Question 1

An increase in SA private saving

Accepted Answer

A)  increases SA net exports and SA net capital outflow the same amount.
B)  increases SA net exports and decreases SA net capital outflow.
C)  decreases SA net exports and SA net capital outflow the same amount.
D)  decreases SA net exports and increases SA net capital outflow.E) B) and D)
F) A) and B)

Question 2

An increase in South Africa's taste for UK produced Hondas would cause the pound to

Accepted Answer

A)  depreciate and would increase UK net exports.
B)  appreciate and would increase UK net exports.
C)  depreciate and would decrease UK net exports.
D)  appreciate and would decrease UK net exports.E) A) and C)
F) B) and C)

Question 3

Which of the following could increase the supply of rands in the foreign exchange market?

Accepted Answer

A)  A reduction in the rate of inflation in SA.
B)  A reduction in real interest rates in SA.
C)  An increase in the SA government budget deficit.
D)  A depreciation of other currencies.E) All of the above
F) None of the above

Question 4

Which of the following statements regarding the loanable funds market is not true?

Accepted Answer

A)  A decrease in a country's net capital outflow shifts the demand for loanable funds to the left.
B)  An increase in domestic investment shifts the demand for loanable funds to the right.
C)  An increase in a country's net capital outflow shifts the supply of loanable funds to the left.
D)  An increase in a country's net capital outflow raises its real interest rate.E) B) and C)
F) C) and D)

Question 5

The phrase "twin deficits" refers to

Accepted Answer

A)  a country's trade deficit and its government budget deficit.
B)  the fact that if a country has a trade deficit, its trading partners must also have trade deficits.
C)  the equality of a country's saving deficit and its investment deficit.
D)  a country's trade deficit and its net capital outflow deficit.E) None of the above
F) C) and D) A

Question 6

Households make their savings available to borrowers through

Accepted Answer

A)  resource markets.
B)  the loanable funds market.
C)  the labour market.
D)  taxes.E) A) and B)
F) A) and C)

Question 7

Government trade policies, such as tariffs and quota restrictions on imports,

Accepted Answer

A)  can eliminate a trade imbalance.
B)  often increase a trade deficit.
C)  have no real effect on the trade balance.
D)  can lower a deficit on current account but not on the capital account.E) B) and C)
F) None of the above

Question 8

An example of a trade policy is

Accepted Answer

A)  a tariff on sugar.
B)  all are examples of trade policy.
C)  capital flight because it increases a country's net exports.
D)  an increase in the government budget deficit because it reduces a country's net exports.E) All of the above
F) A) and D)

Question 9

The open economy macroeconomic model takes

Accepted Answer

A)  GDP, but not the price level as given.
B)  the price level, but not GDP as given.
C)  both the price level and GDP as given.
D)  the price level and GDP as variables to be determined by the model.E) A) and B)
F) A) and D)

Question 10

If a country has a high savings rate relative to other countries, then the

Accepted Answer

A)  supply of loanable funds is larger, interest rates are lower, and net capital outflow is higher for that country than for others.
B)  supply of loanable funds is smaller, interest rates are higher, and net capital outflow is lower for that country than for others.
C)  demand for loanable funds is larger, interest rates are higher, and net capital outflow is lower for that country than for others.
D)  government must subsidize production in order to encourage international trade.E) B) and C)
F) A) and B)

Question 11

An export subsidy should have the opposite effect of

Accepted Answer

A)  a government budget deficit.
B)  capital flight.
C)  an increase in private saving.
D)  a tariff.E) A) and D)
F) C) and D)

Question 12

Capital flight is often caused by

Accepted Answer

A)  political stability.
B)  shifts away from the industrial sector and towards the service sector.
C)  political instability.
D)  policies of the International Monetary Fund.E) A) and C)
F) A) and D)

Question 13

An increase in Japanese citizens' purchases of holidays in SA would

Accepted Answer

A)  cause the rand to appreciate, but the total value of SA net exports stays the same.
B)  cause the rand to depreciate, but the total value of SA net exports stays the same.
C)  cause the total value of SA net exports to increase, but the foreign exchange value of the rand to appreciate stays the same.
D)  cause the total value of SA net exports to decrease, but the foreign exchange value of the rand to appreciate stays the same.E) B) and D)
F) None of the above

Question 14

If a country's net capital outflow is positive, it is an addition to its demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 15

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign currency exchange curve.Use SA as an example.

Accepted Answer

When SA real exchange rate appreciates, ...

Question 16

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.E) A) and C)
F) B) and C)

Question 17

All other things being equal, an increase in a country's real interest rate reduces net capital outflow.

Accepted Answer

A) True 
 B)False

Question 18

Suppose, due to political instability, Russians suddenly choose to purchase SA assets as opposed to Russian assets.Which of the following statements is true regarding the value of the rand and SA net exports? The pound:

Accepted Answer

A)  appreciates, and SA net exports rise.
B)  appreciates, and SA net exports fall.
C)  depreciates, and SA net exports rise.
D)  depreciates, and SA net exports fall.E) A) and D)
F) A) and C) B

Question 19

In response to an import quota

Accepted Answer

A)  exports increase by more than imports.
B)  imports increase by more than exports.
C)  imports and exports are unaffected, but the government collects revenues.
D)  imports and exports are both reduced, but net exports are unchanged.E) A) and B)
F) A) and C) D

Question 20

Suppose, due to political instability, Russia suddenly choose to invest in SA assets as opposed to Russian assets.Which of the following statements is true regarding SA net foreign investment?

Accepted Answer

A)  SA net foreign investment is unchanged because only SA residents can alter SA net foreign investment.
B)  SA net foreign investment rises.
C)  SA net foreign investment falls.
D)  None of these answers.E) A) and B)
F) A) and C)

Exam 12: A Macroeconomic Theory of the Open Economy

An increase in SA private saving

Correct AnswerverifiedShow Answer

An increase in South Africa's taste for UK produced Hondas would cause the pound to

Correct AnswerverifiedShow Answer

Which of the following could increase the supply of rands in the foreign exchange market?

Correct AnswerverifiedShow Answer

Which of the following statements regarding the loanable funds market is not true?

Correct AnswerverifiedShow Answer

The phrase "twin deficits" refers to

Correct AnswerverifiedA

Households make their savings available to borrowers through

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Government trade policies, such as tariffs and quota restrictions on imports,

Correct AnswerverifiedShow Answer

An example of a trade policy is

Correct AnswerverifiedShow Answer

The open economy macroeconomic model takes

Correct AnswerverifiedShow Answer

If a country has a high savings rate relative to other countries, then the

Correct AnswerverifiedShow Answer

An export subsidy should have the opposite effect of

Correct AnswerverifiedShow Answer

Capital flight is often caused by

Correct AnswerverifiedShow Answer

An increase in Japanese citizens' purchases of holidays in SA would

Correct AnswerverifiedShow Answer

If a country's net capital outflow is positive, it is an addition to its demand for loanable funds.

Correct AnswerverifiedShow Answer

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign currency exchange curve.Use SA as an example.

Correct AnswerverifiedWhen SA real exchange rate appreciates, ...View AnswerShow Answer

The open economy macroeconomic model examines the determination of

Correct AnswerverifiedShow Answer

All other things being equal, an increase in a country's real interest rate reduces net capital outflow.

Correct AnswerverifiedShow Answer

Suppose, due to political instability, Russians suddenly choose to purchase SA assets as opposed to Russian assets.Which of the following statements is true regarding the value of the rand and SA net exports? The pound:

Correct AnswerverifiedB

In response to an import quota

Correct AnswerverifiedD

Suppose, due to political instability, Russia suddenly choose to invest in SA assets as opposed to Russian assets.Which of the following statements is true regarding SA net foreign investment?

Correct AnswerverifiedShow Answer

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A

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When SA real exchange rate appreciates, ...
View Answer

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B

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D

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