Question 1

The explanation for the slope of

Accepted Answer

A)   the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving.
B)   the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving.
C)   the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving.
D)   the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

Question 2

When a country imposes an import quota, its

Accepted Answer

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

Question 3

The open-economy macroeconomic model examines the determination of

Accepted Answer

A)   the output growth rate and the real interest rate.
B)   unemployment and the exchange rate.
C)   the output growth rate and the inflation rate.
D)   the trade balance and the exchange rate.

Question 4

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Accepted Answer

A) True 
 B)False

Question 5

If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

Accepted Answer

A) True 
 B)False

Question 6

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A)   and investment to rise.
B)   to rise and investment to fall.
C)   to fall and investment to rise.
D)   and investment to fall.

Question 7

An increase in real interest rates in the United States changes the quantity of loanable funds demanded because

Accepted Answer

A)   U.S. residents will want to buy more foreign assets.
B)   Foreign residents will want to buy fewer foreign assets.
C)   U.S. firms will want to purchase fewer U.S. capital goods.
D)   All of the above are correct.

Question 8

If a government increases its budget deficit, then domestic interest rates

Accepted Answer

A)   and net exports rise.
B)   rise and net exports fall.
C)   fall and net exports rise.
D)   and net exports fall.

Question 9

If the supply of loanable funds shifts left, then

Accepted Answer

A)   the real interest rate and the equilibrium quantity of loanable funds both fall.
B)   the real interest rate falls and the equilibrium quantity of loanable funds rises.
C)   the real interest rate and the equilibrium quantity of loanable funds both rise.
D)   the real interest rate rises and the equilibrium quantity of loanable funds falls.

Question 10

If government policy encouraged households to save more at each interest rate, then

Accepted Answer

A)   the real exchange rate and net exports would rise.
B)   the real exchange rate and net exports would fall.
C)   the real exchange rate would rise and net exports would fall.
D)   the real exchange rate would fall and net exports would rise.

Question 11

When a country's government budget deficit decreases,

Accepted Answer

A)   the real exchange rate of its currency and its net exports increase.
B)   the real exchange rate of its currency and its net exports decrease.
C)   the real exchange rate of its currency increases and its net exports decrease.
D)   the real exchange rate of its currency decreases and its net exports increase.

Question 12

The country of Frequencia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Frequencia's

Accepted Answer

A)   real interest rate to rise.
B)   real exchange rate to fall.
C)   net exports to fall.
D)   None of the above is likely.

Question 13

If a tariff on lumber were implemented, for the country as a whole which of the following would rise?

Accepted Answer

A)   exports and net exports
B)   exports but not net exports
C)   net exports but not exports
D)   neither exports nor net exports

Question 14

If Kenya experienced capital flight, the supply of Kenyan schillings in the market for foreign-currency exchange would shift

Accepted Answer

A)   left, which would make the real exchange rate of the Kenyan schilling appreciate.
B)   left, which would make the real exchange rate of the Kenyan schilling depreciate.
C)   right, which would make the real exchange rate of the Kenyan schilling appreciate.
D)   right, which would make the real exchange rate of the Kenyan schilling depreciate.

Question 15

When the U.S. real interest rate falls, owning U.S. assets becomes

Accepted Answer

A)   less attractive and so U.S. net capital outflow rises.
B)   less attractive and so U.S. net capital outflow falls.
C)   more attractive and so U.S. net capital outflow rises.
D)   more attractive and so U.S. net capital outflow falls.

Question 16

An increase in the budget deficit causes domestic interest rates

Accepted Answer

A)   and net capital outflow to rise.
B)   to rise and net capital outflow to fall.
C)   to fall and net capital outflow to rise.
D)   and net capital outflow to fall.

Question 17

Over the past two decades the U.S. has persistently had trade deficits.

Accepted Answer

A) True 
 B)False

Question 18

If a country raises its budget deficit, then in the market for foreign-currency exchange

Accepted Answer

A)   supply shifts left.
B)   supply shifts right
C)   demand shifts left.
D)   supply shifts right.

Question 19

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.

Question 20

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Accepted Answer

A)   fell. The increased saving would increase the quantity of loanable funds demanded.
B)   fell. The increased saving would increase the quantity of loanable funds supplied.
C)   rose. The increased saving would increase the quantity of loanable funds demanded.
D)   rose. The increased saving would increase the quantity of loanable funds supplied.

Exam 14: A Macroeconomic Theory of the Open Economy

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

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If Kenya experienced capital flight, the supply of Kenyan schillings in the market for foreign-currency exchange would shift

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The open-economy macroeconomic model examines the determination of

Correct AnswerverifiedShow Answer

The explanation for the slope of

Correct AnswerverifiedShow Answer

If policymakers impose import restrictions on clothing, the U.S. trade deficit will shrink.

Correct AnswerverifiedShow Answer

Over the past two decades the U.S. has persistently had trade deficits.

Correct AnswerverifiedShow Answer

An increase in real interest rates in the United States changes the quantity of loanable funds demanded because

Correct AnswerverifiedShow Answer

When a country's government budget deficit decreases,

Correct AnswerverifiedShow Answer

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts left, then

Correct AnswerverifiedShow Answer

If a country raises its budget deficit, then in the market for foreign-currency exchange

Correct AnswerverifiedShow Answer

When a country imposes an import quota, its

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

The country of Frequencia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Frequencia's

Correct AnswerverifiedShow Answer

When the U.S. real interest rate falls, owning U.S. assets becomes

Correct AnswerverifiedShow Answer

If government policy encouraged households to save more at each interest rate, then

Correct AnswerverifiedShow Answer

If a tariff on lumber were implemented, for the country as a whole which of the following would rise?

Correct AnswerverifiedShow Answer

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, then domestic interest rates

Correct AnswerverifiedShow Answer

An increase in the budget deficit causes domestic interest rates

Correct AnswerverifiedShow Answer

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