Question 1

In an open economy, what does the market for loanable funds equate national saving with?

Accepted Answer

A) domestic investment 
B) net capital outflow 
C) the sum of national consumption and government spending 
D) the sum of domestic investment and net capital outflow

Question 2

Other things the same, when a Canadian company imports wool from Australia, the open-economy macroeconomic model treats this transaction as a decrease in the quantity of dollars demanded in the Canadian foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following best explains the effect of trade policies on the trade balance?

Accepted Answer

A) Trade policies alter the trade balance because they alter imports of the country that implemented them. 
B) Trade policies alter the trade balance because they alter net capital outflow of the country that implemented them. 
C) Trade policies do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them. 
D) Trade policies do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.

Question 4

If a country's imports are greater than its exports, what is the country said to have?

Accepted Answer

A) a trade surplus 
B) a trade deficit 
C) a comparative advantage 
D) an absolute advantage

Question 5

Which of the following refers to a tax on imported goods?

Accepted Answer

A) an excise tax 
B) a tariff 
C) an import quota 
D) import tax

Question 6

In the market for foreign currency exchange in the open economy macroeconomic model, which of the following does the amount of net capital outflow represent?

Accepted Answer

A) the quantity of dollars supplied for the purpose of selling assets domestically 
B) the quantity of dollars supplied for the purpose of buying assets abroad 
C) the quantity of dollars demanded for the purpose of buying Canadian net exports of goods and services 
D) the quantity of dollars demanded for the purpose of importing foreign goods and services

Question 7

What does the market for loanable funds coordinate?

Accepted Answer

A) supply and demand for dollars in the foreign exchange market 
B) people who want to import or export goods 
C) sellers and buyers 
D) lenders and borrowers

Question 8

If the government of India made policy changes that increased national saving, which of the following best predicts the consequences?

Accepted Answer

A) The real exchange rate of the rupee would depreciate, and Indian net exports would rise. 
B) The real exchange rate of the rupee would depreciate, and Indian net exports would fall. 
C) The real exchange rate of the rupee would appreciate, and Indian net exports would rise. 
D) The real exchange rate of the rupee would appreciate, and Indian net exports would fall.

Question 9

Which of the following is most likely to increase exports in the country of Aquilonia?

Accepted Answer

A) a reduction in political instability 
B) ending investment tax credits 
C) a reduction in the size of the government's budget surplus 
D) an import quota

Question 10

Suppose that the world consists of only two countries, A and B, of relatively equal sizes. The world interest rate in such a model is some average of the autarkic (no trade) interest rates in each of the two countries.
a.Draw "parallel" loanable funds markets for the two countries and show the position of the world interest rate. (Hint: What relationship must exist between the NCOs of the two countries?)
b.Suppose country A enacts laws that induce people to save more. Show the effects of such laws on each country's domestic amounts saved and invested.
c.In the currency-exchange diagrams for both countries, show the effect of country A's savings policies on both countries' exchange rates and net exports.

Accepted Answer

The answer of Suppose that the world consists of only...

Question 11

Suppose that Chile has a budget surplus, and then goes into deficit. Which of the following best predicts the consequences?

Accepted Answer

A) National saving would increase, and Chile's supply of loanable funds would shift to the left. 
B) National saving would increase, and Chile's demand for loanable funds would shift to the right. 
C) National saving would decrease, and Chile's supply of loanable funds would shift to the left. 
D) National saving would decrease, and Chile's demand for loanable funds would shift to the right.

Question 12

At the equilibrium interest rate in the open economy macroeconomic model, which of the following is the amount that people want to save?

Accepted Answer

A) the desired quantity of net capital outflow 
B) the desired quantity of domestic investment 
C) the desired quantity of net capital outflow plus domestic investment 
D) the desired quantity of net capital outflow minus domestic investment

Question 13

Suppose that Canada places higher tariffs on imports of steel. Which of the following would be the most likely result?

Accepted Answer

A) The tariffs would reduce imports into Canada, which would cause Canadian net exports to rise. 
B) The tariffs would reduce imports into Canada, which would cause the net supply of dollars in the foreign exchange market to rise. 
C) The tariffs would reduce imports of steel into Canada, but would reduce Canadian exports of other goods by an equal amount. 
D) The tariffs would reduce imports of steel into Canada, but would increase Canadian exports of other goods by an equal amount.

Question 14

What is the real exchange rate equal to?

Accepted Answer

A) the relative price of domestic and foreign currency 
B) the relative price of domestic and foreign goods 
C) the ratio between the domestic and foreign interest rates 
D) the nominal exchange rate minus the inflation rate

Question 15

Figure 32-1 
-Refer to Figure 32-1. In the figure shown, if the real interest rate is 6 percent, what is the result?

Accepted Answer

A) a surplus of $4000 
B) surplus of $2000 
C) shortage of $4000 
D) shortage of $2000

Question 16

Suppose that Canadian citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The answer of Suppose that Canadian citizens start saving more....

Question 17

Jack and Jill are co-owners of the Canadian firm Wells Grey Petroleum. Jack borrows money to build an oil well in Alberta. Jill borrows money to build an oil well in Venezuela. Which of the following purchases of capital counts as demand for loanable funds in the Canadian market?

Accepted Answer

A) both Jack's and Jill's purchase of capital 
B) neither Jack's nor Jill's purchase of capital 
C) Jack's purchase of capital, but not Jill's 
D) Jill's purchase of capital, but not Jack's

Question 18

What is the variable that links the market for loanable funds and the foreign-currency exchange market?

Accepted Answer

A) net capital outflow 
B) national saving 
C) exports 
D) imports

Question 19

Which of the following is consistent with positive net exports?

Accepted Answer

A) Exports are greater than imports. 
B) Net capital outflow is negative. 
C) Exports are less than imports. 
D) Net capital outflow is zero.

Question 20

Which of the following would cause the real exchange rate of the Canadian dollar to depreciate?

Accepted Answer

A) an increase in the Canadian government budget deficit 
B) capital flight from Canada 
C) the imposition of Canadian government import quotas 
D) a decrease in the world interest rate

Exam 13: A Macroeconomic Theory of the Open Economy