Question 1

In the market for foreign-currency exchange, the demand curve represents:

Accepted Answer

A)  national saving 
B)  private saving 
C)  net foreign investment 
D)  domestic investment 
E)  none of the above

Question 2

The price of imports will increase on the domestic market if two conditions are fulfilled: a strong local currency and a shortage of supply.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that the government of the small nation of Stabilia is overturned by a military coup (the new ruling junta restores the country's old name of Instabilia). What would you expect to happen to Instabilia's real interest rate and real exchange rate?

Accepted Answer

The answer of Suppose that the government of the small...

Question 4

Ceteris paribus, in an open economy, a stable government fiscal policy enables firms to invest more assuredly.

Accepted Answer

A) True 
 B)False

Question 5

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is:

Accepted Answer

A)  downward-sloping 
B)  upward-sloping 
C)  vertical 
D)  horizontal 
E)  the theory doesn't imply anything about the shape of the demand curve

Question 6

The key determinant of net foreign investment is:

Accepted Answer

A)  the real exchange rate 
B)  the nominal interest rate 
C)  the real interest rate 
D)  the nominal exchange rate

Question 7

If the interest rate were below the equilibrium level, the quantity of loanable funds supplied would _____ the quantity demanded.

Accepted Answer

A)  be greater than 
B)  exactly equal 
C)  be less than 
D)  be independent of

Question 8

A tax on imported goods is called a(n):

Accepted Answer

A)  excise tax 
B)  goods and services tax 
C)  import quota 
D)  tariff

Question 9

The demand curve for foreign-currency exchange slopes downwards because a lower real exchange rate makes the domestic goods more expensive and reduces the quantity of domestic currency demanded to buy those goods.

Accepted Answer

A) True 
 B)False

Question 10

If the real exchange rate were above the equilibrium level, the currency would:

Accepted Answer

A)  not change 
B)  appreciate 
C)  depreciate 
D)  fluctuate

Question 11

At the equilibrium real exchange rate, the demand for dollars to buy:

Accepted Answer

A)  foreign assets exactly balances the supply of dollars to be exchanged into foreign currency to buy domestic assets 
B)  net exports exactly balances the supply of dollars to be exchanged into foreign currency to buy net imports 
C)  foreign assets exactly balances the supply of dollars to be exchanged into foreign currency to buy net exports 
D)  net exports exactly balances the supply of dollars to be exchanged into foreign currency to buy foreign assets

Question 12

The real exchange rate is:

Accepted Answer

A)  the nominal price of domestic goods 
B)  the relative price of domestic and foreign goods 
C)  the absolute price of foreign goods 
D)  none of the above

Question 13

In an open economy, a government budget deficit raises real interest rates, crowds out domestic investment, causes the currency to appreciate and pushes the trade balance towards deficit.

Accepted Answer

A) True 
 B)False

Question 14

At the equilibrium real interest rate, the amount that people (including government) want to save exactly balances the desired quantity of net foreign investment.

Accepted Answer

A) True 
 B)False

Question 15

Economists have argued that removing trade restrictions benefits Australian industries that
produce goods for export. Explain why this may be the case.

Accepted Answer

The answer of Economists have argued that removing trade restrictions...

Question 16

The supply of and demand for loanable funds directly depends on:

Accepted Answer

A)  the real interest rate 
B)  exports 
C)  imports 
D)  none of the above

Question 17

Explain how net foreign investment is part of the demand for loanable funds and simultaneously part of the supply of dollars in the foreign exchange market.

Accepted Answer

The answer of Explain how net foreign investment is part...

Question 18

In the macroeconomic model of the open economy developed in the text, if the central bank increases the money supply, the price level will:

Accepted Answer

A)  rise, the real interest rate will rise, the nominal interest rate will rise, the real exchange rate will rise and the nominal exchange rate will rise 
B)  rise, the real interest rate will be unaffected, the nominal interest rate will rise, the real exchange rate will be unaffected and the nominal exchange rate will rise 
C)  rise, the real interest rate will be unaffected, the nominal interest rate will be unaffected, the real exchange rate will be unaffected and the nominal exchange rate will be unaffected 
D)  rise, the real interest rate will be unaffected, the nominal interest rate will rise, the real exchange rate will be unaffected and the nominal exchange rate will fall

Question 19

Suppose that the government imposes a quota on imports. Explain why the result is a fall in imports and an equal fall in exports. (Hint: Think about what happens to net exports, and about what happens to the exchange rate.)

Accepted Answer

The answer of Suppose that the government imposes a quota...

Question 20

NARRBEGIN 32-2
Graph 32-2
 
-Which of the following statements is correct when the Australian government runs a budget deficit?

Accepted Answer

A)  The supply of loanable funds increases 
B)  The interest rate falls 
C)  The dollar appreciates 
D)  It causes a trade balance surplus

Exam 32: A Macroeconomic Theory of the Open Economy

In the market for foreign-currency exchange, the demand curve represents:

The price of imports will increase on the domestic market if two conditions are fulfilled: a strong local currency and a shortage of supply.

Suppose that the government of the small nation of Stabilia is overturned by a military coup (the new ruling junta restores the country's old name of Instabilia). What would you expect to happen to Instabilia's real interest rate and real exchange rate?

Ceteris paribus, in an open economy, a stable government fiscal policy enables firms to invest more assuredly.

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is:

The key determinant of net foreign investment is:

If the interest rate were below the equilibrium level, the quantity of loanable funds supplied would _____ the quantity demanded.

A tax on imported goods is called a(n) :

The demand curve for foreign-currency exchange slopes downwards because a lower real exchange rate makes the domestic goods more expensive and reduces the quantity of domestic currency demanded to buy those goods.

If the real exchange rate were above the equilibrium level, the currency would:

At the equilibrium real exchange rate, the demand for dollars to buy:

The real exchange rate is:

In an open economy, a government budget deficit raises real interest rates, crowds out domestic investment, causes the currency to appreciate and pushes the trade balance towards deficit.

At the equilibrium real interest rate, the amount that people (including government) want to save exactly balances the desired quantity of net foreign investment.

Economists have argued that removing trade restrictions benefits Australian industries that produce goods for export. Explain why this may be the case.

The supply of and demand for loanable funds directly depends on:

Explain how net foreign investment is part of the demand for loanable funds and simultaneously part of the supply of dollars in the foreign exchange market.

In the macroeconomic model of the open economy developed in the text, if the central bank increases the money supply, the price level will:

Suppose that the government imposes a quota on imports. Explain why the result is a fall in imports and an equal fall in exports. (Hint: Think about what happens to net exports, and about what happens to the exchange rate.)

NARRBEGIN 32-2 Graph 32-2 -Which of the following statements is correct when the Australian government runs a budget deficit?