Question 1

Imposing an import quota causes the domestic real exchange rate to

Accepted Answer

A)   appreciate, which increases foreign demand for domestic goods.
B)   appreciate, which decreases foreign demand for domestic goods.
C)   depreciate, which increases foreign demand for domestic goods.
D)   depreciate, which decreases foreign demand for domestic goods.E) B) and C)
F) None of the above

Question 2

Other things the same, if the expected return on U.S. assets increased, the

Accepted Answer

A)   supply of dollars in the market for foreign-currency exchange shifts right.
B)   supply of dollars in the market for foreign-currency exchange shifts left.
C)   demand for dollars in the market for foreign-currency exchange shifts right
D)   demand for dollars in the market for foreign-currency exchange shifts left.E) All of the above
F) A) and B)

Question 3

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

Question 4

In the long run, import quotas increase net exports.

Accepted Answer

A) True 
 B)False

Question 5

A government budget deficit

Accepted Answer

A)   increases both net capital outflow and net exports.
B)   decreases both net capital outflow and net exports.
C)   increases net capital outflow and decreases net exports.
D)   decreases net capital outflow and increases net exports.E) None of the above
F) B) and C)

Question 6

If a country's budget deficit increases, then in the foreign exchange market,

Accepted Answer

A)   the supply of its currency shifts right, so the exchange rate falls.
B)   the demand for its currency shifts right, so the exchange rate rises.
C)   the supply of its currency shifts left, so the exchange rate rises.
D)   the demand for its currency shifts left.so the exchange rate falls.E) B) and D)
F) A) and D)

Question 7

In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

Accepted Answer

A) True 
 B)False

Question 8

If the budget deficit increases, then

Accepted Answer

A)   U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase more U.S. assets
B)   U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase fewer U.S. assets
C)   U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets
D)   U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase fewer U.S. assetsE) A) and B)
F) All of the above

Question 9

Capital flight raises a country's interest rate.

Accepted Answer

A) True 
 B)False

Question 10

If a government increases its budget deficit, then the real exchange rate

Accepted Answer

A)   and domestic investment rise.
B)   and domestic investment fall.
C)   rises and domestic investment falls.
D)   falls and domestic investment rises.E) A) and C)
F) C) and D)

Question 11

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 12

U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s)  is included in the U.S. demand for loanable funds?

Accepted Answer

A)   The U.S. only.
B)   Denmark only.
C)   The U.S. and Denmark.
D)   Neither the U.S. nor Denmark.E) A) and B)
F) B) and C)

Question 13

The open-economy macroeconomic model takes

Accepted Answer

A)   GDP, but not the price level as given.
B)   the price level, but not GDP as given.
C)   both the price level and GDP as given.
D)   the price level and GDP as variables to be determined by the model.E) B) and C)
F) B) and D)

Question 14

If the demand for loanable funds shifts left, then

Accepted Answer

A)   the real interest rate and the equilibrium quantity of loanable funds both fall.
B)   the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)   the real interest rate and the equilibrium quantity of loanable funds both rise.
D)   the real interest rate rises and the equilibrium quantity of loanable funds falls.E) None of the above
F) A) and B)

Question 15

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A)   foreign residents want to buy more U.S. goods and services.
B)   U.S. residents want to buy fewer foreign goods and services.
C)   Both A and B are correct.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 16

In the open-economy macroeconomic model, if investment demand increases, then

Accepted Answer

A)   net exports and the real exchange rate rise.
B)   net exports rise and the real exchange rate falls.
C)   net exports fall and the real exchange rate rises.
D)   net exports and the real exchange rate fall.E) All of the above
F) A) and C)

Question 17

Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases?

Accepted Answer

A)   U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment
B)   U.S. imports, U.S. interest rates, the real exchange rate of the dollar
C)   U.S. interest rates, the real exchange rate of the dollar, U.S. domestic investment
D)   the real exchange rate of the dollar, U.S. net capital outflow, U.S. net exportsE) A) and C)
F) B) and C)

Question 18

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

Accepted Answer

A)   national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
B)   national saving. The demand for loanable funds comes only from domestic investment.
C)   private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
D)   private saving. The demand for loanable funds comes only from domestic investment.E) A) and B)
F) A) and D)

Question 19

Other things the same, if foreigners desire to purchase more U.S. bonds then the demand for loanable funds shifts left.

Accepted Answer

A) True 
 B)False

Question 20

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

Accepted Answer

A)   rise and there would be a trade surplus.
B)   rise and there would be a trade deficit.
C)   fall and there would be a trade surplus.
D)   fall and there would be a trade deficit.E) B) and C)
F) None of the above

Exam 14: A Macroeconomic Theory of the Open Economy

If the demand for loanable funds shifts left, then

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In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

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Capital flight raises a country's interest rate.

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

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In the open-economy macroeconomic model, if investment demand increases, then

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If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus, domestic investment would

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Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases?

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In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

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A government budget deficit

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If a country's budget deficit increases, then in the foreign exchange market,

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The open-economy macroeconomic model takes

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Other things the same, if foreigners desire to purchase more U.S. bonds then the demand for loanable funds shifts left.

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In the long run, import quotas increase net exports.

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If the budget deficit increases, then

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If a government increases its budget deficit, then the real exchange rate

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In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

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U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?

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Other things the same, if the expected return on U.S. assets increased, the

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

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Imposing an import quota causes the domestic real exchange rate to

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