Question 1

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 2

Capital flight raises a country's interest rate.

Accepted Answer

A) True 
 B)False

Question 3

When the real exchange rate for the dollar appreciates, U.S. goods become

Accepted Answer

A)  less expensive relative to foreign goods, which makes exports rise and imports fall.
B)  less expensive relative to foreign goods, which makes exports fall and imports rise.
C)  more expensive relative to foreign goods, which makes exports rise and imports fall.
D)  more expensive relative to foreign goods, which makes exports fall and imports rise.E) B) and C)
F) A) and C)

Question 4

A drop in a country's real interest rate reduces that country's net capital outflow.

Accepted Answer

A) True 
 B)False

Question 5

If a country raises its budget deficit, the 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) A) and C)

Question 6

Over the past two decades the U.S. has persistently had trade deficits.

Accepted Answer

A) True 
 B)False

Question 7

In an open economy, national saving equals

Accepted Answer

A)  domestic investment plus net capital outflow.
B)  domestic investment minus net capital outflow.
C)  domestic investment.
D)  net capital outflow.E) B) and C)
F) B) and D)

Question 8

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

Accepted Answer

A)  supplied for the purpose of selling assets domestically.
B)  supplied for the purpose of buying foreign assets.
C)  demanded for the purpose of buying U.S. net exports of goods and services.
D)  demanded for the purpose of importing foreign goods and services.E) None of the above
F) B) and D)

Question 9

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

Accepted Answer

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

Question 10

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

Question 11

When a country experiences capital flight, the interest rate

Accepted Answer

A)  falls because the demand for loanable funds shifts left.
B)  falls because the supply for loanable funds shifts right.
C)  rises because the demand for loanable funds shifts right.
D)  rises because the supply for loanable funds shifts left.E) C) and D)
F) A) and D)

Question 12

An increase in the budget deficit causes net capital outflow to

Accepted Answer

A)  rise, because the supply of loanable funds shifts right.
B)  rise, because the demand for loanable funds shifts right.
C)  fall, because the supply of loanable funds shifts left.
D)  fall, because the demand for loanable funds shifts right.E) None of the above
F) C) and D)

Question 13

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

Accepted Answer

A)  foreigners want to buy more U.S. bonds
B)  foreigners want to buy fewer U.S. bonds
C)  foreigners want to buy more U.S. goods and services.
D)  foreigners want to buy fewer U.S. goods and services.E) A) and B)
F) A) and D)

Question 14

When a country experiences capital flight its

Accepted Answer

A)  net capital outflow increases and its real exchange rate rises.
B)  net capital outflow increases and its real exchange rate falls.
C)  net capital outflow decreases and its real exchange rate rises.
D)  net capital outflow decreases and its real exchange rate falls.E) A) and D)
F) None of the above

Question 15

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

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 16

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

Question 17

If the supply of loanable funds shifts right, 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) All of the above
F) A) and B)

Question 18

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more attractive to U.S. residents, but less attractive to foreign residents.

Accepted Answer

A) True 
 B)False

Question 19

Other things the same, as the real interest rate rises

Accepted Answer

A)  domestic investment and net capital outflow both rise.
B)  domestic investment and net capital outflow both fall.
C)  domestic investment rises and net capital outflow falls.
D)  domestic investment falls and net capital outflow rises.E) None of the above
F) B) and C)

Question 20

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

Accepted Answer

A)  desired net exports and desired net capital outflow
B)  desired net exports but not desired net capital outflow
C)  desired net capital outflow but not desired net exports
D)  neither desired net exports nor desired net capital outflowE) A) and B)
F) B) and D)

Exam 19: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

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Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more attractive to U.S. residents, but less attractive to foreign residents.

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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

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When a country experiences capital flight, the interest rate

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If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

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In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

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When a country experiences capital flight its

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Capital flight raises a country's interest rate.

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A drop in a country's real interest rate reduces that country's net capital outflow.

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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.

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In an open economy, national saving equals

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When the real exchange rate for the dollar appreciates, U.S. goods become

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Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

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

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If the supply of loanable funds shifts right, then

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Over the past two decades the U.S. has persistently had trade deficits.

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

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An increase in the budget deficit causes net capital outflow to

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Other things the same, as the real interest rate rises

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

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