Question 1

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 2

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.

Question 3

What happens to net capital outflow as the real interest rate falls? Explain your answer.

Accepted Answer

As the real interest rate falls, domesti...

Question 4

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The supply of loanable funds increases, ...

Question 5

If a country had capital flight, then the real exchange rate would

Accepted Answer

A)   fall. To offset this fall the government could increase the budget deficit.
B)   fall. To offset this fall the government could decrease the budget deficit.
C)   rise. To offset this rise the government could increase the budget deficit.
D)   rise. To offset this rise the government could decrease the budget deficit.

Question 6

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

Accepted Answer

A) True 
 B)False

Question 7

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Accepted Answer

A)   and U.S. net capital outflow rose.
B)   and U.S. net capital outflow fell.
C)   fell and U.S. net capital outflow rose.
D)   rose and U.S. net capital outflow fell.

Question 8

In the open­economy macroeconomic model, if a country's interest rate rises, then its

Accepted Answer

A)   net capital outflow and net exports rise.
B)   net capital outflow rises and its net exports fall.
C)   net capital outflow falls and its net exports rise.
D)   net capital outflow and net exports fall.

Question 9

Which of the following would both raise the U.S. exchange rate?

Accepted Answer

A)   capital flight from other countries to the U.S. occurs and the U.S. moves from budget surplus to budget deficit
B)   capital flight from other countries to the U.S. occurs and the U.S. moves from budget deficit to budget surplus
C)   capital flight from the U.S. to other countries occurs, the U.S. moves from budget surplus to budget deficit
D)   capital flight from U.S. to other countries occurs, the U.S. moves from budget deficit to budget surplus

Question 10

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Accepted Answer

The supply of dollar...

Question 11

If the U.S. imposed an import quota on corn, then in the U.S.

Accepted Answer

A)   exports and imports would rise.
B)   exports and imports would fall.
C)   exports would rise and imports would fall.
D)   exports would fall and imports would rise.

Question 12

The slope of the supply of loanable funds is based on an increase in

Accepted Answer

A)   only national saving when the interest rate rises.
B)   both national saving and net capital outflow when the interest rate rises.
C)   only national saving when the interest rate falls.
D)   both national saving and net capital outflow when the interest rate falls.

Question 13

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

Accepted Answer

A)   domestic investment.
B)   net capital outflow.
C)   national consumption minus domestic investment.
D)   None of the above is correct.

Question 14

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Accepted Answer

A) True 
 B)False

Question 15

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.

Question 16

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
 
-Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

Accepted Answer

A)   shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)   shifting the demand curve in panel a to the right and the supply curve in panel c to the left.
C)   shifting the supply curve in panel a to the right and the demand curve in panel c to the left.
D)   shifting the supply curve in panel a to the right and the supply curve in panel c to the right.

Question 17

Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below.
 
-Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

Accepted Answer

A)   r2 and e3
B)   r3 and e2
C)   r3 and e1
D)   None of the above is correct.

Question 18

When Mexico suffered from capital flight in 1994, the U.S. real interest rate

Accepted Answer

A)   rose and the real exchange rate of the dollar appreciated.
B)   rose and the real exchange rate of the dollar depreciated.
C)   fell and the real exchange rate of the dollar appreciated.
D)   fell and the real exchange rate of the dollar depreciated.

Question 19

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.

Question 20

Figure 32-4
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
 
-Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget deficit can be illustrated as a move to

Accepted Answer

A)   4% and 1
B)   4% and .5
C)   2% and 1
D)   2% and .5

Exam 19: A Macroeconomic Theory of the Open Economy

If a country had capital flight, then the real exchange rate would

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, the U.S. real interest rate

Correct AnswerverifiedShow Answer

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

What happens to net capital outflow as the real interest rate falls? Explain your answer.

Correct AnswerverifiedAs the real interest rate falls, domesti...View AnswerShow Answer

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Correct AnswerverifiedThe supply of loanable funds increases, ...View AnswerShow Answer

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5. Starting from 3% and .75, an increase in the government budget deficit can be illustrated as a move to

Correct AnswerverifiedShow Answer

Which of the following would both raise the U.S. exchange rate?

Correct AnswerverifiedShow Answer

Figure 32-7 Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions below. -Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is consistent with capital flight?

Correct AnswerverifiedShow Answer

Figure 32-4 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4. Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

Correct AnswerverifiedShow Answer

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds is based on an increase in

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

Correct AnswerverifiedShow Answer

If for some reason U.S. residents increase their purchases of foreign assets, then all else constant which curve in the market for foreign-currency exchange shifts and which direction does it shift? What happens to the exchange rate?

Correct AnswerverifiedThe supply of dollar...View AnswerShow Answer

If the U.S. imposed an import quota on corn, then in the U.S.

Correct AnswerverifiedShow Answer

Trade policies

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 open­economy macroeconomic model, if a country's interest rate rises, then its

Correct AnswerverifiedShow Answer

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S is national saving, which is the sourc...
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As the real interest rate falls, domesti...
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The supply of loanable funds increases, ...
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The supply of dollar...
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In the openeconomy macroeconomic model, if a country's interest rate rises, then its

Correct Answer
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