Question 1

In the small open economy in equilibrium:

Accepted Answer

A)  saving is fixed, and investment is determined by the investment function and the world interest rate. 
B)  investment is fixed, and saving is determined by the saving function and the world interest rate. 
C)  saving is fixed, and investment is determined by the trade balance. 
D)  investment is fixed, and saving is determined by the trade balance. 
A)  saving is fixed, and investment is determined by the investment function and the world interest rate. 
B)  investment is fixed, and saving is determined by the saving function and the world interest rate. 
C)  saving is fixed, and investment is determined by the trade balance. 
D)  investment is fixed, and saving is determined by the trade balance.

Question 2

Use the following to answer questions:
Exhibit: Policies Influence Real Exchange Rate A)

Accepted Answer

B) 
  
C) 
  
D)

-(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of contractionary fiscal policies at home? 
A)  (
A)  
B)  (
B)  
C)  (
C)  
D)  (
D)  
B) 
  
C) 
  
D)

-(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of contractionary fiscal policies at home? 
A)  (
A)  
B)  (
B)  
C)  (
C)  
D)  (
D)

Question 3

What is the effect of investment enhancement measures on the trade balance of a small open economy?

Accepted Answer

An increased investm

Question 4

In an open economy:

Accepted Answer

A)  a trade deficit is always good. 
B)  a trade deficit is always bad. 
C)  a trade deficit may be good or bad. 
D)  a trade surplus is always bad. 
A)  a trade deficit is always good. 
B)  a trade deficit is always bad. 
C)  a trade deficit may be good or bad. 
D)  a trade surplus is always bad.

Question 5

If a country has a high rate of inflation relative to the United States, the dollar will buy:

Accepted Answer

A)  less of the foreign currency over time. 
B)  more of the foreign currency over time. 
C)  the same amount of the foreign currency over time. 
D)  an amount of foreign currency determined by the real exchange rate. 
A)  less of the foreign currency over time. 
B)  more of the foreign currency over time. 
C)  the same amount of the foreign currency over time. 
D)  an amount of foreign currency determined by the real exchange rate.

Question 6

In a small open economy, when the government reduces national saving, the equilibrium real exchange rate:

Accepted Answer

A)  rises and net exports fall. 
B)  rises and net exports rise. 
C)  falls and net exports fall. 
D)  falls and net exports rise. 
A)  rises and net exports fall. 
B)  rises and net exports rise. 
C)  falls and net exports fall. 
D)  falls and net exports rise.

Question 7

What is the difference between the strengthening and weakening of domestic currency? Explain.

Accepted Answer

Strengthening of currency is w

Question 8

Protectionist policies implemented in a small open economy with a trade deficit have the effect of ______ the trade deficit and ______ the quantity of imports and exports.

Accepted Answer

A)  decreasing; decreasing 
B)  not changing; decreasing 
C)  decreasing; not changing 
D)  not changing; not changing 
A)  decreasing; decreasing 
B)  not changing; decreasing 
C)  decreasing; not changing 
D)  not changing; not changing

Question 9

The real exchange rate:

Accepted Answer

A)  measures how many Japanese yen one really gets for a U.S. dollar. 
B)  is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level. 
C)  is equal to the nominal exchange rate multiplied by the foreign price level divided by the domestic price level. 
D)  is the price of a domestic car divided by the price of a foreign car. 
A)  measures how many Japanese yen one really gets for a U.S. dollar. 
B)  is equal to the nominal exchange rate multiplied by the domestic price level divided by the foreign price level. 
C)  is equal to the nominal exchange rate multiplied by the foreign price level divided by the domestic price level. 
D)  is the price of a domestic car divided by the price of a foreign car.

Question 10

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:

Accepted Answer

A)  make loans to the domestic government. 
B)  make loans to foreigners. 
C)  repay the national debt. 
D)  repay loans to the Federal Reserve. 
A)  make loans to the domestic government. 
B)  make loans to foreigners. 
C)  repay the national debt. 
D)  repay loans to the Federal Reserve.

Question 11

Major improvements in computer information technology and communications in the late 1990s fueled an increase in investment demand in the United States, which is a large open economy. What is the predicted impact of this increased investment demand in the United States on the U.S. interest rate, the U.S. exchange rate, and U.S. net exports, holding other factors constant? Illustrate your answer graphically and explain in words.

Accepted Answer

@#IMG-DLM& The increase in domestic investment dem

Question 12

In a small open economy, if the world interest rate falls, then domestic investment will _____ and the real exchange rate will _____, holding all else constant.

Accepted Answer

A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase 
A)  decrease; decrease 
B)  decrease; increase 
C)  increase; decrease 
D)  increase; increase

Question 13

If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______ and net capital outflows ______.

Accepted Answer

A)  increase; increase 
B)  decrease; decrease 
C)  do not change; do not change 
D)  do not change; increase 
A)  increase; increase 
B)  decrease; decrease 
C)  do not change; do not change 
D)  do not change; increase

Question 14

Explain why government budget deficits crowd out private investment spending in a closed economy, but crowd out net exports in a small open economy. Assume prices are flexible and that factors of production are fully employed in both economies. Assume there is perfect capital mobility for the small open economy.

