Question 1

A budget deficit ________.

Accepted Answer

A) may have stimulative effects on economic activity in the short run 
B) contributes to lower interest rates in the long run 
C) is likely to increase future productive capacity in the long run 
D) all of the above 
E) none of the above

Question 2

The domestic real interest rate (r)for a given country must be the same as the world real interest rate (rw)________.

Accepted Answer

A) if perfect capital mobility is assumed 
B) because with no barriers to capital flows,if rw > r domestic residents would just borrow abroad putting upward pressures on the domestic rate until both rates equal each other 
C) because with no barriers to capital flows,if rw < r domestic residents would only lend to foreigners putting downward pressures on the domestic rate until both rates equal each other 
D) all of the above 
E) none of the above

Question 3

________ typically lead to increases in ________.

Accepted Answer

A) decreases in interest rates;investment 
B) increases in disposable income;consumption 
C) increases in autonomous investment;investment 
D) all of the above 
E) none of the above

Question 4

A foreign bank receives a deposit of $10,000 from a U.S.citizen.As a result,there is a net capital outflow from the U.S. ,if ________.

Accepted Answer

A) the bank buys a U.S.-made computer 
B) the bank buys a bond issued by a U.S.company 
C) the bank keeps the $10,000 in a vault 
D) all of the above 
E) none of the above

Question 5

In an open economy,an increase in saving might not cause an increase in domestic investment.Why not? Does that mean that an increase in saving is undesirable?

Accepted Answer

The answer of In an open economy,an increase in saving...

Question 6

If we observe an economy in which desired saving has changed,but there has been no change in actual investment,we may infer that ________.

Accepted Answer

A) this is a closed economy 
B) this is a large economy 
C) the world real interest rate has not changed 
D) all of the above 
E) none of the above

Question 7

In a large open economy ________.

Accepted Answer

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

Question 8

If there is a decrease in world investment ________.

Accepted Answer

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

Question 9

In the model for desired saving,autonomous is roughly synonymous with ________.

Accepted Answer

A) policy-determined 
B) endogenous 
C) intended 
D) inflation-adjusted 
E) exogenous

Question 10

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

Question 11

Consumption expenditures are a function of ________.

Accepted Answer

A) the real interest rate 
B) disposable income 
C) autonomous consumption 
D) all of the above 
E) none of the above

Question 12

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

Question 13

Saving-Investment Diagram 
-Based on the Saving-Investment Diagram,if the world real interest rate declines from A to C,then the change in net exports is measured by the difference between values ________.

Accepted Answer

A) G and E 
B) H and G plus E and D 
C) H and G minus E and D 
D) G and F plus F and E 
E) none of the above

Question 14

In a large open economy,an increase in ________ leads to ________.

Accepted Answer

A) desired saving;an increase in the domestic interest rate 
B) desired investment;an decrease in the domestic interest rate 
C) desired saving;an increase in desired investment 
D) desired saving;a decrease in actual investment 
E) none of the above

Question 15

If a U.S.citizen deposits $10,000 in a foreign bank,and the bank uses the $10,000 to buy assets in the U.S. ,then ________.

Accepted Answer

A) the U.S.has experienced a net capital outflow 
B) the U.S.has experienced an increase in net exports 
C) the foreign economy has experienced a net capital outflow 
D) the foreign economy has experienced an increase in net exports 
E) none of the above

Question 16

China is a large open economy with an extraordinarily high saving rate.If,as seems likely,there is a decrease in desired saving in the coming years,what effects should we expect to see on China's trade balance (net capital flow),domestic real interest rate,and actual levels of saving and investment?

Accepted Answer

The answer of China is a large open economy with...

Question 17

In a large open economy ________.

Accepted Answer

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

Question 18

When a U.S.firm sells a good abroad for,say,100 euros (assume $1.5=1euro),U.S.net exports increase by $150.These $150 in exports can be accounted for as $150 increase in capital outflow because ________.

Accepted Answer

A) private consumption in the foreign country increases by $150 
B) if the U.S.firm uses the 100 euros to buy a share of stock in a foreign firm,the firm is supplying U.S.capital to that foreign firm 
C) if the U.S.firm uses the proceeds to buy a U.S.bond,capital investment in the foreign country has increased 
D) all of the above 
E) none of the above

Question 19

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

Question 20

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

Exam 4: Saving and Investment in Closed and Open Economies

A budget deficit ________.

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (r^w) ________.

typically lead to increases in .

A foreign bank receives a deposit of $10,000 from a U.S.citizen.As a result,there is a net capital outflow from the U.S. ,if ________.

In an open economy,an increase in saving might not cause an increase in domestic investment.Why not? Does that mean that an increase in saving is undesirable?

If we observe an economy in which desired saving has changed,but there has been no change in actual investment,we may infer that ________.

In a large open economy ________.

If there is a decrease in world investment ________.

In the model for desired saving,autonomous is roughly synonymous with ________.

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?

Consumption expenditures are a function of ________.

The real interest rate ________.

Saving-Investment Diagram -Based on the Saving-Investment Diagram,if the world real interest rate declines from A to C,then the change in net exports is measured by the difference between values ________.

In a large open economy,an increase in leads to .

If a U.S.citizen deposits $10,000 in a foreign bank,and the bank uses the $10,000 to buy assets in the U.S. ,then ________.

China is a large open economy with an extraordinarily high saving rate.If,as seems likely,there is a decrease in desired saving in the coming years,what effects should we expect to see on China's trade balance (net capital flow),domestic real interest rate,and actual levels of saving and investment?

In a large open economy ________.

When a U.S.firm sells a good abroad for,say,100 euros (assume $1.5=1euro) ,U.S.net exports increase by $150.These $150 in exports can be accounted for as $150 increase in capital outflow because ________.

If there is an increase in world taxes ________.

Private saving refers to ________.

Exam 4: Saving and Investment in Closed and Open Economies

A budget deficit ________.

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (rw) ________.

________ typically lead to increases in ________.

A foreign bank receives a deposit of $10,000 from a U.S.citizen.As a result,there is a net capital outflow from the U.S. ,if ________.

In an open economy,an increase in saving might not cause an increase in domestic investment.Why not? Does that mean that an increase in saving is undesirable?

If we observe an economy in which desired saving has changed,but there has been no change in actual investment,we may infer that ________.

In a large open economy ________.

If there is a decrease in world investment ________.

In the model for desired saving,autonomous is roughly synonymous with ________.

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?

Consumption expenditures are a function of ________.

The real interest rate ________.

Saving-Investment Diagram -Based on the Saving-Investment Diagram,if the world real interest rate declines from A to C,then the change in net exports is measured by the difference between values ________.

In a large open economy,an increase in ________ leads to ________.

If a U.S.citizen deposits $10,000 in a foreign bank,and the bank uses the $10,000 to buy assets in the U.S. ,then ________.

In a large open economy ________.

When a U.S.firm sells a good abroad for,say,100 euros (assume $1.5=1euro) ,U.S.net exports increase by $150.These $150 in exports can be accounted for as $150 increase in capital outflow because ________.

If there is an increase in world taxes ________.

Private saving refers to ________.

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (r^w) ________.

typically lead to increases in .

In a large open economy,an increase in leads to .