Question 1

In the open-economy macroeconomic model we focus on the determination of GDP and the price level.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)  increasing domestic saving
B)  increasing political stability and respect for property rights
C)  negotiating with other countries to get them to reduce their trade restrictions
D)  imposing higher tariffs on imported goodsE) A) and D)
F) A) and C)

Question 3

What does a lower real interest rate decrease the quantity of?

Accepted Answer

A)  loanable funds demanded
B)  loanable funds supplied
C)  domestic investment
D)  net capital outflowE) C) and D)
F) None of the above

Question 4

Where does the supply of dollars in the foreign currency exchange market come from?

Accepted Answer

A)  from Canadian national saving
B)  from Canadian net capital outflow
C)  from domestic investment
D)  from foreign demand for Canadian goodsE) All of the above
F) A) and D)

Question 5

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would be consistent with an increase in the Canadian real interest rate?

Accepted Answer

A)  A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing.
B)  Canadian firms decide, since interest rates are higher, to do more investment spending.
C)  Brad, a Canadian resident, decides to put less money in his savings account than he had planned to.
D)  Canadian net exports increase.E) A) and B)
F) C) and D)

Question 7

If Kenya experienced capital flight, which of the following best explains the effects?

Accepted Answer

A)  The supply of Kenyan schillings curve would shift left, which would make the real exchange rate of the Kenyan schilling appreciate.
B)  The supply of Kenyan schillings curve would shift left, which would make the real exchange rate of the Kenyan schilling depreciate.
C)  The supply of Kenyan schillings curve would shift right, which would make the real exchange rate of the Kenyan schilling appreciate.
D)  The supply of Kenyan schillings curve would shift right, which would make the real exchange rate of the Kenyan schilling depreciate.E) All of the above
F) A) and B)

Question 8

If a government started with a deficit and moved to a surplus, which of the following best describes the effects of these changes?

Accepted Answer

A)  Domestic investment and the real exchange rate would rise.
B)  Domestic investment and the real exchange rate would fall.
C)  Domestic investment would rise, and the real exchange rate would fall.
D)  Domestic investment would fall, and the real exchange rate would rise.E) A) and B)
F) None of the above

Question 9

In the open economy macroeconomic model, what is net capital outflow equal to?

Accepted Answer

A)  the quantity of dollars supplied in the foreign exchange market
B)  the quantity of dollars demand in the foreign exchange market
C)  the quantity of funds supplied in the loanable funds market
D)  the quantity of funds demanded in the loanable funds marketE) A) and D)
F) None of the above

Question 10

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

Accepted Answer

A)  the nominal exchange rate
B)  the nominal interest rate
C)  the real exchange rate
D)  the real interest rateE) B) and D)
F) All of the above

Question 11

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?

Accepted Answer

A)  The exchange rate rises.
B)  The exchange rate falls.
C)  The expected rate of return on Canadian assets rises.
D)  The expected rate of return on Canadian assets falls.E) All of the above
F) A) and B)

Question 12

Which of the following will not change Canadian net exports?

Accepted Answer

A)  capital flight from Canada
B)  an increase in the government budget deficit
C)  the imposition of Canadian import quotas
D)  an increase in the world interest rateE) A) and C)
F) A) and B)

Question 13

Suppose that Canada imposed an import quota on beef. Which of the following identifies the most likely results?

Accepted Answer

A)  Sales of Canadian beef would rise; exports of other industries would increase.
B)  Sales of Canadian beef would rise; exports of other industries would decline.
C)  Sales of Canadian beef would not change; exports of other industries would increase.
D)  Sales of Canadian beef would not change; exports of other industries would decline.E) B) and C)
F) A) and C)

Question 14

Since the mid 1990s, Canadian governments have tried to eliminate budget deficits. Which of the following was expected to happen?

