Question 1

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 B)
F) C) and D)

Question 2

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) All of the above
F) B) and D)

Question 3

U.S. Investment Tax Credit
Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes.
-Refer to U.S. Investment Tax Credit. In the market for loanable funds which curve shifts and which direction does it shift?

Accepted Answer

The demand...

Question 4

The open-economy macroeconomic model includes

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 nor the market for foreign-currency exchange.E) B) and C)
F) A) and B)

Question 5

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people including government) want to save equals desired quantities of domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 6

A rise in the budget deficit

Accepted Answer

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

Question 7

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

Accepted Answer

A)   surplus in the market for foreign-currency exchange, so the real exchange rate would appreciate.
B)   surplus in the market for foreign-currency exchange, so the real exchange rate would depreciate.
C)   shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate.
D)   shortage in the market for foreign-currency exchange, so the real exchange rate would depreciate.E) B) and C)
F) A) and B)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below. 
-Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

Accepted Answer

A)   shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)   shifting the demand curve in panel a to the right and the supply curve in panel c to the left.
C)   shifting the supply curve in panel a to the right and the demand curve in panel c to the left.
D)   shifting the supply curve in panel a to the right and the supply curve in panel c to the right.E) A) and C)
F) None of the above

Question 10

Shoe Quota
Concerns raised about the declining U.S. shoe industry and unfair labor practices in foreign shoe factories lead the Congress and President to impose a quota on shoe imports.
-Refer to Shoe Quota. As a result of the quota, is there initially a surplus or a shortage in the market for foreign- currency exchange? Carefully explain how people's response to this surplus or shortage and the resulting changes in their behavior leads to a new equilibrium exchange rate.

Accepted Answer

Since the demand for dollars increases, ...

Question 11

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 D)
F) A) and B)

Question 12

The quantity of U.S. bonds foreigners want to buy is taken into account

Accepted Answer

A)   in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)   in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
C)   in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
D)   in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.E) A) and B)
F) C) and D)

Question 13

Shoe Quota
Concerns raised about the declining U.S. shoe industry and unfair labor practices in foreign shoe factories lead the Congress and President to impose a quota on shoe imports.
-Refer to Shoe Quota. At a given exchange rate what does a quota do to desired net exports? As a result of this change which curve in the open-economy model shifts and which direction does it shift?

Accepted Answer

Desired net exports rise. The ...

Question 14

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Accepted Answer

A)   $20 billion
B)   $30 billion
C)   $50 billion
D)   $60 billionE) B) and C)
F) B) and D)

Question 15

Which of the following results if the U.S. removes an import quota on computer components?

Accepted Answer

A)   U.S. exports and U.S. imports both increase
B)   U.S. exports increase but U.S. imports are unchanged
C)   U.S. imports increase but U.S. exports are unchanged
D)   None of the above are correctE) All of the above
F) None of the above

Question 16

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Accepted Answer

A)   and U.S. net capital outflow rose.
B)   and U.S. net capital outflow fell.
C)   fell and U.S. net capital outflow rose.
D)   rose and U.S. net capital outflow fell.E) A) and C)
F) B) and D)

Question 17

If a country had capital flight, then the real exchange rate would

Accepted Answer

A)   fall. To offset this fall the government could increase the budget deficit.
B)   fall. To offset this fall the government could decrease the budget deficit.
C)   rise. To offset this rise the government could increase the budget deficit.
D)   rise. To offset this rise the government could decrease the budget deficit.E) A) and B)
F) None of the above

Question 18

Which of the following would both raise the U.S. exchange rate?

Accepted Answer

A)   capital flight from other countries to the U.S. occurs and the U.S. moves from budget surplus to budget deficit
B)   capital flight from other countries to the U.S. occurs and the U.S. moves from budget deficit to budget surplus
C)   capital flight from the U.S. to other countries occurs, the U.S. moves from budget surplus to budget deficit
D)   capital flight from U.S. to other countries occurs, the U.S. moves from budget deficit to budget surplusE) None of the above
F) C) and D)

Question 19

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Accepted Answer

A) True 
 B)False

Question 20

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Accepted Answer

A)   rise and the trade balance moves to a surplus.
B)   rise and the trade balance moves to a deficit.
C)   fall and the trade balance moves to a surplus.
D)   fall and the trade balance moves to a deficit.E) None of the above
F) C) and D)

Exam 14: A Macroeconomic Theory of the Open Economy

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

Correct Answer
verified

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

Correct Answer
verified

Because a government budget deficit represents

Correct Answer
verified

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

Correct Answer
verified

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Correct Answer
verified

Correct Answer
verified
Since the demand for dollars increases, ...
View Answer

The open-economy macroeconomic model includes

Correct Answer
verified

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people including government) want to save equals desired quantities of domestic investment and net capital outflow.

Correct Answer
verified

A rise in the budget deficit

Correct Answer
verified

If a country had capital flight, then the real exchange rate would

Correct Answer
verified

The quantity of U.S. bonds foreigners want to buy is taken into account

Correct Answer
verified

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Correct Answer
verified

Which of the following would both raise the U.S. exchange rate?

Correct Answer
verified

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

Correct Answer
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Correct Answer
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Desired net exports rise. The ...
View Answer

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Correct Answer
verified

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Correct Answer
verified

Which of the following results if the U.S. removes an import quota on computer components?

Correct Answer
verified

Correct Answer
verified
The demand...
View Answer

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

Correct Answer
verified

Exam 14: A Macroeconomic Theory of the Open Economy

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Because a government budget deficit represents

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the government of a country with a zero trade balances increases its budget deficit, then interest rates

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSince the demand for dollars increases, ...View AnswerShow Answer

The open-economy macroeconomic model includes

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people including government) want to save equals desired quantities of domestic investment and net capital outflow.

Correct AnswerverifiedShow Answer

A rise in the budget deficit

Correct AnswerverifiedShow Answer

If a country had capital flight, then the real exchange rate would

Correct AnswerverifiedShow Answer

The quantity of U.S. bonds foreigners want to buy is taken into account

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Correct AnswerverifiedShow Answer

Which of the following would both raise the U.S. exchange rate?

Correct AnswerverifiedShow Answer

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedDesired net exports rise. The ...View AnswerShow Answer

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Correct AnswerverifiedShow Answer

Which of the following results if the U.S. removes an import quota on computer components?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe demand...View AnswerShow Answer

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

Correct AnswerverifiedShow Answer

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Since the demand for dollars increases, ...
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Desired net exports rise. The ...
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The demand...
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