Question 1

When a country experiences capital flight, which of the following rise?

Accepted Answer

A)   its real interest rate and its real exchange rate
B)   its real interest rate but not its real exchange rate
C)   its real exchange rate but not its real interest rate
D)   neither its real interest rate nor its foreign exchange rateE) A) and D)
F) A) and C)

Question 2

What happens to each of the following if the supply of loanable funds shifts left?
a. the interest rate
b. net capital outflow
c. the exchange rate

Accepted Answer

The interest rate ri...

Question 3

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) None of the above
F) A) and B)

Question 4

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

Accepted Answer

A)   rises and the real exchange rate rises.
B)   falls and the real exchange rate falls.
C)   rises and the real exchange rate falls.
D)   falls and the real exchange rate rises.E) None of the above
F) A) and B)

Question 5

The imposition of an import quota shifts

Accepted Answer

A)   the supply of currency right, so the exchange rate falls.
B)   the supply of currency left, so the exchange rate rises.
C)   the demand for currency right, so the exchange rate rises.
D)   the demand for currency left, so the exchange rate falls.E) A) and B)
F) A) and C)

Question 6

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Accepted Answer

A) True 
 B)False

Question 7

Other things the same, in the open-economy macroeconomic model, if the exchange rate rises,

Accepted Answer

A)   the demand for dollars shifts left.
B)   the demand for dollars shifts right.
C)   the quantity of dollars demanded falls.
D)   the quantity of dollars demanded rises.E) A) and C)
F) B) and D)

Question 8

An increase in the U.S. government budget deficit shifts the

Accepted Answer

A)   demand for loanable funds right and decreases investment spending.
B)   supply of loanable funds right and increases investment spending.
C)   supply of loanable funds left and decreases investment spending.
D)   None of the above is correct.E) A) and D)
F) B) and C)

Question 9

In the open­economy macroeconomic model, if a country's supply of loanable funds shifts right, then

Accepted Answer

A)   net capital outflow rises, so the exchange rate rises.
B)   net capital outflow rises, so the exchange rate falls.
C)   net capital outflow falls, so the exchange rate rises.
D)   net capital outflow falls, so the exchange rate falls.E) A) and B)
F) B) and C)

Question 10

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 C)

Question 11

If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Accepted Answer

A)   net capital outflow and the real exchange rate will rise.
B)   net capital outflow will rise and the real exchange rate will fall.
C)   net capital outflow will fall and the real exchange rate will rise.
D)   net capital outflow and the exchange rate will fall.E) B) and C)
F) C) and D)

Question 12

Which of the following results if the U.S. imposes an import quota on computer components?

Accepted Answer

A)   U.S. exports and U.S. imports both increase
B)   U.S. exports increase but U.S. imports are unchanged
C)   U.S. imports increase but U.S. exports are unchanged
D)   None of the above is correct.E) C) and D)
F) A) and B)

Question 13

When Mexico suffered from capital flight in 1994, Mexico's net exports

Accepted Answer

A)   decreased.
B)   did not change.
C)   increased.
D)   decreased until the peso appreciated, then increased.E) A) and B)
F) A) and C)

Question 14

In which case(s)  does(do)  a country's supply of loanable funds shift left?

Accepted Answer

A)   both an increase in the budget deficit and capital flight
B)   an increase in the budget deficit, but not capital flight
C)   capital flight, but not an increase in the budget deficit
D)   neither an increase in the budget deficit nor capital flightE) None of the above
F) All of the above

Question 15

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

Question 16

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

Question 17

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from

Accepted Answer

A)   net exports
B)   net capital outflow
C)   net exports + net capital outflow
D)   net exports - net capital outflowE) A) and D)
F) B) and C)

Question 18

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

Accepted Answer

A) True 
 B)False

Question 19

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Accepted Answer

A) True 
 B)False

Question 20

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

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

Exam 32: A Macroeconomic Theory of the Open Economy

In which case(s) does(do) a country's supply of loanable funds shift left?

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If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated borrowers prior to lending them funds, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, Mexico's net exports

Correct AnswerverifiedShow Answer

When a country experiences capital flight, the interest rate

Correct AnswerverifiedShow Answer

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Correct AnswerverifiedShow Answer

The imposition of an import quota shifts

Correct AnswerverifiedShow Answer

What happens to each of the following if the supply of loanable funds shifts left? a. the interest rate b. net capital outflow c. the exchange rate

Correct AnswerverifiedThe interest rate ri...View AnswerShow Answer

In the open­economy macroeconomic model, if a country's supply of loanable funds shifts right, then

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

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

Which of the following results if the U.S. imposes an import quota on computer components?

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An increase in the U.S. government budget deficit shifts the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, in the open-economy macroeconomic model, if the exchange rate rises,

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An increase in the budget surplus

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When a country experiences capital flight, which of the following rise?

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The interest rate ri...
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In the openeconomy macroeconomic model, if a country's supply of loanable funds shifts right, then

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