Accepted Answer

A)  This would decrease national savings, appreciate the real exchange rate, and decrease net exports.
B)  This would increase national savings, depreciate the real exchange rate, and increase net exports.
C)  This would increase national savings, depreciate the real exchange rate, and increase net exports
D)  This would decrease national savings, depreciate the real exchange rate, and decrease net exports.E) C) and D)
F) A) and B)

Question 15

How does the supply or demand for loanable funds shift when a country increases its budget deficit?

Accepted Answer

A)  The supply of loanable funds shifts right.
B)  The supply of loanable funds shifts left.
C)  The demand for loanable funds shifts right.
D)  The demand for loanable funds shifts left.E) A) and D)
F) A) and C)

Question 16

If the government started with a budget deficit and moved to a surplus, which of the following best describes the effects of these changes?

Accepted Answer

A)  Domestic investment would rise, and the trade balance would move towards surplus.
B)  Domestic investment would rise, and the trade balance would move towards deficit.
C)  Domestic investment would fall, and the trade balance would move towards surplus.
D)  Domestic investment would fall, and the trade balance would move towards deficit.E) All of the above
F) A) and D)

Question 17

If a government increases its budget deficit, which of the following best describes the consequences?

Accepted Answer

A)  Interest rates and domestic investment rise.
B)  Interest rates and domestic investment fall.
C)  Interest rates rise and domestic investment fall.
D)  Interest rates fall and domestic investment rise.E) B) and D)
F) None of the above

Question 18

If a government increases its budget deficit, which of the following best predicts the effects?

Accepted Answer

A)  The real exchange rate appreciates, and the trade balance moves toward surplus.
B)  The real exchange rate appreciates, and the trade balance moves toward deficit.
C)  The real exchange rate depreciates, and the trade balance moves toward surplus.
D)  The real exchange rate depreciates, and the trade balance moves toward deficit.E) B) and C)
F) A) and D)

Question 19

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . Which of the following is consistent with what the open-economy macroeconomic model predicts?

Accepted Answer

A)  This event should have raised Argentinean interest rates and caused the Argentinean currency to appreciate.
B)  This event should have raised Argentinean interest rates and caused the Argentinean currency to depreciate.
C)  This event should have lowered Argentinean interest rates and caused the Argentinean currency to appreciate.
D)  This event should have lowered Argentinean interest rates and caused the Argentinean currency to depreciate.E) All of the above
F) A) and B)

Question 20

If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

Accepted Answer

A) True 
 B)False

Exam 13: A Macroeconomic Theory of the Open Economy

Since the mid 1990s, Canadian governments have tried to eliminate budget deficits. Which of the following was expected to happen?

Correct AnswerverifiedShow Answer

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . Which of the following is consistent with what the open-economy macroeconomic model predicts?

Correct AnswerverifiedShow Answer

If Kenya experienced capital flight, which of the following best explains the effects?

Correct AnswerverifiedShow Answer

Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?

Correct AnswerverifiedShow Answer

Which of the following would do the most to reduce a trade deficit?

Correct AnswerverifiedShow Answer

How does the supply or demand for loanable funds shift when a country increases its budget deficit?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model we focus on the determination of GDP and the price level.

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, which of the following best describes the consequences?

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In the open economy macroeconomic model, what is net capital outflow equal to?

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Where does the supply of dollars in the foreign currency exchange market come from?

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When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

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Suppose that Canada imposed an import quota on beef. Which of the following identifies the most likely results?

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If the real exchange rate of the Canadian dollar were above its equilibrium level, the real exchange rate of the Canadian dollar would appreciate.

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

Correct AnswerverifiedShow Answer

If the government started with a budget deficit and moved to a surplus, which of the following best describes the effects of these changes?

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What does a lower real interest rate decrease the quantity of?

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If a government increases its budget deficit, which of the following best predicts the effects?

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Which of the following will not change Canadian net exports?

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If a government started with a deficit and moved to a surplus, which of the following best describes the effects of these changes?

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Which of the following would be consistent with an increase in the Canadian real interest rate?

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