Accepted Answer

In the closed economy, the increase in t

Question 15

When the real exchange rate rises:

Accepted Answer

A)  exports will decrease but imports will be unaffected. 
B)  imports will decrease but exports will be unaffected. 
C)  exports will increase and imports will decrease. 
D)  exports will decrease and imports will increase. 
A)  exports will decrease but imports will be unaffected. 
B)  imports will decrease but exports will be unaffected. 
C)  exports will increase and imports will decrease. 
D)  exports will decrease and imports will increase.

Question 16

If the real exchange rate is high, foreign goods:

Accepted Answer

A)  and domestic goods are both relatively expensive. 
B)  and domestic goods are both relatively cheap. 
C)  are relatively expensive and domestic goods are relatively cheap. 
D)  are relatively cheap and domestic goods are relatively expensive. 
A)  and domestic goods are both relatively expensive. 
B)  and domestic goods are both relatively cheap. 
C)  are relatively expensive and domestic goods are relatively cheap. 
D)  are relatively cheap and domestic goods are relatively expensive.

Question 17

An effective policy to reduce a trade deficit in a small open economy would be to:

Accepted Answer

A)  increase tariffs on imports. 
B)  impose stricter quotas on imported goods. 
C)  increase government spending. 
D)  increase taxes. 
A)  increase tariffs on imports. 
B)  impose stricter quotas on imported goods. 
C)  increase government spending. 
D)  increase taxes.

Question 18

Use the following to answer question :  
-From the following graph, find the world interest rate at which there will be equilibrium in the capital market of small open economy?

Accepted Answer

The answer of Use the following to answer question :...

Question 19

Use the following to answer questions :
Exhibit: Policies Influence Real Exchange Rate A)

Accepted Answer

B) 
  
C) 
  
D)

-(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in household saving? 
A)  (
A)  
B)  (
B)  
C)  (
C)  
D)  (
D)  
B) 
  
C) 
  
D)

-(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in household saving? 
A)  (
A)  
B)  (
B)  
C)  (
C)  
D)  (
D)

Question 20

Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which:

Accepted Answer

A)  capital is relatively scarce. 
B)  capital is relatively abundant. 
C)  technological production capabilities are inferior. 
D)  labor is relatively scarce. 
A)  capital is relatively scarce. 
B)  capital is relatively abundant. 
C)  technological production capabilities are inferior. 
D)  labor is relatively scarce.

In the small open economy in equilibrium:

Use the following to answer questions: Exhibit: Policies Influence Real Exchange Rate A) B) C) D) -(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of contractionary fiscal policies at home?

What is the effect of investment enhancement measures on the trade balance of a small open economy?

In an open economy:

If a country has a high rate of inflation relative to the United States, the dollar will buy:

In a small open economy, when the government reduces national saving, the equilibrium real exchange rate:

What is the difference between the strengthening and weakening of domestic currency? Explain.

Protectionist policies implemented in a small open economy with a trade deficit have the effect of the trade deficit and the quantity of imports and exports.

The real exchange rate:

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:

In a small open economy, if the world interest rate falls, then domestic investment will _ and the real exchange rate will _, holding all else constant.

If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports and net capital outflows .

When the real exchange rate rises:

If the real exchange rate is high, foreign goods:

An effective policy to reduce a trade deficit in a small open economy would be to:

Use the following to answer question : -From the following graph, find the world interest rate at which there will be equilibrium in the capital market of small open economy?

Use the following to answer questions : Exhibit: Policies Influence Real Exchange Rate A) B) C) D) -(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in household saving?

Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Exam 6: The Open Economy

In the small open economy in equilibrium:

Use the following to answer questions: Exhibit: Policies Influence Real Exchange Rate A) B) C) D) -(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of contractionary fiscal policies at home?

What is the effect of investment enhancement measures on the trade balance of a small open economy?

In an open economy:

If a country has a high rate of inflation relative to the United States, the dollar will buy:

In a small open economy, when the government reduces national saving, the equilibrium real exchange rate:

What is the difference between the strengthening and weakening of domestic currency? Explain.

Protectionist policies implemented in a small open economy with a trade deficit have the effect of ______ the trade deficit and ______ the quantity of imports and exports.

The real exchange rate:

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:

In a small open economy, if the world interest rate falls, then domestic investment will _____ and the real exchange rate will _____, holding all else constant.

If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports ______ and net capital outflows ______.

When the real exchange rate rises:

If the real exchange rate is high, foreign goods:

An effective policy to reduce a trade deficit in a small open economy would be to:

Use the following to answer question : -From the following graph, find the world interest rate at which there will be equilibrium in the capital market of small open economy?

Use the following to answer questions : Exhibit: Policies Influence Real Exchange Rate A) B) C) D) -(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the impact on the real exchange rate of an increase in household saving?

Based on a Cobb-Douglas production function and perfect capital mobility, capital should flow to economies in which:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Protectionist policies implemented in a small open economy with a trade deficit have the effect of the trade deficit and the quantity of imports and exports.

In a small open economy, if the world interest rate falls, then domestic investment will _ and the real exchange rate will _, holding all else constant.

If a U.S. corporation sells a product in Canada and uses the proceeds to purchase a product manufactured in Canada, then U.S. net exports and net capital outflows .