Question 1

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.   
 
-Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more equipment and build more factories and stores in the U.S. The effects of this are illustrated by

Accepted Answer

A) shifting the demand curve in panel a to the right and the demand curve in panel c to the left. 
B) shifting the demand curve in panel a to the right and the supply curve in panel c to the left. 
C) shifting the supply curve in panel a to the right and the demand curve in panel c to the left. 
D) shifting the supply curve in panel a to the right and the supply curve in panel c to the right.

Question 2

A rise in the budget deficit

Accepted Answer

A) shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange right. 
B) shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange left. 
C) shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the market for foreign-currency exchange right. 
D) shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the market for foreign-currency exchange left.

Question 3

In equilibrium a country has a net capital outflow of $200 billion and domestic investment of $150 billion. What is the quantity of loanable funds demanded?

Accepted Answer

A) $50 billion 
B) $150 billion 
C) $200 billion 
D) $350 billion

Question 4

When a country experiences capital flight its

Accepted Answer

A) net capital outflow increases and its real exchange rate rises. 
B) net capital outflow increases and its real exchange rate falls. 
C) net capital outflow decreases and its real exchange rate rises. 
D) net capital outflow decreases and its real exchange rate falls.

Question 5

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

Accepted Answer

A) True 
 B)False

Question 6

Other things the same, if foreign residents desired to purchase more U.S. wheat

Accepted Answer

A) the exchange rate and net exports would rise. 
B) the exchange rate would rise and net exports would be unchanged. 
C) the exchange rate would fall and net exports would be unchanged. 
D) the exchange rate would fall and net exports would rise.

Question 7

An increase in the budget deficit

Accepted Answer

A) reduces net capital outflow and domestic investment. 
B) reduces net capital outflow and raises domestic investment. 
C) raises net capital outflow and domestic investment 
D) raises net capital outflow and reduces domestic investment.

Question 8

Which of the following will decrease U.S. net capital outflow?

Accepted Answer

A) capital flight from the United States 
B) the government budget deficit increases 
C) the U.S. imposes import quotas 
D) None of the above is correct.

Question 9

Suppose that the U.S. imposes an import quota on lumber. The quota makes the real exchange rate of the U.S. dollar

Accepted Answer

A) appreciate but does not change the real interest rate in the United States. 
B) appreciate and the real interest rate in the United States increase. 
C) depreciate and the real interest rate in the United States decrease. 
D) depreciate but does not change the real interest rate in the United States.

Question 10

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save equals desired quantities of domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 11

An increase in the budget deficit causes net capital outflow to

Accepted Answer

A) rise, because the supply of loanable funds shifts right. 
B) rise, because the demand for loanable funds shifts right. 
C) fall, because the supply of loanable funds shifts left. 
D) fall, because the demand for loanable funds shifts right.

Question 12

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Accepted Answer

The answer of If the exchange rate rises, domestic goods...

Question 13

Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this candidate's promise.

Accepted Answer

The answer of Suppose a presidential candidate promises to increase...

Question 14

If the U.S. imposed an import quota on corn, then in the U.S.

Accepted Answer

A) exports and imports would rise. 
B) exports and imports would fall. 
C) exports would rise and imports would fall. 
D) exports would fall and imports would rise.

Question 15

What happens to each of the following if investment becomes less desirable at each interest rate?
A. the interest rate
B. net capital outflow
C. the exchange rate

Accepted Answer

The answer of What happens to each of the following...

Question 16

-Refer to Figure 32-6. If the economy were originally in equilibrium at a and g and the government removed import quotas on autos the economy would move to

Accepted Answer

A) b and k. 
B) c and j. 
C) d and i. 
D) None of the above is correct.

Question 17

Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to

Accepted Answer

A) an appreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market. 
B) an appreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market. 
C) a depreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market. 
D) a depreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market.

Question 18

Other things the same, as the real interest rate falls

Accepted Answer

A) domestic investment and net capital outflow both rise. 
B) domestic investment and net capital outflow both fall. 
C) domestic investment rises and net capital outflow falls. 
D) domestic investment falls and net capital outflow rises.

Question 19

If for some reason Americans desired to increase their purchases of foreign assets, then other things the same

Accepted Answer

A) both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall. 
B) both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise. 
C) the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall. 
D) the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.

Question 20

At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?

Accepted Answer

A) foreign citizens want to buy more U.S. bonds 
B) U.S. citizens want to buy more foreign bonds 
C) foreign citizens want to buy more U.S. goods 
D) U.S. citizens want to buy more foreign goods

Exam 32: A Macroeconomic Theory of the Open Economy

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more equipment and build more factories and stores in the U.S. The effects of this are illustrated by