Question 1

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) A) and B)

Question 2

In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

Accepted Answer

A) True 
 B)False

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

Question 4

In the open-economy macroeconomic model, if the supply of loanable funds shifts right

Accepted Answer

A)   the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.
B)   the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts left.
C)   the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.
D)   the interest rate falls and the supply of dollars in the market for foreign currency exchange shifts left.E) None of the above
F) B) and C)

Question 5

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?

Accepted Answer

A)   $0
B)   $200 billion
C)   $400 billion
D)   $800 billionE) None of the above
F) B) and C)

Question 6

Other things the same, a decrease in the real interest rate raises the quantity of

Accepted Answer

A)   domestic investment and net capital outflow.
B)   domestic investment but not net capital outflow.
C)   net capital outflow but not domestic investment.
D)   neither domestic investment nor net capital outflow.E) C) and D)
F) All of the above

Question 7

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

Accepted Answer

A)   The demand for loanable funds shifts right.
B)   The demand for loanable funds shifts left
C)   The supply of loanable funds shifts right.
D)   The supply of loanable funds shifts left.E) A) and B)
F) None of the above

Question 8

If a country has a negative 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) A) and B)
F) A) and C)

Question 9

A U.S.-imposed quota on automobiles would shift

Accepted Answer

A)   both the demand and supply curves in the market for foreign-currency exchange right
B)   both the demand and supply curves in the market for foreign-currency exchange right.
C)   only the demand curve in the market for foreign-currency exchange right
D)   only the supply curve in the market for foreign-currency exchange rightE) A) and B)
F) B) and D)

Question 10

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Accepted Answer

A) True 
 B)False

Question 11

In an open economy,

Accepted Answer

A)   net capital outflow = imports.
B)   net capital outflow = net exports.
C)   net capital outflow = exports.
D)   None of the above is correct.E) B) and C)
F) C) and D)

Question 12

In the market for foreign-currency exchange, capital flight shifts

Accepted Answer

A)   the demand curve right.
B)   the demand curve left.
C)   the supply curve right.
D)   the supply curve left.E) A) and C)
F) A) and B)

Question 13

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

Accepted Answer

A)   foreigners want to buy more U.S. bonds
B)   foreigners want to buy fewer U.S. bonds
C)   foreigners want to buy more U.S. goods and services.
D)   foreigners want to buy fewer U.S. goods and services.E) All of the above
F) B) and C)

Question 14

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) B) and D)
F) A) and D)

Question 15

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 D)
F) B) and C)

Question 16

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) B) and D)
F) B) and C)

Question 17

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) All of the above
F) A) and D)

Question 18

Other things the same, if the expected return on U.S. assets increases, the

Accepted Answer

A)   supply of dollars in the market for foreign-currency exchange shifts right.
B)   supply of dollars in the market for foreign-currency exchange shifts left.
C)   demand for dollars in the market for foreign-currency exchange shifts right
D)   demand for dollars in the market for foreign-currency exchange shifts left.E) A) and C)
F) A) and D)

Question 19

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

Accepted Answer

A) True 
 B)False

Question 20

Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

Accepted Answer

A)   fall and the quantity of dollars demanded in the market for foreign-currency exchange would fall.
B)   fall and the quantity of dollars demanded in the market for foreign-currency exchange would rise.
C)   rise and the quantity of dollars demanded in the market for foreign-currency exchange would fall.
D)   rise and the quantity of dollars demanded in the market for foreign-currency exchange would rise.E) B) and C)
F) A) and B)

Exam 14: A Macroeconomic Theory of the Open Economy

In the market for foreign-currency exchange, capital flight shifts

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Other things the same, a decrease in the real interest rate raises the quantity of

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In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

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Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?

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A U.S.-imposed quota on automobiles would shift

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Other things the same, if the U.S. real exchange rate depreciated, then U.S. net exports would

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In an open economy,

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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

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A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?

Correct AnswerverifiedShow Answer

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

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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 a country has a negative net capital outflow, then

Correct AnswerverifiedShow Answer

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

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Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

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In the open-economy macroeconomic model, if the supply of loanable funds shifts right

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In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

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The open-economy macroeconomic model examines the determination of

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The open-economy macroeconomic model takes

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If a country has a positive net capital outflow, then

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Other things the same, if the expected return on U.S. assets increases, the

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