Question 1

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

a. A country's NCO must be equal to the ...

Question 2

If a government increases its budget deficit, which statement would best predict the effects?

Accepted Answer

A)   The real exchange rate appreciates, and the trade balance moves toward surplus.
B)   The real exchange rate appreciates, and the trade balance moves toward deficit.
C)   The real exchange rate depreciates, and the trade balance moves toward surplus.
D)   The real exchange rate depreciates, and the trade balance moves toward deficit.E) A) and D)
F) None of the above

Question 3

What is consistent with capital flight from Mexico?

Accepted Answer

A)   The Mexican capital outflow decreases.
B)   The real exchange rate of the peso depreciates.
C)   The Mexican real interest rate decreases.
D)   The Mexican demand for loanable funds increases.E) None of the above
F) A) and C)

Question 4

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Accepted Answer

A) True 
 B)False

Question 5

What is most likely to increase exports in the country of Turania?

Accepted Answer

A)   The government of Turania introduces an investment tax credit.
B)   The government of Turania reduces the size of the budget surplus.
C)   The government of Turania reduces the size of the budget deficit.
D)   The government of Turania imposes an import quota.E) A) and D)
F) None of the above

Question 6

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) A) and B)
F) A) and C)

Question 7

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)   the nominal exchange rate
B)   the nominal interest rate
C)   the real exchange rate
D)   the real interest rateE) B) and D)
F) B) and C)

Question 8

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

Accepted Answer

A)   net capital outflow
B)   national saving
C)   exports
D)   importsE) A) and B)
F) A) and C)

Question 9

In the open-economy macroeconomic model, where does the supply of loanable funds come from?

Accepted Answer

A)   national saving
B)   private saving
C)   public saving
D)   the sum of domestic investment and net capital outflowE) A) and B)
F) B) and C)

Question 10

What effect does a fall in the real interest rate have on the quantity of loanable funds?

Accepted Answer

A)   It increases the quantity demanded and decreases the quantity supplied.
B)   It decreases both the quantity demanded and supplied.
C)   It increases both the quantity demanded and supplied.
D)   It decreases the quantity demanded and increases the quantity supplied.E) None of the above
F) A) and B)

Question 11

If Canada imposes an import quota on bicycles, which statement would best predict the consequences?

Accepted Answer

A)   Canadian exports increase, imports increase, and net exports are unchanged.
B)   Canadian exports increase, imports decrease, and net exports increase.
C)   Canadian exports decrease, imports increase, and net exports decrease.
D)   Canadian exports decrease, imports decrease, and net exports are unchanged.E) B) and D)
F) A) and C)

Question 12

If there is a surplus of loanable funds, what best describes the difference?

Accepted Answer

A)   The quantity demanded is less than the quantity supplied, and the interest rate will rise.
B)   The quantity demanded is greater than the quantity supplied, and the interest rate will fall.
C)   The quantity demanded is less than the quantity supplied, and the excess is the net capital outflow
D)   The quantity demanded is less than the quantity supplied, and the shortage is the net capital inflow.E) B) and C)
F) A) and C)

Question 13

In 2012 and again in 2015, citizens of Greece were reported to be withdrawing their savings from Greek banks because they feared that Greece would leave the European Union. What is consistent with what the open-economy macroeconomic model predicts?

Accepted Answer

A)   This event should have raised Grecian interest rates and caused the Grecian currency to appreciate.
B)   This event should have raised Grecian interest rates and caused the Grecian currency to depreciate.
C)   This event should have lowered Grecian interest rates and caused the Grecian currency to appreciate.
D)   This event should have lowered Grecian interest rates and caused the Grecian currency to depreciate.E) B) and D)
F) None of the above

Question 14

What is most likely to increase Canadian exports?

Accepted Answer

A)   The government increases its spending.
B)   The government reduces the size of the budget surplus.
C)   Canada reduces its restrictions on foreign imports.
D)   Taxes on domestic saving rise.E) None of the above
F) A) and B)

Question 15

If Morocco experienced capital flight, which statement would best explain the effects?

Accepted Answer

A)   The supply of Moroccan dirham curve would shift left, which would make the real exchange rate of the Moroccan dirham appreciate.
B)   The supply of Moroccan dirham curve would shift left, which would make the real exchange rate of the Moroccan dirham depreciate.
C)   The supply of Moroccan dirham curve would shift right, which would make the real exchange rate of the Moroccan dirham appreciate.
D)   The supply of Moroccan dirham curve would shift right, which would make the real exchange rate of the Moroccan dirham depreciate.E) A) and B)
F) A) and C)

Exam 13: A Macroeconomic Theory of the Small Open Economy

What is most likely to increase Canadian exports?

Correct Answer
verified

If there is a surplus of loanable funds, what best describes the difference?

Correct Answer
verified

What is consistent with capital flight from Mexico?

Correct Answer
verified

In 2012 and again in 2015, citizens of Greece were reported to be withdrawing their savings from Greek banks because they feared that Greece would leave the European Union. What is consistent with what the open-economy macroeconomic model predicts?

Correct Answer
verified

Correct Answer
verified
a. A country's NCO must be equal to the ...
View Answer

What effect does a fall in the real interest rate have on the quantity of loanable funds?

Correct Answer
verified

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

Correct Answer
verified

If Canada imposes an import quota on bicycles, which statement would best predict the consequences?

Correct Answer
verified

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

Correct Answer
verified

In the open-economy macroeconomic model, where does the supply of loanable funds come from?

Correct Answer
verified

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct Answer
verified

If Morocco experienced capital flight, which statement would best explain the effects?

Correct Answer
verified

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Correct Answer
verified

What is most likely to increase exports in the country of Turania?

Correct Answer
verified

If a government increases its budget deficit, which statement would best predict the effects?

Correct Answer
verified

Exam 13: A Macroeconomic Theory of the Small Open Economy

What is most likely to increase Canadian exports?

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, what best describes the difference?

Correct AnswerverifiedShow Answer

What is consistent with capital flight from Mexico?

Correct AnswerverifiedShow Answer

In 2012 and again in 2015, citizens of Greece were reported to be withdrawing their savings from Greek banks because they feared that Greece would leave the European Union. What is consistent with what the open-economy macroeconomic model predicts?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. A country's NCO must be equal to the ...View AnswerShow Answer

What effect does a fall in the real interest rate have on the quantity of loanable funds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Canada imposes an import quota on bicycles, which statement would best predict the consequences?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, where does the supply of loanable funds come from?

Correct AnswerverifiedShow Answer

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

If Morocco experienced capital flight, which statement would best explain the effects?

Correct AnswerverifiedShow Answer

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Correct AnswerverifiedShow Answer

What is most likely to increase exports in the country of Turania?

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, which statement would best predict the effects?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified
a. A country's NCO must be equal to the ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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