Question 1

Which of the following would both make a country's real exchange rate rise?

Accepted Answer

A)   its budget deficit increases and bonds issued in the country become riskier
B)   bonds issued in that country become riskier and it imposes an import quota
C)   it imposes an import quota and the budget deficit increases
D)   None of the above are correct.E) A) and C)
F) All of the above

Question 2

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which location(s)  is included in the U.S. demand for loanable funds?

Accepted Answer

A)   only the U.S.
B)   only Mexico
C)   Mexico and the U.S.
D)   neither Mexico nor the U.S.E) A) and C)
F) A) and B)

Question 3

If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate

Accepted Answer

A)   and the quantity of dollars traded rises.
B)   rises and the quantity of dollars traded falls.
C)   falls and the quantity of dollars traded rises.
D)   and the quantity of dollars traded falls.E) C) and D)
F) B) and C)

Question 4

A U.S. bank wants to buy euros in order to buy German bonds. In the open-economy macroeconomic model, this transaction would be part of

Accepted Answer

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

Question 5

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Accepted Answer

The supply of loanable funds curve shift...

Question 6

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

Accepted Answer

A)   the real exchange rate depreciates and net exports fall.
B)   the real exchange rate depreciates and net exports rise.
C)   the real exchange rate appreciates and net exports fall.
D)   the real exchange rate appreciates and net exports rise.E) B) and C)
F) None of the above

Question 7

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s)  is included in the demand for loanable funds in the U.S.?

Accepted Answer

A)   both the one in Ohio and the one in Italy
B)   only the one in Ohio
C)   only the one in Italy
D)   neither the one in Ohio nor the one in ItalyE) A) and D)
F) B) and D)

Question 8

Which of the following is the most likely response to an increase in the U.S. real interest rate?

Accepted Answer

A)   a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing
B)   U.S. firms decide to buy more capital goods
C)   a U.S. citizen decides to put less money in his savings account than he had planned.
D)   All of the above are consistent.E) B) and C)
F) A) and D)

Question 9

Which of the following is the correct way to show the effects of a newly imposed import quota?

Accepted Answer

A)   shift the demand for loanable funds left, the supply of dollars in the market for foreign- currency exchange left, and the demand for dollars in the market for foreign-currency exchange right
B)   shift the demand for loanable funds left, the supply of dollars in the market for foreign- currency exchange right, and the demand for dollars in the market for foreign-currency exchange left
C)   shift the demand for dollars in the market for foreign-currency exchange to the right
D)   shift the supply of dollars in the market for foreign-currency exchange to the leftE) A) and B)
F) B) and C)

Question 10

At the equilibrium real interest rate in the open-economy macroeconomic model

Accepted Answer

A)   saving = domestic investment
B)   saving = net capital outflow
C)   net capital outflow = domestic investment
D)   net capital outflow + domestic investment = savingE) A) and B)
F) B) and D)

Question 11

If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate

Accepted Answer

A)   and net exports would rise.
B)   would rise and its net exports would fall.
C)   would fall and its net exports would rise.
D)   and its net exports would fall.E) B) and D)
F) A) and B)

Question 12

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Accepted Answer

A)   an increase in the demand for U.S. currency in the market for foreign-currency exchange
B)   a decrease in the demand for U.S. currency in the market for foreign-currency exchange
C)   an increase in the supply of loanable funds
D)   a decrease in the supply of loanable fundsE) B) and D)
F) C) and D)

Question 13

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Accepted Answer

A) True 
 B)False

Question 14

If the budget deficit increases, then

Accepted Answer

A)   U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase more U.S. assets
B)   U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase fewer U.S. assets
C)   U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets
D)   U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase fewer U.S. assetsE) A) and C)
F) A) and B)

Question 15

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Accepted Answer

A)   left, which would make the real exchange rate of the Chinese yuan appreciate.
B)   left, which would make the real exchange rate of the Chinese yuan depreciate.
C)   right, which would make the real exchange rate of the Chinese yuan appreciate.
D)   right, which would make the real exchange rate of the Chinese yuan depreciate.E) B) and D)
F) A) and B)

Question 16

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $50 billion, and net capital outflow of $30 billion. What is its supply of loanable funds?

Accepted Answer

A)   $30 billion
B)   $40 billion
C)   $50 billion
D)   $80 billionE) All of the above
F) A) and B)

Question 17

Suppose that the U.S. imposes an import quota on lumber. The quota makes the real exchange rate of the U.S. dollar

Accepted Answer

A)   appreciate but does not change the real interest rate in the United States.
B)   appreciate and the real interest rate in the United States increase.
C)   depreciate and the real interest rate in the United States decrease.
D)   depreciate but does not change the real interest rate in the United States.E) A) and B)
F) None of the above

Question 18

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) A) and C)

Question 19

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds

Accepted Answer

A)   only if the asset is located at home.
B)   only if the asset is located abroad.
C)   whether the asset is located at home or abroad.
D)   None of the above is correct.E) C) and D)
F) All of the above

Question 20

Refer to U.S. Investment Tax Credit. What happens to the exchange rate, U.S. net exports, and the net exports of foreign countries?

Accepted Answer

The exchange rate ri...

Exam 32: A Macroeconomic Theory of the Open Economy

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?

Correct AnswerverifiedShow Answer

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the U.S.?

Correct AnswerverifiedShow Answer

If the budget deficit increases, then

Correct AnswerverifiedShow Answer

Suppose that the U.S. imposes an import quota on lumber. The quota makes the real exchange rate of the U.S. dollar

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is the correct way to show the effects of a newly imposed import quota?

Correct AnswerverifiedShow Answer

If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate

Correct AnswerverifiedShow Answer

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Correct AnswerverifiedShow Answer

From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?

Correct AnswerverifiedShow Answer

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Correct AnswerverifiedThe supply of loanable funds curve shift...View AnswerShow Answer

Which of the following is the most likely response to an increase in the U.S. real interest rate?

Correct AnswerverifiedShow Answer

If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate

Correct AnswerverifiedShow Answer

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Correct AnswerverifiedShow Answer

At the equilibrium real interest rate in the open-economy macroeconomic model

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, if there is a surplus in the market for foreign-currency exchange, which of the following will move the market to equilibrium?

Correct AnswerverifiedShow Answer

Which of the following would both make a country's real exchange rate rise?

Correct AnswerverifiedShow Answer

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $50 billion, and net capital outflow of $30 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

A U.S. bank wants to buy euros in order to buy German bonds. In the open-economy macroeconomic model, this transaction would be part of

Correct AnswerverifiedShow Answer

Refer to U.S. Investment Tax Credit. What happens to the exchange rate, U.S. net exports, and the net exports of foreign countries?

Correct AnswerverifiedThe exchange rate ri...View AnswerShow Answer

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The supply of loanable funds curve shift...
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The exchange rate ri...
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