Question 1

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

Question 2

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 C)
F) All of the above

Question 3

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 4

Refer to Budget in Recession. What does this change in the budget deficit do to the equilibrium values of the interest rate and the quantity of loanable funds?

Accepted Answer

Since the supply of loanable f...

Question 5

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Accepted Answer

A)  rise because national saving rises.
B)  rise because domestic investment rises.
C)  fall because national saving falls.
D)  fall because domestic investment falls.E) A) and B)
F) A) and C)

Question 6

Which of the following is included in the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)  a U.S. bank loans dollars to Tom to buy a U.S. made motorcycle
B)  a U.S. tire maker wants to build a new factory in China
C)  a U.S. company wants to import goods to sell in its retail stores
D)  All of the above are correct.E) C) and D)
F) B) and D)

Question 7

A German company wants to buy dollars to purchase U.S. bonds. In the open-economy macroeconomic model of the U.S., this transaction would be accounted for in

Accepted Answer

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

Question 8

If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

Accepted Answer

A) True 
 B)False

Question 9

Figure 32-1 
-Refer to Figure 32-1. The loanable funds market is in equilibrium at

Accepted Answer

A)  2 percent, $20 billion.
B)  4 percent, $40 billion.
C)  6 percent, $60 billion.
D)  None of the above is correct.E) C) and D)
F) B) and D)

Question 10

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States?

Accepted Answer

A)  U.S. net exports will fall
B)  U.S. net capital outflow will rise
C)  U.S. domestic investment will rise
D)  the dollar will appreciateE) None of the above
F) A) and B)

Question 11

In the open-economy macroeconomic model, if a country's interest rate rises, then its

Accepted Answer

A)  net capital outflow and net exports rise.
B)  net capital outflow rises and its net exports fall.
C)  net capital outflow falls and its net exports rise.
D)  net capital outflow and net exports fall.E) A) and B)
F) All of the above

Question 12

Other things the same, an increase in the U.S. real interest rate induces

Accepted Answer

A)  Americans to buy more foreign assets, which increases U.S. net capital outflow.
B)  Americans to buy more foreign assets, which reduces U.S. net capital outflow.
C)  foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.
D)  foreigners to buy more U.S. assets, which increases U.S. net capital outflow.E) B) and D)
F) All of the above

Question 13

If the demand for dollars in the market for foreign-currency exchange shifts right, then the exchange rate

Accepted Answer

A)  rises and the quantity of dollars exchanged rises.
B)  rises and the quantity of dollars exchanged does not change.
C)  falls and the quantity of dollars exchanged falls.
D)  falls and the quantity of dollars exchanged does not change.E) A) and B)
F) All of the above

Question 14

In an open economy, the source of the demand for loanable funds is

Accepted Answer

A)  national saving
B)  national saving + net capital outflow
C)  investment + the government budget deficit
D)  investment + net capital outflowE) B) and D)
F) B) and C)

Question 15

If a country experiences capital flight, which curves shift right?

Accepted Answer

A)  the demand for loanable funds and the demand for its currency in the market for foreign-currency exchange
B)  the demand for loanable funds and the supply of its currency in the market for foreign-currency exchange
C)  the supply of loanable funds and the demand for its currency in the market for foreign-currency exchange
D)  the supply of loanable funds and the supply of its currency in the market for foreign-currency exchangeE) B) and D)
F) B) and C)

Question 16

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Accepted Answer

A)  raise both the interest rate and the real exchange rate.
B)  raise the interest rate and reduce the real exchange rate.
C)  reduce the interest rate and raise the real exchange rate.
D)  reduce both the interest rate and the real exchange rate.E) B) and D)
F) None of the above

Question 17

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Accepted Answer

The demand curve for loanable ...

Question 18

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Accepted Answer

A decrease in demand for capital goods i...

Question 19

The open-economy macroeconomic model takes

Accepted Answer

A)  GDP, but not the price level as given.
B)  the price level, but not GDP as given.
C)  both the price level and GDP as given.
D)  the price level and GDP as variables to be determined by the model.E) A) and C)
F) A) and D)

Question 20

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

Accepted Answer

A)  tariff.
B)  excise tax.
C)  import quota.
D)  None of the above is correct.E) A) and B)
F) A) and C)

Exam 32: A Macroeconomic Theory of the Open Economy

If the demand for dollars in the market for foreign-currency exchange shifts right, then the exchange rate

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if a country's interest rate rises, then its

Correct AnswerverifiedShow Answer

In an open economy, the source of the demand for loanable funds is

Correct AnswerverifiedShow Answer

If a country experiences capital flight, which curves shift right?

Correct AnswerverifiedShow Answer

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States?

Correct AnswerverifiedShow Answer

A German company wants to buy dollars to purchase U.S. bonds. In the open-economy macroeconomic model of the U.S., this transaction would be accounted for in

Correct AnswerverifiedShow Answer

Other things the same, an increase in the U.S. real interest rate induces

Correct AnswerverifiedShow Answer

The open-economy macroeconomic model takes

Correct AnswerverifiedShow Answer

Which of the following is included in the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to Budget in Recession. What does this change in the budget deficit do to the equilibrium values of the interest rate and the quantity of loanable funds?

Correct AnswerverifiedSince the supply of loanable f...View AnswerShow Answer

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

Correct AnswerverifiedShow Answer

A decrease in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Correct AnswerverifiedA decrease in demand for capital goods i...View AnswerShow Answer

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Correct AnswerverifiedThe demand curve for loanable ...View AnswerShow Answer

If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

Correct AnswerverifiedShow Answer

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n)

Correct AnswerverifiedShow Answer

During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would

Correct AnswerverifiedShow Answer

Figure 32-1 -Refer to Figure 32-1. The loanable funds market is in equilibrium at

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Since the supply of loanable f...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A decrease in demand for capital goods i...
View Answer

Correct Answer
verified
The demand curve for loanable ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified