Question 1

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 2

If a government has a budget surplus, then public saving

Accepted Answer

A)   is positive and increases national saving.
B)   is positive but decreases national saving.
C)   is negative and decreases national saving.
D)   is negative but increases national saving.E) All of the above
F) A) and C)

Question 3

If for some reason Americans desired to increase their purchases of foreign assets, then other things the same

Accepted Answer

A)   both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall.
B)   both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise.
C)   the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall.
D)   the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.E) B) and C)
F) All of the above

Question 4

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

Accepted Answer

A) True 
 B)False

Question 5

Over the past two decades, the U.S. has persistently exported more goods and services than it has imported.

Accepted Answer

A) True 
 B)False

Question 6

The value of net exports equals the value of

Accepted Answer

A)   national saving.
B)   public saving.
C)   national saving - net capital outflow.
D)   national saving - domestic investment.E) C) and D)
F) B) and C)

Question 7

In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________.

Accepted Answer

net capital outflow,...

Question 8

In the open-economy macroeconomic model, the

Accepted Answer

A)   exchange rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow.
B)   exchange rate adjusts to equate national saving with the sum of investment and net capital outflow.
C)   interest rate adjusts to equate private saving with the sum of investment, net exports, and net capital outflow.
D)   interest rate adjusts to equate national saving with the sum of investment and net capital outflow.E) A) and B)
F) C) and D)

Question 9

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

Accepted Answer

A)   depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate.
B)   depends on the real interest rate. The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate.
C)   and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate.
D)   and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate.E) None of the above
F) A) and B)

Question 10

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

Accepted Answer

A)   domestic investment and net capital outflow.
B)   domestic investment but not net capital outflow.
C)   net capital outflow but not domestic investment.
D)   neither domestic investment nor net capital outflow.E) All of the above
F) C) and D)

Question 11

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

Accepted Answer

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

Question 12

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign- currency exchange.

Accepted Answer

A) True 
 B)False

Question 13

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 D)
F) A) and B)

Question 14

What is the source of the supply of loanable funds in the open-economy macroeconomic model?

Accepted Answer

The answer of What is the source of the supply...

Question 15

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

Question 16

If a country raises its budget deficit, then net capital outflow

Accepted Answer

A)   rises, so the supply of its currency shifts right in the market for foreign-currency exchange.
B)   rises, so the demand for its currency shifts right in the market for foreign-currency exchange.
C)   falls, so the supply of its currency shifts left in the market for foreign-currency exchange.
D)   falls, so the demand for its currency shifts right in the market for foreign-currency exchange.E) A) and B)
F) B) and C)

Question 17

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)   the sum of national saving and net capital outflow.
C)   national saving.
D)   net exportsE) B) and C)
F) None of the above

Question 18

Refer to Depositors Move Funds Out of Greek Banks. Which curve in the domestic loanable funds market shifted and which direction did it shift?

Accepted Answer

The demand...

Question 19

From 2001 to 2004 the U.S. budget went from surplus to deficit. According to the open economy macroeconomic model, this change should have

Accepted Answer

A)   increased U.S. interest rates and increased the real exchange rate of the dollar.
B)   increased U.S. interest rates and decreased the real exchange rate of the dollar.
C)   decreased U.S. interest rates and increased the real exchange rate of the dollar.
D)   decreased U.S. interest rates and decreased the real exchange rate of the dollar.E) B) and D)
F) B) and C)

Question 20

If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate

Accepted Answer

A)   decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
B)   decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
C)   increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
D)   increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.E) B) and D)
F) B) and C)

Exam 19: A Macroeconomic Theory of the Open Economy

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

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The value of net exports equals the value of

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What is the source of the supply of loanable funds in the open-economy macroeconomic model?

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

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign- currency exchange.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow 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

An increase in the budget surplus

Correct AnswerverifiedShow Answer

If for some reason Americans desired to increase their purchases of foreign assets, then other things the same

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a government has a budget surplus, then public saving

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the

Correct AnswerverifiedShow Answer

If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________.

Correct Answerverifiednet capital outflow,...View AnswerShow Answer

Over the past two decades, the U.S. has persistently exported more goods and services than it has imported.

Correct AnswerverifiedShow Answer

Refer to Depositors Move Funds Out of Greek Banks. Which curve in the domestic loanable funds market shifted and which direction did it shift?

Correct AnswerverifiedThe demand...View AnswerShow Answer

If a country raises its budget deficit, then net capital outflow

Correct AnswerverifiedShow Answer

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

Correct AnswerverifiedShow Answer

From 2001 to 2004 the U.S. budget went from surplus to deficit. According to the open economy macroeconomic model, this change should have

Correct AnswerverifiedShow Answer

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The interest rate fa...
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In the market for foreign-currency exchange, the source of the supply of dollars is _____. The supply curve is _ because _________.

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net capital outflow,...
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The demand...
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