Question 1

In an open economy, where does the demand for loanable funds come from?

Accepted Answer

A)  only from those who want to borrow funds to buy domestic capital goods
B)  only from those who want to borrow funds to buy foreign assets
C)  from those who want to borrow funds to buy either domestic capital goods or foreign assets
D)  from those who want to borrow funds to buy Canadian bonds or stock in Canadian companies C

Question 2

Figure 32-1 
-Refer to Figure 32-1. In the figure shown, if the real interest rate is 4 percent, there will be pressure for which of the following changes?

Accepted Answer

A)  for the real interest rate to rise
B)  for the demand for loanable funds curve to shift right
C)  for the supply for loanable funds curve to shift left
D)  for the real interest rate to fall A

Question 3

Which of the following is the effect of an increase in the Canadian real interest rate?

Accepted Answer

A)  Canadians buy more foreign assets, which increases Canadian net capital outflow.
B)  Canadians buy more foreign assets, which reduces Canadian net capital outflow.
C)  Foreigners buy more Canadian assets, which reduces Canadian net capital outflow.
D)  Foreigners buy more Canadian assets, which increases Canadian net capital outflow. C

Question 4

Using the macroeconomic model studied, analyze the impact of the following events on the Canadian economy.
a.a voluntary export restraint (VER) by Japanese car producers
b.an export subsidy by Canadian government for Canadian lumber producers
c.an increase in U.S. GDP

Accepted Answer

The answer of Using the macroeconomic model studied, analyze the...

Question 5

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the right?

Accepted Answer

A)  The exchange rate rises.
B)  The exchange rate falls.
C)  The expected rate of return on Canadian assets rises.
D)  The expected rate of return on Canadian assets falls.

Question 6

Which of the following best predicts the effects of an increase in the Canadian real interest rate?

Accepted Answer

A)  Canadian net capital outflow and net capital outflow of other countries would rise.
B)  Canadian net capital outflow and net capital outflow of other countries would fall.
C)  Canadian net capital outflow would rise, while net capital outflow of other countries would fall.
D)  Canadian net capital outflow would fall, while net capital outflow of other countries would rise.

Question 7

Suppose that from 1980 to 1987, Canadian net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Accepted Answer

A)  an increase in the demand for Canadian currency in the foreign-currency exchange
B)  a decrease in the demand for Canadian currency in the foreign-currency exchange
C)  an increase in the supply of loanable funds
D)  a decrease in the supply of loanable funds

Question 8

What does a higher real interest rate lowers the quantity of?

Accepted Answer

A)  national saving
B)  net capital outflow
C)  loanable funds demanded
D)  loanable funds supplied

Question 9

What does the market for foreign-currency exchange coordinate?

Accepted Answer

A)  foreign investment
B)  foreign trade
C)  people exchanging domestic currency for the currency of other countries
D)  investment and saving

Question 10

In an open economy, which of the following best identifies the sources of loanable funds?

Accepted Answer

A)  Canadians who consume less than their income and government budget deficit
B)  Canadians who consume less than their income and government budget surplus
C)  foreigners who buy Canadian bonds and stock and Canadian government surplus
D)  foreigners who invest in Canada and Canadian government surplus

Question 11

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 12

If there is capital flight from Canada, how does the open economy macroeconomic model change?

Accepted Answer

A)  Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift right.
B)  Both the supply of loanable funds and the supply of dollars for foreign exchange curves shift left.
C)  The supply of loanable funds shifts left, while the supply of dollars shifts right.
D)  The supply of loanable funds shifts right, while the supply of dollars shifts left.

Question 13

In the open-economy macroeconomic model, other things the same, when a Canadian resident imports a foreign good, our model treats this as a decrease in the demand for dollars in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 14

In the open-economy macroeconomic model, what does the quantity of dollars demanded in the foreign-currency exchange market depend on?

Accepted Answer

A)  the real exchange rate and import quotas
B)  the real exchange rate and government deficit
C)  the real interest rate and import quotas
D)  import quotas and government deficit

Question 15

If Canadian citizens decide to save a larger fraction of their incomes, which of the following best identifies the effects?

Accepted Answer

A)  The real interest rate decreases, the real exchange rate of the dollar depreciates, and Canadian net capital outflow increases.
B)  The real interest rate decreases, the real exchange rate of the dollar appreciates, and Canadian net capital outflow decreases.
C)  The real interest rate increases, the real exchange rate of the dollar appreciates, and Canadian net capital outflow decreases.
D)  The real interest rate increases, the real exchange rate of the dollar depreciates, and Canadian net capital outflow increases.

Question 16

Which of the following best predicts the effects of an increase in the supply of loanable funds?

Accepted Answer

A)  The interest rate and the real exchange rate both increase.
B)  The interest rate and the real exchange rate both decrease.
C)  The interest rate increases, and the real exchange rate decreases.
D)  The interest rate decreases, and the real exchange rate increases.

Question 17

According to the open-economy macroeconomic model, which of the following would NOT be a consequence of an increase in the Canadian government budget deficit?

Accepted Answer

A)  Canadian trade balance rises.
B)  Canadian net capital outflow falls.
C)  Canadian investment abroad decreases.
D)  The real exchange rate of the Canadian dollar appreciates.

Question 18

Which of the following lists contains only things that decrease when the budget deficit of the Canadian government increases?

Accepted Answer

A)  Canadian net exports, national saving, and net capital outflow
B)  Canadian supply of loanable funds, the real exchange rate of the dollar, and domestic investment
C)  Canadian imports, interest rates, and the real exchange rate of the dollar
D)  National saving, net exports, and the quantity demanded for loanable funds for domestic investment

Question 19

Use the figure below to answer the following questions.
Figure 32-2 
-Refer to Figure 32-2. Suppose that these diagrams refer to Canada. Which of the following shifts show the effect of a voluntary export restriction by the government of China?

Accepted Answer

A)  a shift of NCO to the right in Panel B
B)  a shift from D0 to D1 in Panel C
C)  a shift from D0 to D2 in Panel C
D)  a shift from D1 to D0 in Panel C

Question 20

Using the macroeconomic model of a foreign-currency exchange market, (a) analyze the situation in which a government imposes a fixed exchange rate, and (b) determine what that government should do in order to maintain the fixed exchange.

Accepted Answer

The answer of Using the macroeconomic model of a foreign-currency...

Exam 13: A Macroeconomic Theory of the Open Economy