Question 1

Suppose the Federal Reserve, which is the central bank in the United States, decided to lower the bank interest rate. Use the macroeconomic model studied in this chapter to analyze the possible effects of this event on Canada's net capital outflow, net exports, and exchange rate. (Hint: Consider the United States a large economy, which is able to influence the world interest rate.)

Accepted Answer

Since the United States is a large econo...

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

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

Accepted Answer

A)  It increases the quantity of loanable funds demanded.
B)  It decreases the quantity of loanable funds demanded.
C)  It increases the quantity of loanable funds supplied.
D)  It does not affect the quantity of loanable funds supplied.

Question 4

Figure 32-1 
-Refer to Figure 32-1. In the figure shown, if the real interest rate is 4 percent, what is the quantity of loanable funds demanded?

Accepted Answer

A)  $7000
B)  $6000
C)  $5000
D)  $4000

Question 5

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 6

Figure 32-3 0 to E1. B) The real exchange rate of the peso depreciates from E0 to E1. C) The real exchange rate of the peso appreciates from E1 to E0. D) The real exchange rate of the peso depreciates from E1 to E0." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 32-3. Which of the following is consistent with capital flight from Mexico?

Accepted Answer

A)  The real exchange rate of the peso appreciates from E0 to E1.
B)  The real exchange rate of the peso depreciates from E0 to E1.
C)  The real exchange rate of the peso appreciates from E1 to E0.
D)  The real exchange rate of the peso depreciates from E1 to E0.

Question 7

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

Accepted Answer

A)  Canadian net exports will rise.
B)  Canadian saving will rise.
C)  Canadian domestic investment will rise.
D)  Canadian imports will rise.

Question 8

What changes will a shortage of loanable funds induce in a Savings-Investment diagram in a closed economy?

Accepted Answer

A)  The demand for loanable funds curve will shift right, so the interest rate will rise.
B)  The supply of loanable funds curve will shift left, so the interest rate will fall.
C)  There will be no shifts of the curves, but the interest rate will rise.
D)  There will be no shifts of the curves, but the interest rate will rise

Question 9

Which of the following does the open-economy macroeconomic model include?

Accepted Answer

A)  only the market for loanable funds
B)  only the market for foreign-currency exchange
C)  both the market for loanable funds and the market for foreign-currency exchange
D)  neither the market for loanable funds or the market for foreign-currency exchange

Question 10

If Canada imposes an import quota on clothing, which of the following best predicts 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 Canadian net exports decrease.
D)  Canadian exports decrease, imports decrease, and net exports are unchanged.

Question 11

If policymakers impose import restrictions on automobiles, the Canadian trade deficit would shrink.

Accepted Answer

A) True 
 B)False

Question 12

In 1995, Newt Gingrich, the Speaker of the U.S. House of Representatives, threatened to send the United States into default on its debt. During the day of this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of the following changes is consistent with the results of the open-economy macroeconomic model?

Accepted Answer

A)  a fall in U.S. interest rates and an increase in net capital outflow
B)  an appreciation of the real exchange rate of the U.S. dollar
C)  an increase in U.S. interest rates and a depreciation of the U.S. dollar
D)  an appreciation of the U.S. dollar and an increase in U.S. net capital outflow

Question 13

If the Canadian government imposes an import quota on French wine, which of the following best predicts the consequences?

Accepted Answer

A)  Canadian net exports will increase, the real exchange rate will appreciate, and domestic sales of Canadian wine will increase.
B)  Canadian net exports will not change, the real exchange rate will appreciate, and domestic sales of Canadian wine will increase.
C)  Canadian net exports will not change, the real exchange rate will depreciate, and domestic sales of Canadian wine will not change.
D)  Canadian net exports will not change, the real exchange rate will appreciate, and domestic sales of Canadian wine will decrease.

Question 14

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is consistent with a below-the-equilibrium exchange rate of the dollar?

Accepted Answer

A)  The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate.
B)  The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.
C)  The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate.
D)  The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate.

Question 16

Suppose that in the 1990s, Canadian net capital outflow fell. Which of the following could explain this?

Accepted Answer

A)  an increase in the demand for Canadian currency in the foreign-currency exchange
B)  a decrease in the demand for Canadian currency in the foreign-currency exchange
C)  an increase in the demand for loanable funds
D)  a decrease in the demand for loanable funds

Question 17

When Mexico suffered from capital flight in 1994, what happened to Mexico's net capital outflow and net exports?

