Question 1

When a country's government budget deficit increases,

Accepted Answer

A)   the real exchange rate of its currency and its net exports increase.
B)   the real exchange rate of its currency and its net exports decrease.
C)   the real exchange rate of its currency increases and its net exports decrease.
D)   the real exchange rate of its currency decreases and its net exports increase.E) A) and B)
F) A) and C)

Question 2

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

Accepted Answer

A)   A firm in Mexico wants to buy corn from a U.S.firm.
B)   A Japanese bank desires to purchase U.S.Treasury securities.
C)   An U.S.citizen wants to buy a bond issued by a Mexican corporation.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 3

If net exports are positive,then

Accepted Answer

A)   exports are greater than imports.
B)   net capital outflow is negative.
C)   Both of the above are correct.
D)   Neither of the above is correct.E) C) and D)
F) A) and B)

Question 4

In the open-economy macroeconomic model,the market for loanable funds equates 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.E) A) and B)
F) A) and C)

Question 5

Other things the same,if the interest rate falls,then

Accepted Answer

A)   firms will want to borrow more,which increases the quantity of loanable funds demanded.
B)   firms will want to borrow less,which decreases the quantity of loanable funds demanded.
C)   firms will want to borrow more,which increase the quantity of loanable funds supplied.
D)   firms will want to borrow less,which decreases the quantity of loanable funds supplied.E) A) and B)
F) B) and C)

Question 6

If U.S.citizens decide to purchase more foreign assets at each interest rate,the U.S.real interest rate

Accepted Answer

A)   increases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow decreases.
B)   increases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow increases.
C)   decreases,the real exchange rate of the dollar depreciates,and U.S.net capital outflow decreases.
D)   decreases,the real exchange rate of the dollar appreciates,and U.S.net capital outflow increases.E) C) and D)
F) A) and B)

Question 7

Many U.S.business leaders argue that the current state of U.S.net exports is the result of

Accepted Answer

A)   U.S.export subsidies.
B)   free trade policies of foreign governments.
C)   unproductive U.S.workers.
D)   unfair foreign competition.E) A) and C)
F) B) and C)

Question 8

A large and sudden movement of funds out of a country is called

Accepted Answer

A)   arbitrage.
B)   capital flight.
C)   crowding out.
D)   capital mobility.E) A) and B)
F) B) and C)

Question 9

If the U.S.put an import quota on vacuum cleaners,it would

Accepted Answer

A)   raise U.S.net exports of vacuum cleaners and raise net exports of other U.S.goods.
B)   raise U.S.net exports of vacuum cleaners and lower net exports of other U.S.goods.
C)   lower U.S.net exports of vacuum cleaners and raise net exports of other U.S.goods.
D)   lower U.S.net exports of vacuum cleaners and lower net exports of other U.S.goods.E) A) and D)
F) C) and D)

Question 10

In the open-economy macroeconomic model,the supply of loanable funds comes from

Accepted Answer

A)   national saving.
B)   private saving.
C)   domestic investment.
D)   the sum of domestic investment and net capital outflow.E) B) and D)
F) A) and D)

Question 11

A country has national saving of $80 billion,government expenditures of $40 billion,domestic investment of $60 billion,and net capital outflow of $20 billion.What is its demand for loanable funds?

Accepted Answer

A)   $40 billion
B)   $60 billion
C)   $80 billion
D)   $120 billionE) A) and B)
F) A) and C)

Question 12

As the interest rate rises,it is possible that net capital outflow could move from a positive to a negative value.

Accepted Answer

A) True 
 B)False

Question 13

Refer to Figure 32-6.Which of the following shifts show the effects of an import quota?

Accepted Answer

A)   shifting the middle supply curve in panel c to the one to its left.
B)   shifting the demand curve from the right to the left in panel c.
C)   shifting the demand curve from the left to the right in panel c.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 14

When a country experiences capital flight its currency

Accepted Answer

A)   appreciates and net exports rise.
B)   appreciates and net exports fall.
C)   depreciates and net exports rise.
D)   depreciates and net exports fall.E) A) and B)
F) A) and C)

Question 15

In the open-economy macroeconomic model,a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 16

In 1998 the Russian government defaulted on its bonds.According to the open-economy macroeconomic model,this should have

Accepted Answer

A)   increased Russian interest rates and net exports.
B)   reduced Russian interest rates and net exports.
C)   increased Russian interest rates and reduced Russian net exports.
D)   reduced Russian interest rates and increased Russian net exports.E) C) and D)
F) A) and D)

Question 17

Other things the same,when the real exchange rate of the dollar appreciates,U.S.goods become more attractive to U.S.residents,but less attractive to foreign residents.

Accepted Answer

A) True 
 B)False

Question 18

Figure 32-4 
-Refer to Figure 32-5.The initial effect of an increase in the budget deficit in the loanable funds market is illustrated as a move from

Accepted Answer

A)   a to b.
B)   a to c.
C)   c to b.
D)   c to d.E) A) and B)
F) A) and C)

Question 19

Because a government budget deficit represents

Accepted Answer

A)   negative public saving,it increases national saving.
B)   negative public saving,it decreases national saving.
C)   positive public saving,it increases national saving.
D)   positive public saving,it decreases national saving.E) A) and C)
F) B) and C)

Question 20

In the open-economy macroeconomic model,the supply of dollars in the market for foreign-currency exchange is upward sloping.

Accepted Answer

A) True 
 B)False

Exam 32: A Macroeconomic Theory of the Open Economy

A country has national saving of $80 billion,government expenditures of $40 billion,domestic investment of $60 billion,and net capital outflow of $20 billion.What is its demand for loanable funds?

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If U.S.citizens decide to purchase more foreign assets at each interest rate,the U.S.real interest rate

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A large and sudden movement of funds out of a country is called

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In the open-economy macroeconomic model,the supply of dollars in the market for foreign-currency exchange is upward sloping.

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Many U.S.business leaders argue that the current state of U.S.net exports is the result of

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Figure 32-4 -Refer to Figure 32-5.The initial effect of an increase in the budget deficit in the loanable funds market is illustrated as a move from

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Other things the same,when the real exchange rate of the dollar appreciates,U.S.goods become more attractive to U.S.residents,but less attractive to foreign residents.

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In the open-economy macroeconomic model,the supply of loanable funds comes from

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Refer to Figure 32-6.Which of the following shifts show the effects of an import quota?

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When a country experiences capital flight its currency

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In the open-economy macroeconomic model,the market for loanable funds equates national saving with

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In 1998 the Russian government defaulted on its bonds.According to the open-economy macroeconomic model,this should have

Correct AnswerverifiedShow Answer

Because a government budget deficit represents

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If net exports are positive,then

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

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When a country's government budget deficit increases,

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If the U.S.put an import quota on vacuum cleaners,it would

Correct AnswerverifiedShow Answer

Other things the same,if the interest rate falls,then

Correct AnswerverifiedShow Answer

As the interest rate rises,it is possible that net capital outflow could move from a positive to a negative value.

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In the open-economy macroeconomic model,a higher domestic interest rate reduces the quantity of loanable funds demanded

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