Question 1

An increase in the budget surplus

Accepted Answer

A)   raises net exports and domestic investment.
B)   raises net exports and reduces domestic investment.
C)   reduces net exports and raises domestic investment.
D)   reduces net exports and domestic investment.

Question 2

Trade policies

Accepted Answer

A)   affect a country's overall trade balance, but affect all firms and industries the same.
B)   affect a country's overall trade balance, but affect some firms or industries differently than others.
C)   do not affect a country's overall trade balance, but affect some firms or industries differently than others.
D)   do not affect either a country's overall trade balance or specific firms or industries.

Question 3

Figure 14-1
 
-Refer to Figure 14-1. In the Figure shown, if the real interest rate is 6 percent, the quantity of loanable funds demanded is

Accepted Answer

A)   $20 billion, and the quantity supplied is $40 billion.
B)   $20 billion, and the quantity supplied is $60 billion.
C)   $60 billion, and the quantity supplied is $20 billion.
D)   $60 billion, and the quantity supplied is $40 billion.

Question 4

If there is a surplus in the U.S. loanable funds market, then

Accepted Answer

A)   NCO > I.
B)   NCO 
C)   NCO + I > S.
D)   NCO + I

Question 5

When a country imposes an import quota, its

Accepted Answer

A)   imports fall and its net exports rise.
B)   imports fall and its net exports are unchanged.
C)   imports rise and its net exports are unchanged.
D)   imports and exports are unchanged.

Question 6

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 7

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.

Question 8

Which of the following is correct concerning the open-economy macroeconomic model?

Accepted Answer

A)   The net-capital-outflow curve slopes downward.
B)   The key determinant of net capital outflow is the real exchange rate.
C)   The supply of dollars in the market for foreign-currency exchange is horizontal.
D)   None of the above is correct.

Question 9

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.

Question 10

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 11

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

Accepted Answer

A)   rises and the quantity of dollars exchanged falls.
B)   rises and the quantity of dollars exchanged does not change.
C)   rises and the quantity of dollars exchanged rises.
D)   falls and the quantity of dollars exchanged does not change.

Question 12

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 13

Figure 14-4
 2 and E3, an increase in the budget surplus can be illustrated as a move to A)  r3 and E4. B)  r3 and E2. C)  r1 and E4. D)  r1 and E2. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 14-5. Starting from r2 and E3, an increase in the budget surplus can be illustrated as a move to

Accepted Answer

A)   r3 and E4.
B)   r3 and E2.
C)   r1 and E4.
D)   r1 and E2.

Question 14

Figure 14-1
 
-Refer to Figure 14-1. In the Figure shown, if the real interest rate is 2 percent, there will be a

Accepted Answer

A)   surplus of $20 billion.
B)   surplus of $40 billion.
C)   shortage of $20 billion.
D)   shortage of $40 billion.

Question 15

The key determinant of net capital outflow is the real interest rate.

Accepted Answer

A) True 
 B)False

Question 16

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 17

If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would

Accepted Answer

A)   depreciate and Kenyan net exports would rise.
B)   depreciate and Kenyan net exports would fall.
C)   appreciate and Kenyan net exports would rise.
D)   appreciate and Kenyan net exports would fall.

Question 18

When Mexico suffered from capital flight in 1994, Mexico's net exports

Accepted Answer

A)   decreased.
B)   did not change.
C)   increased.
D)   decreased until the peso appreciated, then increased.

Question 19

If the demand for loanable funds shifts right, 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 quantify of loanable funds falls.

Question 20

Figure 14-7
 0 and E1. Which of the following new equilibrium is consistent with capital flight? A)  ro and E0 B)  r1 and E0 C)  r1 and E1 D)  None of the above is correct. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 14-7. Suppose the Mexican economy starts at r0 and E1. Which of the following new equilibrium is consistent with capital flight?

Accepted Answer

A)   ro and E0
B)   r1 and E0
C)   r1 and E1
D)   None of the above is correct.

Exam 14: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

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Trade policies

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Figure 14-4 -Refer to Figure 14-5. Starting from r2 and E3, an increase in the budget surplus can be illustrated as a move to

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If there is a surplus in the U.S. loanable funds market, then

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Figure 14-1 -Refer to Figure 14-1. In the Figure shown, if the real interest rate is 6 percent, the quantity of loanable funds demanded is

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When a country imposes an import quota, its

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If the budget deficit increases, then

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An increase in the budget surplus

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Which of the following is correct concerning the open-economy macroeconomic model?

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Which of the following is most likely to increase exports?

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The key determinant of net capital outflow is the real interest rate.

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

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If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would

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If the demand for loanable funds shifts right, then

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Figure 14-1 -Refer to Figure 14-1. In the Figure shown, if the real interest rate is 2 percent, there will be a

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If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

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

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When Mexico suffered from capital flight in 1994, Mexico's net exports

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If net exports are positive, then

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Figure 14-7 -Refer to Figure 14-7. Suppose the Mexican economy starts at r0 and E1. Which of the following new equilibrium is consistent with capital flight?

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Figure 14-4 -Refer to Figure 14-5. Starting from r₂ and E₃, an increase in the budget surplus can be illustrated as a move to

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Figure 14-7 -Refer to Figure 14-7. Suppose the Mexican economy starts at r₀ and E₁. Which of the following new equilibrium is consistent with capital flight?

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