Question 1

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 2

If at a given real interest rate desired national saving were $50 billion, domestic investment were $40 billion, and net capital outflow were $20 billion, then at that real interest rate in the loanable funds market there would be a

Accepted Answer

A)  surplus; the real interest rate would rise.
B)  surplus; the real interest rate would fall.
C)  shortage; the real interest rate would rise.
D)  shortage; the real interest rate would fall.E) None of the above
F) B) and D)

Question 3

The country of Frequencia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Frequencia's

Accepted Answer

A)  real interest rate to rise.
B)  real exchange rate to fall.
C)  net exports to fall.
D)  None of the above is likely.E) None of the above
F) A) and D)

Question 4

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 5

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

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

Question 6

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

Question 7

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

Question 8

A decrease 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) A) and D)
F) All of the above

Question 9

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

Question 10

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

Accepted Answer

A)  the real exchange rate depreciates and net exports fall.
B)  the real exchange rate depreciates and net exports rise.
C)  the real exchange rate appreciates and net exports fall.
D)  the real exchange rate appreciates and net exports rise.E) B) and C)
F) A) and D)

Question 11

If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would

Accepted Answer

A)  depreciate and Colombian net exports would rise.
B)  depreciate and Colombian net exports would fall.
C)  appreciate and Colombian net exports would rise.
D)  appreciate and Colombian net exports would fall.E) B) and C)
F) B) and D)

Question 12

Recently the Greek government had large deficits and people became worried about Greece's ability to continue to make payments on its debt. Which of the 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) None of the above
F) A) and B)

Question 13

Other things the same, a higher real interest rate raises the quantity of

Accepted Answer

A)  domestic investment.
B)  net capital outflow.
C)  loanable funds demanded.
D)  loanable funds supplied.E) B) and D)
F) B) and C)

Question 14

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Accepted Answer

A)  an increase in the demand for U.S. currency in the market for foreign-currency exchange
B)  a decrease in the demand for U.S. currency in the market for foreign-currency exchange
C)  an increase in the supply of loanable funds
D)  a decrease in the supply of loanable fundsE) C) and D)
F) A) and C)

Question 15

A country has national saving of $60 billion, government expenditures of $30 billion, domestic investment of $40 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

Accepted Answer

A)  $30 billion
B)  $60 billion
C)  $70 billion
D)  $100 billionE) None of the above
F) B) and D)

Question 16

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Accepted Answer

A)  net capital outflow.
B)  national saving.
C)  exports.
D)  domestic investment.E) All of the above
F) None of the above

Question 17

If a country raises its budget deficit, then in the market for foreign-currency exchange

Accepted Answer

A)  supply shifts left.
B)  Supply shifts right.
C)  demand shifts left
D)  supply shifts right.E) A) and B)
F) A) and C)

Question 18

Suppose a country experiences capital flight. Of the demand for loanable funds and the supply of currency in the market for foreign-currency exchange, which shifts right?

Accepted Answer

A)  only the demand for loanable funds
B)  only the supply of its currency in the market for foreign-currency exchange
C)  both curves shift right
D)  neither curve shifts rightE) B) and C)
F) A) and D)

Question 19

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

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

Question 20

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

Exam 19: A Macroeconomic Theory of the Open Economy

Suppose a country experiences capital flight. Of the demand for loanable funds and the supply of currency in the market for foreign-currency exchange, which shifts right?

Correct AnswerverifiedShow Answer

A government budget deficit

Correct AnswerverifiedShow Answer

If a country raises its budget deficit, then in the market for foreign-currency exchange

Correct AnswerverifiedShow Answer

If at a given real interest rate desired national saving were $50 billion, domestic investment were $40 billion, and net capital outflow were $20 billion, then at that real interest rate in the loanable funds market there would be a

Correct AnswerverifiedShow Answer

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

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 would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?

Correct AnswerverifiedShow Answer

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Correct AnswerverifiedShow Answer

Recently the Greek government had large deficits and people became worried about Greece's ability to continue to make payments on its debt. Which of the these events raise a country's interest rates?

Correct AnswerverifiedShow Answer

The variable that links the market for loanable funds and the market for foreign-currency exchange is

Correct AnswerverifiedShow Answer

The country of Frequencia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Frequencia's

Correct AnswerverifiedShow Answer

A decrease in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would

Correct AnswerverifiedShow Answer

Other things the same, a higher real interest rate raises the quantity 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

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

A country has national saving of $60 billion, government expenditures of $30 billion, domestic investment of $40 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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