Question 1

When Mexico suffered from capital flight in 1994,what happened to Mexico's real interest rate and the peso?

Accepted Answer

A)  The real interest rate fell, and the peso appreciated.
B)  The real interest rate fell, and the peso depreciated.
C)  The real interest rate rose, and the peso appreciated.
D)  The real interest rate rose, and the peso depreciated.E) A) and B)
F) C) and D)

Question 2

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 3

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

a.According to our "exchange rate vs.qua...

Question 4

In the open-economy macroeconomic model,which of the following would make Mexico's net capital outflow decrease?

Accepted Answer

A)  a decrease in Canadian interest rates
B)  a decrease in Mexican interest rates
C)  an appreciation of the Mexican peso
D)  an increase in Mexico's net exportsE) C) and D)
F) B) and D)

Question 5

According to the theory of purchasing-power parity,what is the shape of the demand curve for foreign-currency exchange?

Accepted Answer

A)  downward sloping
B)  upward sloping
C)  horizontal
D)  verticalE) None of the above
F) A) and B)

Question 6

Fill in the table below with the direction of the variables that change in response to the events in the first column.

Accepted Answer

The answer of Fill in the table below with the...

Question 7

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 8

Which of the following is consistent with a depreciation of the dollar?

Accepted Answer

A)  Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.
B)  Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise.
C)  Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall.
D)  Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.E) A) and B)
F) All of the above

Question 9

Which of the following is an effect of capital flight in a small economy such as Mexico?

Accepted Answer

A)  a shift of the supply of loanable funds to the left
B)  a decrease of the Mexican interest rate
C)  a shift of the net capital outflow to the right
D)  a depreciation of the Mexican real exchange rateE) A) and B)
F) A) and C)

Question 10

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 shares of stock in Canadian companiesE) C) and D)
F) B) and D)

Question 11

Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?

Accepted Answer

The next figure shows that the primary e...

Question 12

What term refers to a large and sudden reduction in the demand for assets located in a country?

Accepted Answer

A)  arbitrage
B)  capital flight
C)  crowding out
D)  capital mobilityE) A) and B)
F) All of the above

Question 13

The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r;in country 2,it is I = 18 - 4r and S = 8 + 2r.
a)Find the relationships between net capital outflow and the world interest rate rw in the two countries.
b)What is the nature of these relationships? (Are they both positive,both negative,or one positive and the other negative?)
c)Calculate the world equilibrium interest rate.
d)How can you reconcile the result from part b with the one from part c?

Accepted Answer

a) In country 1,NCO1 = S - I when r = rʷ...

Question 14

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 quotaE) None of the above
F) A) and B)

Question 15

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

Higher Canadian interest rates make Cana...

Question 16

Which of the following is included in the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)  A retail outlet in Afghanistan wants to buy watches from a Canadian manufacturer.
B)  A Canadian bank loans dollars to Blair, a Canadian resident, who wants to purchase a new car made in Canada.
C)  A Canadian-based mutual fund wants to purchase stock issued by a Polish company.
D)  A Canadian resident imports a car made in Japan.E) B) and C)
F) A) and D)

Question 17

Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

Accepted Answer

A)  A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing.
B)  Canadian firms decide, since interest rates are higher, to do more investment spending.
C)  Brad, a Canadian resident, decides to put less money in his savings account than he had planned to.
D)  Canadian net capital outflow increases.E) B) and C)
F) A) and C)

Question 18

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

a.This trade barrier is similar to an im...

Question 19

Suppose that Canada imposes an import quota on automobiles.Which of the following describes the most likely effects of this quota?

Accepted Answer

A)  The quota would cause the real exchange rate of Canadian dollars to appreciate, but it would not change the real interest rate in Canada.
B)  The quota would cause the real exchange rate of Canadian dollars to appreciate and the real interest rate in Canada to increase.
C)  The quota would cause the real exchange rate of Canadian dollars to depreciate and the real interest rate in Canada to decrease.
D)  The quota would cause the real exchange rate of Canadian dollars to depreciate, but it would not change the real interest rate in Canada.E) A) and B)
F) B) and C)

Question 20

Which of the following is the most likely result from an increase in the government's budget surplus?

