Question 1

In the long run, larger budget deficits lead to ________.

Accepted Answer

A)  higher saving levels 
B)  a fall in investment 
C)  lower interest rates 
D)  all of the above 
E)  none of the above 
A)  higher saving levels 
B)  a fall in investment 
C)  lower interest rates 
D)  all of the above 
E)  none of the above

Question 2

Saving-Investment Diagram
  
-Based on the Saving-Investment Diagram, if the domestic real interest rate is indicated by B, then ________.

Accepted Answer

A)  the value of net exports is zero 
B)  the diagram represents a closed economy 
C)  the world real interest rate is indicated by A 
D)  the difference between values F and E measures the net capital inflow 
E)  none of the above 
A)  the value of net exports is zero 
B)  the diagram represents a closed economy 
C)  the world real interest rate is indicated by A 
D)  the difference between values F and E measures the net capital inflow 
E)  none of the above

Question 3

If there is an increase in world taxes ________.

Accepted Answer

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

Question 4

Suppose GDP is $800 billion, net taxes equal $150 billion, government purchases are $160 billion, investment is $120 billion, and net exports are $5 billion. The private saving rate   is ________.

Accepted Answer

A)  19% 
B)  16% 
C)  21% 
D)  18% 
E)  none of the above 
A)  19% 
B)  16% 
C)  21% 
D)  18% 
E)  none of the above

Question 5

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 6

In an open economy, Y = C + I + G + NX. From this we may infer that ________.

Accepted Answer

A)  output is greater in an open economy than in a closed economy 
B)  the condition for goods market equilibrium is that S = I + G + NX 
C)  net exports can be zero only if the domestic real interest rate is equal to the world real interest rate 
D)  if saving is greater than zero, NX cannot be zero 
E)  none of the above 
A)  output is greater in an open economy than in a closed economy 
B)  the condition for goods market equilibrium is that S = I + G + NX 
C)  net exports can be zero only if the domestic real interest rate is equal to the world real interest rate 
D)  if saving is greater than zero, NX cannot be zero 
E)  none of the above

Question 7

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

Question 8

Which of the following would lead domestic investment to rise?

Accepted Answer

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

Question 9

Suppose consumption is $500 billion, investment is $120 billion, government purchases equal $90 billion, and net exports are negative $20 billion. The saving rate   is ________.

Accepted Answer

A)  20% 
B)  83.3% 
C)  14.5% 
D)  3% 
E)  none of the above 
A)  20% 
B)  83.3% 
C)  14.5% 
D)  3% 
E)  none of the above

Question 10

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 11

How does a decline in the real interest rate cause an increase in investment?

Accepted Answer

The real interest rate is the reward for

Question 12

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 13

In a large open economy ________.

Accepted Answer

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

Question 14

Private saving refers to ________.

Accepted Answer

A)  disposable income minus consumption expenditure 
B)  total expenditure minus purchases of capital goods 
C)  taxes plus consumption minus income 
D)  consumption expenditure divided by disposable income 
E)  none of the above 
A)  disposable income minus consumption expenditure 
B)  total expenditure minus purchases of capital goods 
C)  taxes plus consumption minus income 
D)  consumption expenditure divided by disposable income 
E)  none of the above

Question 15

Ceteris paribus, in a closed economy, if consumers become more optimistic ________.

Accepted Answer

A)  autonomous consumption would decrease 
B)  the equilibrium interest rate should increase 
C)  saving should increase 
D)  all of the above 
E)  none of the above 
A)  autonomous consumption would decrease 
B)  the equilibrium interest rate should increase 
C)  saving should increase 
D)  all of the above 
E)  none of the above

Question 16

In an economy open to international trade where the interest rate at which saving and investment would be equal is ________ the world real interest rate ________.

Accepted Answer

A)  above; a trade deficit ensues 
B)  below; there is a net capital outflow 
C)  above; there is a net capital inflow 
D)  all of the above 
E)  none of the above 
A)  above; a trade deficit ensues 
B)  below; there is a net capital outflow 
C)  above; there is a net capital inflow 
D)  all of the above 
E)  none of the above

Question 17

If there is a decline in world autonomous consumption ________.

Accepted Answer

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

Question 18

In a large open economy ________.

Accepted Answer

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

Question 19

In an economy open to international trade where the interest rate at which saving and investment would be equal is ________ the world real interest rate ________.

Accepted Answer

A)  above; a trade surplus ensues 
B)  below; a trade deficit ensues 
C)  above; there is a net capital outflow 
D)  below; there is a net capital inflow 
E)  none of the above 
A)  above; a trade surplus ensues 
B)  below; a trade deficit ensues 
C)  above; there is a net capital outflow 
D)  below; there is a net capital inflow 
E)  none of the above

Question 20

The real interest rate ________.

Accepted Answer

A)  is the cost of borrowing not adjusted for inflation 
B)  keeps the market for saving and consumption 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 not adjusted for inflation 
B)  keeps the market for saving and consumption in equilibrium 
C)  describes the real benefit of saving 
D)  all of the above 
E)  none of the above

Exam 4: Saving and Investment in Closed and Open Economies

In the long run, larger budget deficits lead to ________.

Saving-Investment Diagram -Based on the Saving-Investment Diagram, if the domestic real interest rate is indicated by B, then ________.

If there is an increase in world taxes ________.

Suppose GDP is $800 billion, net taxes equal $150 billion, government purchases are $160 billion, investment is $120 billion, and net exports are $5 billion. The private saving rate is ________.

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

In an open economy, Y = C + I + G + NX. From this we may infer that ________.

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?

Which of the following would lead domestic investment to rise?

Suppose consumption is $500 billion, investment is $120 billion, government purchases equal $90 billion, and net exports are negative $20 billion. The saving rate is ________.

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?

How does a decline in the real interest rate cause an increase in investment?

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.

In a large open economy ________.

Private saving refers to ________.

Ceteris paribus, in a closed economy, if consumers become more optimistic ________.

In an economy open to international trade where the interest rate at which saving and investment would be equal is ________ the world real interest rate ________.

If there is a decline in world autonomous consumption ________.

In a large open economy ________.

In an economy open to international trade where the interest rate at which saving and investment would be equal is ________ the world real interest rate ________.

The real interest rate ________.

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

Filters

In an economy open to international trade where the interest rate at which saving and investment would be equal is the world real interest rate .

In an economy open to international trade where the interest rate at which saving and investment would be equal is the world real interest rate .