Accepted Answer

A)  The net capital outflow and net exports decreased.
B)  The net capital outflow and net exports increased.
C)  The net capital outflow increased while net exports decreased.
D)  The net capital outflow decreased while net exports increased.

Question 18

In an open economy, what does net capital outflow equal?

Accepted Answer

A)  imports
B)  net exports
C)  exports
D)  net imports

Question 19

When a country suffers from capital flight, which of the following best explains the effects?

Accepted Answer

A)  The supply for loanable funds shifts right, and the interest rate increases.
B)  The supply for loanable funds shifts right, and the interest rate decreases.
C)  The supply for loanable funds shifts left, and the interest rate increases.
D)  The supply for loanable funds shifts left, and the interest rate decreases.

Question 20

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign currency exchange market diagram, which of the following outcomes would most likely result?

Accepted Answer

A)  Both the demand and supply curves would shift right.
B)  Both the demand and supply curves would shift left.
C)  Only the demand curve would shift right.
D)  Only the supply curve would shift right.

Exam 13: A Macroeconomic Theory of the Open Economy

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct Answer
verified
S is national saving, which is the sourc...
View Answer

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

Correct Answer
verified

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Correct Answer
verified

When Mexico suffered from capital flight in 1994, what happened to Mexico's net capital outflow and net exports?

Correct Answer
verified

Figure 32-1 -Refer to Figure 32-1. In the figure shown, if the real interest rate is 4 percent, what is the quantity of loanable funds demanded?

Correct Answer
verified

Suppose that in the 1990s, Canadian net capital outflow fell. Which of the following could explain this?

Correct Answer
verified

Figure 32-3 -Refer to Figure 32-3. Which of the following is consistent with capital flight from Mexico?

Correct Answer
verified

When a country suffers from capital flight, which of the following best explains the effects?

Correct Answer
verified

If policymakers impose import restrictions on automobiles, the Canadian trade deficit would shrink.

Correct Answer
verified

In an open economy, what does net capital outflow equal?

Correct Answer
verified

Which of the following is consistent with a below-the-equilibrium exchange rate of the dollar?

Correct Answer
verified

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign currency exchange market diagram, which of the following outcomes would most likely result?

Correct Answer
verified

Which of the following does the open-economy macroeconomic model include?

Correct Answer
verified

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

Correct Answer
verified

If the Canadian government imposes an import quota on French wine, which of the following best predicts the consequences?

Correct Answer
verified

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

Correct Answer
verified

If Canada imposes an import quota on clothing, which of the following best predicts the consequences?

Correct Answer
verified

Correct Answer
verified
Since the United States is a large econo...
View Answer

What changes will a shortage of loanable funds induce in a Savings-Investment diagram in a closed economy?

Correct Answer
verified

Correct Answer
verified

Exam 13: A Macroeconomic Theory of the Open Economy

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, what happened to Mexico's net capital outflow and net exports?

Correct AnswerverifiedShow Answer

Figure 32-1 -Refer to Figure 32-1. In the figure shown, if the real interest rate is 4 percent, what is the quantity of loanable funds demanded?

Correct AnswerverifiedShow Answer

Suppose that in the 1990s, Canadian net capital outflow fell. Which of the following could explain this?

Correct AnswerverifiedShow Answer

Figure 32-3 -Refer to Figure 32-3. Which of the following is consistent with capital flight from Mexico?

Correct AnswerverifiedShow Answer

When a country suffers from capital flight, which of the following best explains the effects?

Correct AnswerverifiedShow Answer

If policymakers impose import restrictions on automobiles, the Canadian trade deficit would shrink.

Correct AnswerverifiedShow Answer

In an open economy, what does net capital outflow equal?

Correct AnswerverifiedShow Answer

Which of the following is consistent with a below-the-equilibrium exchange rate of the dollar?

Correct AnswerverifiedShow Answer

Suppose the Canadian government imposed import quotas on agricultural products. According to the foreign currency exchange market diagram, which of the following outcomes would most likely result?

Correct AnswerverifiedShow Answer

Which of the following does the open-economy macroeconomic model include?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the Canadian government imposes an import quota on French wine, which of the following best predicts the consequences?

Correct AnswerverifiedShow Answer

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

Correct AnswerverifiedShow Answer

If Canada imposes an import quota on clothing, which of the following best predicts the consequences?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSince the United States is a large econo...View AnswerShow Answer

What changes will a shortage of loanable funds induce in a Savings-Investment diagram in a closed economy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified
S is national saving, which is the sourc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Since the United States is a large econo...
View Answer

Correct Answer
verified

Correct Answer
verified