Accepted Answer

A)  higher interest rates
B)  lower imports
C)  lower net capital outflows
D)  lower domestic investmentE) A) and B)
F) A) and C)

Exam 13: A Macroeconomic Theory of the Small Open Economy

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.

Correct Answer
verified
a.According to our "exchange rate vs.qua...
View Answer

When Mexico suffered from capital flight in 1994,what happened to Mexico's real interest rate and the peso?

Correct Answer
verified

Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

Correct Answer
verified

Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?

Correct Answer
verified
The next figure shows that the primary e...
View Answer

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

Correct Answer
verified

Suppose that Canada imposes an import quota on automobiles.Which of the following describes the most likely effects of this quota?

Correct Answer
verified

Which of the following is consistent with a depreciation of the dollar?

Correct Answer
verified

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.

Correct Answer
verified

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

Correct Answer
verified

Fill in the table below with the direction of the variables that change in response to the events in the first column.

Correct Answer
verified

Correct Answer
verified
a) In country 1,NCO1 = S - I when r = rʷ...
View Answer

In the open-economy macroeconomic model,which of the following would make Mexico's net capital outflow decrease?

Correct Answer
verified

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

Correct Answer
verified
a.This trade barrier is similar to an im...
View Answer

According to the theory of purchasing-power parity,what is the shape of the demand curve for foreign-currency exchange?

Correct Answer
verified

Which of the following is the most likely result from an increase in the government's budget surplus?

Correct Answer
verified

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Correct Answer
verified

Why do higher real interest rates lead to lower net capital outflow?

Correct Answer
verified
Higher Canadian interest rates make Cana...
View Answer

What term refers to a large and sudden reduction in the demand for assets located in a country?

Correct Answer
verified

Which of the following is an effect of capital flight in a small economy such as Mexico?

Correct Answer
verified

Which of the following is included in the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct Answer
verified

Exam 13: A Macroeconomic Theory of the Small Open Economy

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.

Correct Answerverifieda.According to our "exchange rate vs.qua...View AnswerShow Answer

When Mexico suffered from capital flight in 1994,what happened to Mexico's real interest rate and the peso?

Correct AnswerverifiedShow Answer

Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world?

Correct AnswerverifiedShow Answer

Our macroeconomic model assumes that GDP is constant.However,the model could be used to analyze the effects of a one-time increase in GDP.What does the model predict about the real interest rate,net capital outflow,net exports,and the real exchange rate when GDP increases?

Correct AnswerverifiedThe next figure shows that the primary e...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Suppose that Canada imposes an import quota on automobiles.Which of the following describes the most likely effects of this quota?

Correct AnswerverifiedShow Answer

Which of the following is consistent with a depreciation of the dollar?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fill in the table below with the direction of the variables that change in response to the events in the first column.

Correct AnswerverifiedShow Answer

Correct Answerverifieda) In country 1,NCO1 = S - I when r = rʷ...View AnswerShow Answer

In the open-economy macroeconomic model,which of the following would make Mexico's net capital outflow decrease?

Correct AnswerverifiedShow Answer

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

Correct Answerverifieda.This trade barrier is similar to an im...View AnswerShow Answer

According to the theory of purchasing-power parity,what is the shape of the demand curve for foreign-currency exchange?

Correct AnswerverifiedShow Answer

Which of the following is the most likely result from an increase in the government's budget surplus?

Correct AnswerverifiedShow Answer

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Correct AnswerverifiedShow Answer

Why do higher real interest rates lead to lower net capital outflow?

Correct AnswerverifiedHigher Canadian interest rates make Cana...View AnswerShow Answer

What term refers to a large and sudden reduction in the demand for assets located in a country?

Correct AnswerverifiedShow Answer

Which of the following is an effect of capital flight in a small economy such as Mexico?

Correct AnswerverifiedShow Answer

Which of the following is included in the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

Correct Answer
verified
a.According to our "exchange rate vs.qua...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The next figure shows that the primary e...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a) In country 1,NCO1 = S - I when r = rʷ...
View Answer

Correct Answer
verified

Correct Answer
verified
a.This trade barrier is similar to an im...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Higher Canadian interest rates make Cana...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified