Question 1

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the

Accepted Answer

A)  nominal exchange rate.
B)  nominal interest rate.
C)  real exchange rate.
D)  real interest rate.E) All of the above
F) B) and D)

Question 2

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

Question 3

If a country's budget deficit decreases, then the exchange rate

Accepted Answer

A)  rises, which raises net exports.
B)  rises, which reduces net exports.
C)  falls, which raises net exports.
D)  falls, which reduces net exports.E) None of the above
F) A) and B)

Question 4

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Accepted Answer

The supply...

Question 5

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

Question 6

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open-economy macroeconomic model shows that such a policy would

Accepted Answer

A)  lower the real exchange rate and increase net exports.
B)  lower the real exchange rate and have no effect on net exports.
C)  raise the real exchange rate and decrease net exports.
D)  raise the real exchange rate and have no effect on net exports.E) A) and B)
F) A) and C)

Question 7

Other things the same, if the U.S. interest rate rises, U.S. assets become ____ attractive. So, desired net capital outflow _____. This change in net capital outflow, shifts the __________ curve in the market for foreign-currency exchange to the ______.

Accepted Answer

more, fall...

Question 8

If a country's budget deficit increases, then in the market for foreign-currency exchange,

Accepted Answer

A)  the supply of its currency shifts right, so the exchange rate falls.
B)  the demand for its currency shifts right, so the exchange rate rises.
C)  the supply of its currency shifts left, so the exchange rate rises.
D)  the demand for its currency shifts left.so the exchange rate falls.E) A) and B)
F) None of the above

Question 9

In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to continue to make payments on its debt. Which of these events raise a country's interest rates?

Accepted Answer

A)  an increase in the budget deficit and increased concerns about the ability of the government to pay back its debt
B)  an increase in the budget deficit, but not increased concerns about the ability of the government to pay back its debt
C)  increased concerns about the ability of the government to pay back its debt, but not an increase in the budget deficit
D)  neither an increase in the budget deficit nor increased concerns about the ability of the government to pay back its debtE) A) and D)
F) A) and C)

Question 10

Refer to Budget Reform. What does this policy change do to the equilibrium values of the interest rate and the quantity of loanable funds?

Accepted Answer

The interest rate fa...

Question 11

The real exchange rate measures the

Accepted Answer

A)  price of domestic currency relative to foreign currency.
B)  price of domestic goods relative to the price of foreign goods.
C)  rate of domestic and foreign interest.
D)  None of the above is correct.E) A) and C)
F) A) and B)

Question 12

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget deficit can be illustrated as a move to

Accepted Answer

A)  4% and 1
B)  4% and .5
C)  2% and 1
D)  2% and .5E) None of the above
F) All of the above

Question 13

Which of the following results if the U.S. imposes 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 is correct.E) B) and C)
F) A) and C)

Question 14

Refer to Figure 32-3. Which curve shows the relation between the exchange rate and net exports?

Accepted Answer

A)   the demand curve in panel a.
B)   the demand curve in panel c.
C)   the supply curve in panel a.
D)   the supply curve in panel c.E) B) and D)
F) B) and C)

Question 15

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 16

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Accepted Answer

A)  surplus of loanable funds, so the interest rate increases.
B)  surplus of loanable funds, so the interest rate decreases.
C)  shortage of loanable funds, so the interest rate increases.
D)  shortage of loanable funds, so the interest rate decreases.E) B) and C)
F) A) and D)

Question 17

A large and sudden movement of funds out of a country is called

Accepted Answer

A)  arbitrage.
B)  capital flight.
C)  crowding out.
D)  capital mobility.E) A) and B)
F) A) and D)

Question 18

When fear of default on bonds issued by U.S. corporations decline, then

Accepted Answer

A)  net capital outflow and the exchange rate both rise.
B)  net capital outflow rises and the exchange rate falls.
C)  net capital outflow falls and the exchange rate rises.
D)  net capital outflow and the exchange rate both fall.E) B) and C)
F) C) and D)

Question 19

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Accepted Answer

A) True 
 B)False

Question 20

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Accepted Answer

Its exchange rate fa...

Exam 32: A Macroeconomic Theory of the Open Economy

If a government increases its budget deficit, then interest rates

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Correct AnswerverifiedShow Answer

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the

Correct AnswerverifiedShow Answer

If a country's budget deficit decreases, then the exchange rate

Correct AnswerverifiedShow Answer

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Correct AnswerverifiedThe supply...View AnswerShow Answer

Other things the same, if the U.S. interest rate rises, U.S. assets become ____ attractive. So, desired net capital outflow _____. This change in net capital outflow, shifts the __________ curve in the market for foreign-currency exchange to the ______.

Correct Answerverifiedmore, fall...View AnswerShow Answer

Refer to Budget Reform. What does this policy change do to the equilibrium values of the interest rate and the quantity of loanable funds?

Correct AnswerverifiedThe interest rate fa...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

If a country's budget deficit increases, then in the market for foreign-currency exchange,

Correct AnswerverifiedShow Answer

In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to continue to make payments on its debt. Which of these events raise a country's interest rates?

Correct AnswerverifiedShow Answer

In 2002, the United States imposed restrictions on the importation of steel into the United States. The open-economy macroeconomic model shows that such a policy would

Correct AnswerverifiedShow Answer

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget deficit can be illustrated as a move to

Correct AnswerverifiedShow Answer

When fear of default on bonds issued by U.S. corporations decline, then

Correct AnswerverifiedShow Answer

Refer to Figure 32-3. Which curve shows the relation between the exchange rate and net exports?

Correct AnswerverifiedShow Answer

A large and sudden movement of funds out of a country is called

Correct AnswerverifiedShow Answer

The real exchange rate measures the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Correct AnswerverifiedIts exchange rate fa...View AnswerShow Answer

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The supply...
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Other things the same, if the U.S. interest rate rises, U.S. assets become __ attractive. So, desired net capital outflow _. This change in net capital outflow, shifts the __ curve in the market for foreign-currency exchange to the .

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more, fall...
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The interest rate fa...
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Its exchange rate fa...
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