Question 1

If the supply of loanable funds shifts right, then the equilibrium

Accepted Answer

A)  levels of net capital outflow and domestic investment decrease.
B)  level of net capital outflow increases and the equilibrium level of domestic investment decreases.
C)  level of net capital outflow decreases and the equilibrium level of domestic investment increases.
D)  levels of net capital outflow and domestic investment increase.E) A) and B)
F) All of the above

Question 2

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

Accepted Answer

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

Question 3

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 rise
B)  U.S. net capital outflow will fall.
C)  U.S. domestic investment will rise
D)  the dollar will appreciateE) B) and C)
F) A) and D)

Question 4

Trade policies

Accepted Answer

A)  alter the trade balance because they alter imports of the country that implemented them.
B)  alter the trade balance because they alter net capital outflow of the country that implemented them.
C)  do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them.
D)  do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.E) B) and D)
F) A) and D)

Question 5

Which of the following is correct concerning the open-economy macroeconomic model?

Accepted Answer

A)  The net-capital-outflow curve slopes downward.
B)  The key determinant of net capital outflow is the real exchange rate.
C)  The supply of dollars in the market for foreign-currency exchange is horizontal.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 6

Which of the following leads to an increase in net exports in the long run?

Accepted Answer

A)  either a decrease in the budget deficit or imposing an import quota
B)  a decrease in the budget deficit but not imposing an import quota
C)  imposing an import quota but not a decrease in the budget deficit
D)  neither a decrease in the budget deficit nor imposing an import quotaE) A) and B)
F) A) and C)

Question 7

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 retail outlet in Canada wants to buy handbags from a U.S. manufacturer.
B)  A U.S. bank loans dollars to Karen, a U.S. resident, who wants to purchase a car in the U.S.
C)  A U.S. based law firm wants to build a new office in Japan.
D)  All of the above are correct.E) A) and C)
F) A) and D)

Question 8

In equilibrium which of the following happens if the U.S. imposes tariffs on leather boots?

Accepted Answer

A)  U.S. production of leather boots rise
B)  U.S. net exports rise
C)  the exchange rate falls
D)  All of the above are correct.E) A) and D)
F) A) and B)

Question 9

At the equilibrium real interest rate in the open-economy macroeconomic model, the equilibrium quantity of loanable funds equals

Accepted Answer

A)  net capital outflow.
B)  domestic investment.
C)  foreign currency supplied.
D)  national saving.E) B) and D)
F) None of the above

Question 10

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 11

A large and sudden movement of funds out of a country is called

Accepted Answer

A)  arbitrage.
B)  capital flight.
C)  crowding out.
D)  capital mobility.E) None of the above
F) All of the above

Question 12

When a country experiences capital flight, its net capital outflow,

Accepted Answer

A)  which is part of the demand for loanable funds, increases.
B)  which is part of the supply of loanable funds, increases.
C)  which is part of the demand for loanable funds, decreases.
D)  which is part of the supply of loanable funds, decreases.E) A) and B)
F) B) and C)

Question 13

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

Question 14

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Accepted Answer

A)  foreign residents want to buy more U.S. goods and services.
B)  U.S. residents want to buy fewer foreign goods and services.
C)  Both A and B are correct.
D)  None of the above is correct.E) None of the above
F) All of the above

Question 15

According to the open-economy macroeconomic model, import quotas increase which of the following

Accepted Answer

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

Question 16

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 interest rate would fall.E) A) and D)
F) All of the above

Question 17

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

Accepted Answer

A)  net capital outflow.
B)  domestic investment.
C)  net capital outflow plus domestic investment.
D)  foreign currency supplied.E) A) and B)
F) All of the above

Question 18

An increase in real interest rates in the United States

Accepted Answer

A)  discourages both U.S. and foreign residents from buying U.S. assets.
B)  encourages both U.S. and foreign residents to buy U.S. assets.
C)  encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets.
D)  encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets.E) A) and B)
F) A) and C)

Question 19

In which case(s)  does(do)  a country's demand for loanable funds shift right?

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

Question 20

If the U.S. government went from a budget deficit to a budget surplus then

Accepted Answer

A)  the interest rate and the real exchange rate would increase.
B)  the interest rate and the real exchange rate would decrease.
C)  the interest rate would increase and the real exchange rate would decrease.
D)  the interest rate would decrease and the real exchange rate would increase.E) C) and D)
F) B) and C)

Exam 19: A Macroeconomic Theory of the Open Economy

In equilibrium which of the following happens if the U.S. imposes tariffs on leather boots?

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Which of the following leads to an increase in net exports in the long run?

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Which of the following is correct concerning the open-economy macroeconomic model?

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

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According to the open-economy macroeconomic model, import quotas increase which of the following

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If the supply of loanable funds shifts right, then the equilibrium

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If the U.S. government went from a budget deficit to a budget surplus then

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A large and sudden movement of funds out of a country is called

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net exports equal the quantity of dollars demanded in the foreign-currency exchange market.

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

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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

An increase in real interest rates in the United States

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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

In which case(s) does(do) a country's demand for loanable funds shift right?

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate

Correct AnswerverifiedShow Answer

Trade policies

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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?

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When a country experiences capital flight, its net capital outflow,

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model, the equilibrium quantity of loanable funds equals

Correct AnswerverifiedShow Answer

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