Question 1

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.E) A) and B)
F) A) and C)

Question 2

Capital flight shifts the demand for loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 3

If the French government increases its expenditures and reduces taxes, then France's interest rate

Accepted Answer

A)  and its exchange rate rise.
B)  rises and its exchange rate falls.
C)  falls and its exchange rate rises.
D)  and its exchange rate fall.E) None of the above
F) All of the above

Question 4

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 5

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 6

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.E) A) and B)
F) All of the above

Question 7

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A)  and investment to rise.
B)  to rise and investment to fall.
C)  to fall and investment to rise.
D)  and investment to fall.E) B) and C)
F) All of the above

Question 8

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Accepted Answer

A) True 
 B)False

Question 9

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 10

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Question 11

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.E) A) and D)
F) B) and C)

Question 12

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) A) and C)
F) None of the above

Question 13

If there is a surplus in the market for loanable funds, then the interest rate

Accepted Answer

A)  rises, so national saving rises.
B)  rises, so national saving falls.
C)  falls, so national saving rises.
D)  falls, so national saving falls.E) B) and D)
F) C) and D)

Question 14

If the supply of 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) B) and C)
F) All of the above

Question 15

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

Question 16

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Accepted Answer

A) True 
 B)False

Question 17

An increase in national saving reduces the interest rate and so reduces net capital outflow.

Accepted Answer

A) True 
 B)False

Question 18

State what, if anything, each of the following does to the supply or demand of loanable funds.
a.net capital outflow increases at each interest rate
b.domestic investment increases at each interest rate
c.the government deficit increases
d.private saving increases

Accepted Answer

a.the demand for loanable fund...

Question 19

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 20

When a country imposes an import quota, its exchange rate

Accepted Answer

A)  rises because the supply of dollars in the market for foreign-currency exchange falls.
B)  falls because the supply of dollars in the market for foreign-currency exchange rises.
C)  rises because the demand for dollars in the market for foreign-currency exchange rises.
D)  falls because the demand for dollars in the market for foreign-currency exchange falls.E) B) and C)
F) C) and D)

Exam 32: A Macroeconomic Theory of the Open Economy

An increase in national saving reduces the interest rate and so reduces net capital outflow.

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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.

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

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An increase in the government budget deficit shifts the supply of loanable funds to the left.

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If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

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In an open economy, the supply of loanable funds comes from national saving.

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If the French government increases its expenditures and reduces taxes, then France's interest rate

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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?

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

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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State what, if anything, each of the following does to the supply or demand of loanable funds. a.net capital outflow increases at each interest rate b.domestic investment increases at each interest rate c.the government deficit increases d.private saving increases

Correct Answerverifieda.the demand for loanable fund...View AnswerShow Answer

An increase in the budget surplus

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A government budget deficit

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If the supply of loanable funds shifts left, then

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When a country imposes an import quota, its exchange rate

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If there is a surplus in the market for loanable funds, then the interest rate

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Capital flight shifts the demand for loanable funds to the left.

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An increase in the budget deficit causes domestic interest rates

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In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances desired domestic investment.

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A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

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Desired net exports rise. The ...
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a.the demand for loanable fund...
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