Question 1

Scenario 32-2
​
Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes.
-Refer to Scenario 32-2. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?

Accepted Answer

Because the exchange...

Question 2

A country produces two goods, soda and chips. It currently exports soda and imports chips. If it were to impose a tariff on chips,

Accepted Answer

A)  both imports of chips and exports of sodas would rise.
B)  imports of chips would rise, but exports of sodas would fall.
C)  imports of chips would fall, but exports of sodas would rise.
D)  both imports of chips and exports of sodas would fall.E) B) and D)
F) C) and D)

Question 3

The explanation for the slope of the

Accepted Answer

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

Question 4

Figure 32-3
Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow.
​
Graph (a) 
Graph (b)    Graph (c)   ​
-Refer to Figure 32-3. National saving is represented by the

Accepted Answer

A)  demand curve in graph (a) .
B)  demand curve in graph (c) .
C)  supply curve in graph (a) .
D)  supply curve in graph (c) .E) B) and C)
F) A) and D)

Question 5

Capital flight raises a country's real exchange rate.

Accepted Answer

A) True 
 B)False

Question 6

The value of net exports equals the value of

Accepted Answer

A)  national saving.
B)  public saving.
C)  national saving - net capital outflow.
D)  national saving - domestic investment.E) B) and D)
F) A) and B)

Question 7

Capital flight raises a country's interest rate.

Accepted Answer

A) True 
 B)False

Question 8

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Accepted Answer

The quantity of loanable funds...

Question 9

The key determinant of net capital outflow is the real interest rate.

Accepted Answer

A) True 
 B)False

Question 10

In the long run import quotas do not affect the size of net exports.

Accepted Answer

A) True 
 B)False

Question 11

Other things the same, which of the following would a rise in the real interest rate raise:
desired investment spending, desired national saving, desired net capital outflow?

Accepted Answer

desired na...

Question 12

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 13

If a country has a positive net capital outflow, then

Accepted Answer

A)  on net it is purchasing assets from abroad.This adds to its demand for domestically generated loanable funds.
B)  on net it is purchasing assets from abroad.This subtracts from its demand for domestically generated loanable funds.
C)  on net other countries are purchasing assets from it.This adds to its demand for domestically generated loanable funds.
D)  on net other countries are purchasing assets from it.This subtracts from its demand for domestically generated loanable funds.E) All of the above
F) C) and D)

Question 14

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 15

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 16

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Accepted Answer

The demand curve for loanable ...

Question 17

What happens to each of the following if investment becomes more desirable at each interest rate?
A. the interest rate
B. net capital outflow
C. the exchange rate

Accepted Answer

The interest rate ri...

Question 18

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following relationships is nicknamed the "twin deficits"?

Accepted Answer

A)  The relationship between budget deficit and trade deficit.
B)  The relationship between budget deficit and money supply deficit.
C)  The relationship between trade deficit and money supply deficit.
D)  The relationship between budget deficit and deficit of domestic investment.E) None of the above
F) A) and C)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 32: A Macroeconomic Theory of the Open Economy

The value of net exports equals the value of

Correct AnswerverifiedShow Answer

Figure 32-3 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) ​ -Refer to Figure 32-3. National saving is represented by the

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

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 each of the following if investment becomes more desirable at each interest rate? A. the interest rate B. net capital outflow C. the exchange rate

Correct AnswerverifiedThe interest rate ri...View AnswerShow Answer

A country produces two goods, soda and chips. It currently exports soda and imports chips. If it were to impose a tariff on chips,

Correct AnswerverifiedShow Answer

In the long run import quotas do not affect the size of net exports.

Correct AnswerverifiedShow Answer

Capital flight raises a country's real exchange rate.

Correct AnswerverifiedShow Answer

The key determinant of net capital outflow is the real interest rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following relationships is nicknamed the "twin deficits"?

Correct AnswerverifiedShow Answer

The explanation for the slope of the

Correct AnswerverifiedShow Answer

Other things the same, which of the following would a rise in the real interest rate raise: desired investment spending, desired national saving, desired net capital outflow?

Correct Answerverifieddesired na...View AnswerShow Answer

Capital flight raises a country's interest rate.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign-currency exchange.

Correct AnswerverifiedShow Answer

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Correct AnswerverifiedThe demand curve for loanable ...View AnswerShow Answer

If a country has a positive net capital outflow, then

Correct AnswerverifiedShow Answer

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Correct AnswerverifiedThe quantity of loanable funds...View AnswerShow Answer

Scenario 32-2 ​ Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -Refer to Scenario 32-2. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?

Correct AnswerverifiedBecause the exchange...View AnswerShow Answer

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Figure 32-3 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. Graph (a) Graph (b) Graph (c) -Refer to Figure 32-3. National saving is represented by the

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S is national saving, which is the sourc...
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The interest rate ri...
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desired na...
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The demand curve for loanable ...
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The quantity of loanable funds...
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Scenario 32-2 Due to concerns about a rising level of debt relative to GDP, Congress and the President cut expenditures and raise taxes. -Refer to Scenario 32-2. This policy change causes the exchange rate to change. What does the change in the exchange rate to do to net exports?

Correct Answer
verified
Because the exchange...
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