Question 1

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)   national consumption minus domestic investment.
D)   None of the above is correct.

Question 2

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 3

A drop in the French real interest rate reduces French net capital outflow.

Accepted Answer

A) True 
 B)False

Question 4

In the open-economy macroeconomic model,the quantity of dollars demanded in the market for foreign-currency exchange

Accepted Answer

A)   depends on the real exchange rate.The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate.
B)   depends on the real interest rate.The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate.
C)   and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate.
D)   and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate.

Question 5

In the open-economy macroeconomic model,the purchase of a capital asset adds to the demand for loanable funds

Accepted Answer

A)   only if the asset is located at home.
B)   only if the asset is located abroad.
C)   whether the asset is located at home or abroad.
D)   None of the above is correct.

Question 6

Which of the following could explain a decrease in the U.S.real exchange rate?

Accepted Answer

A)   the U.S.government budget deficit rises
B)   the U.S.impose import quotas
C)   the default risk of U.S.assets rise
D)   All of the above are correct.

Question 7

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.

Question 8

If a government increases its budget deficit,then interest rates

Accepted Answer

A)   rise and the real exchange rate appreciates.
B)   fall and the real exchange rate depreciates.
C)   rise and the real exchange rate depreciates.
D)   fall and the real exchange rate appreciates.

Question 9

If the budget deficit increases,then

Accepted Answer

A)   an increase in the interest rate increases net capital outflow.
B)   an increase in the interest rate decreases net capital outflow.
C)   a decrease in the interest rate increases net capital outflow.
D)   a decrease in the interest rate decreases net capital outflow.

Question 10

In the open-economy macroeconomic model,if net capital outflow increases then

Accepted Answer

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

Question 11

Suppose that the U.S.imposes an import quota on lumber.The quota makes the real exchange rate of the U.S.dollar

Accepted Answer

A)   appreciate but does not change the real interest rate in the United States.
B)   appreciate and the real interest rate in the United States increase.
C)   depreciate and the real interest rate in the United States decrease.
D)   depreciate but does not change the real interest rate in the United States.

Question 12

According to the open-economy macroeconomic model,a decrease in the U.S.government budget deficit increases U.S.net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases U.S.net exports.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is most likely to increase exports?

Accepted Answer

A)   a reduction in domestic political instability
B)   ending investment tax credits
C)   a reduction in the size of the government's budget surplus
D)   None of the above will increase exports.

Question 14

Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?

Accepted Answer

A)   The demand for loanable funds shifts right.
B)   The demand for loanable funds shifts left.
C)   The supply of loanable funds shifts right.
D)   The supply of loanable funds shifts left.

Question 16

Suppose that U.S.citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases,a...

Question 17

Refer to Figure 32-6.If equilibrium were at point h and the government imposed quotas on imports of toys and textiles the equilibrium would move to

Accepted Answer

A)   e
B)   g
C)   i
D)   j

Question 18

If net exports are negative,then

Accepted Answer

A)   net capital outflow is positive,so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   net capital outflow is positive,so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   net capital outflow is negative,so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   net capital outflow is negative,so American assets bought by foreigners are greater than foreign assets bought by Americans.

Question 19

In the open-economy macroeconomic model,the key determinant of net capital outflow is

Accepted Answer

A)   the real exchange rate.When the real exchange rate rises,net capital outflow rises.
B)   the real exchange rate.When the real exchange rate rises,net capital outflow falls.
C)   the real interest rate.When the real interest rate rises,net capital outflow rises.
D)   the real interest rate.When the real interest rate rises,net capital outflow falls.

Question 20

If a country has a positive net capital outflow,then

Accepted Answer

A)   on net it is purchasing assets from abroad.This adds to its demand for domestically generated loanable funds.
B)   on net it is purchasing assets from abroad.This subtracts from its demand for domestically generated loanable funds.
C)   on net other countries are purchasing assets from it.This adds to its demand for domestically generated loanable funds.
D)   on net other countries are purchasing assets from it.This subtracts from its demand for domestically generated loanable funds.

Exam 32: A Macroeconomic Theory of the Open Economy

If net exports are negative,then

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The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

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

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Refer to Figure 32-6.If equilibrium were at point h and the government imposed quotas on imports of toys and textiles the equilibrium would move to

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Which of the following is most likely to increase exports?

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A drop in the French real interest rate reduces French net capital outflow.

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Suppose that U.S.citizens start saving more.What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Correct AnswerverifiedThe supply of loanable funds increases,a...View AnswerShow Answer

In the open-economy macroeconomic model,if net capital outflow increases then

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In the open-economy macroeconomic model,the key determinant of net capital outflow is

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The open-economy macroeconomic model takes

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Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?

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Because depreciation of the real exchange rate of the dollar increases U.S.net exports,the demand curve for dollars in the foreign-currency exchange market is downward sloping.

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Suppose that the U.S.imposes an import quota on lumber.The quota makes the real exchange rate of the U.S.dollar

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In the open-economy macroeconomic model,the purchase of a capital asset adds to the demand for loanable funds

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According to the open-economy macroeconomic model,a decrease in the U.S.government budget deficit increases U.S.net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases U.S.net exports.

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If the budget deficit increases,then

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In the open-economy macroeconomic model,the quantity of dollars demanded in the market for foreign-currency exchange

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Which of the following could explain a decrease in the U.S.real exchange rate?

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If a government increases its budget deficit,then interest rates

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If a country has a positive net capital outflow,then

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The supply of loanable funds increases,a...
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