Question 1

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Accepted Answer

A)   left, which would make the real exchange rate of the Chinese yuan appreciate.
B)   left, which would make the real exchange rate of the Chinese yuan depreciate.
C)   right, which would make the real exchange rate of the Chinese yuan appreciate.
D)   right, which would make the real exchange rate of the Chinese yuan depreciate.E) All of the above
F) B) and C)

Question 2

When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Accepted Answer

A)   fell and the peso appreciated.
B)   fell and the peso depreciated.
C)   rose and the peso appreciated.
D)   rose and the peso depreciated.E) A) and C)
F) All of the above

Question 3

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Accepted Answer

A)   $350 billion
B)   $250 billion
C)   $200 billion
D)   $150 billionE) A) and D)
F) None of the above

Question 4

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Accepted Answer

A)   downward sloping.
B)   upward sloping.
C)   horizontal.
D)   vertical.E) A) and D)
F) A) and C)

Question 5

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Accepted Answer

The quantity of loanable funds...

Question 6

If the demand for 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) None of the above
F) A) and C)

Question 7

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which locations)  is included in the U.S. demand for loanable funds?

Accepted Answer

A)   only the U.S.
B)   only Mexico
C)   Mexico and the U.S.
D)   neither Mexico nor the U.S.E) A) and D)
F) All of the above

Question 8

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

Accepted Answer

A)   net capital outflow.
B)   domestic investment.
C)   net capital outflow plus domestic investment.
D)   foreign currency supplied.E) All of the above
F) A) and B)

Question 9

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

Accepted Answer

Such a campaign will increase the demand...

Question 10

A country has domestic investment of $200 billion. Its citizens purchase $600 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

Accepted Answer

A)   $400 billion
B)   $500 billion
C)   $600 billion
D)   $800 billionE) B) and C)
F) B) and D)

Question 11

Define net capital outflow.

Accepted Answer

Net capital outflow equals the...

Question 12

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Accepted Answer

A)   rise and exports of other industries would increase.
B)   rise and exports of other industries would decrease.
C)   not change, exports of other industries would increase.
D)   not change, exports of other industries would decrease.E) A) and B)
F) A) and D)

Question 13

Which of the following would shift the supply of dollars in the market for foreign-currency exchange of the open- economy macroeconomic model to the left?

Accepted Answer

A)   the exchange rate rises
B)   the exchange rate falls
C)   the expected rate of return on U.S. assets rises
D)   the expected rate of return on U.S. assets fallsE) All of the above
F) A) and B)

Question 14

Which of the following will not change the U.S. real interest rate?

Accepted Answer

A)   capital flight from the United States
B)   the government budget deficit increases
C)   the U.S. imposes import quotas
D)   None of the above is correct.E) C) and D)
F) A) and B)

Question 15

In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from

Accepted Answer

A)   U.S. national saving and the demand for dollars for U.S. net exports.
B)   U.S. net capital outflow and the demand for dollars for U.S. net exports.
C)   domestic investment and the demand for U.S. net exports.
D)   foreign demand for U.S. goods and services and U.S. demand for foreign goods and services.E) B) and C)
F) A) and C)

Question 16

If the U.S. government increased its deficit, then

Accepted Answer

A)   U.S. bonds would pay higher interest but a dollar would purchase fewer foreign goods.
B)   U.S. bonds would pay higher interest and a dollar would purchase more foreign goods.
C)   U.S. bonds would pay lower interest and a dollar would purchase fewer foreign goods.
D)   U.S. bonds would pay lower interest but a dollar would purchase more foreign goods.E) B) and D)
F) None of the above

Question 17

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 18

If U.S. net exports are negative, then net capital outflow is

Accepted Answer

A)   positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)   positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)   negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)   negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.E) All of the above
F) C) and D)

Question 19

A U.S. bank wants to buy euros in order to buy German bonds. In the open-economy macroeconomic model, this transaction would be part of

Accepted Answer

A)   the supply of currency in the foreign exchange market, and part of the supply of loanable funds.
B)   the demand for currency in the foreign exchange market, and part of the supply of loanable funds.
C)   the supply of currency in the foreign exchange market, and part of the demand for loanable funds.
D)   the demand for currency in the foreign exchange market, and part of the demand for loanable funds.E) A) and B)
F) C) and D)

Question 20

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

Accepted Answer

A)   the sum of domestic investment and net capital outflow.
B)   net capital outflow alone.
C)   domestic investment alone.
D)   None of the above is correct.E) A) and D)
F) B) and C)

Exam 19: A Macroeconomic Theory of the Open Economy

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Correct AnswerverifiedShow Answer

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Correct AnswerverifiedThe quantity of loanable funds...View AnswerShow Answer

A U.S. bank wants to buy euros in order to buy German bonds. In the open-economy macroeconomic model, this transaction would be part of

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts left, then

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A country has domestic investment of $200 billion. Its citizens purchase $600 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

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

Correct AnswerverifiedShow Answer

If U.S. net exports are negative, then net capital outflow is

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, Mexico's real interest rate

Correct AnswerverifiedShow Answer

Suppose the U.S. government institutes a "Buy American" campaign, in order to encourage spending on domestic goods. What effect will this have on the U.S. trade balance?

Correct AnswerverifiedSuch a campaign will increase the demand...View AnswerShow Answer

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Correct AnswerverifiedShow Answer

Which of the following would shift the supply of dollars in the market for foreign-currency exchange of the open- economy macroeconomic model to the left?

Correct AnswerverifiedShow Answer

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which locations) is included in the U.S. demand for loanable funds?

Correct AnswerverifiedShow Answer

If the U.S. government increased its deficit, then

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, equilibrium in the market for foreign-currency exchange is determined by the equality between the supply of dollars which comes from

Correct AnswerverifiedShow Answer

Define net capital outflow.

Correct AnswerverifiedNet capital outflow equals the...View AnswerShow Answer

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would

Correct AnswerverifiedShow Answer

Which of the following will not change the U.S. real interest rate?

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

Correct AnswerverifiedShow Answer

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The quantity of loanable funds...
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Such a campaign will increase the demand...
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Net capital outflow equals the...
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