and D 
C) H and G minus E and D 
D) G and F plus F and E 
E) none of the above

Exam 4: Saving and Investment in Closed and Open Economies

If the world real interest rate were to fall below the rate at which domestic saving and investment would be equal ________.

If a U.S.citizen deposits $10,000 in a foreign bank,and the bank uses the $10,000 to buy assets in the U.S. ,then ________.

Suppose the world economy is divided into two halves.In Region A,all economies experience a decrease in desired saving,while desired saving is unchanged in Region B.If there is open trade and perfect capital mobility across the two regions,which of the following is true?

An increase in autonomous investment in a small open economy will cause ________.

If we observe an economy in which desired saving has changed,but there has been no change in actual investment,we may infer that ________.

If there is a decrease in world investment ________.

The real interest rate ________.

In a large open economy ________.

In an open economy,an increase in saving might not cause an increase in domestic investment.Why not? Does that mean that an increase in saving is undesirable?

The saving-investment analysis for large open economies is somewhat more complicated than the analysis for small open economies mainly because ________.

Which of the following would lead domestic investment to rise?

In the long run,if government increases spending ________.

If there is a decline in world autonomous consumption ________.

In the model for desired saving,autonomous is roughly synonymous with ________.

In a large open economy ________.

In the equation S = - - C - ,which of the following is an endogenous variable?

Which of the following is an exogenous variable in the model of a small open economy,but an endogenous variable in the model of a large open economy?

If policymakers in an open economy want to increase the wealth of their citizens,should they seek to increase saving,or to increase investment? Explain.

Increases in ________ typically lead to decreases in private saving.

Saving-Investment Diagram -Based on the Saving-Investment Diagram,if the world real interest rate declines from A to C,then the change in net exports is measured by the difference between values ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

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