Question 1

An increase in a country's budget deficit

Accepted Answer

A)  increases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts right.
B)  increases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts right.
C)  decreases net capital outflow, so the demand for its currency in the market for foreign-currency exchange shifts left.
D)  decreases net capital outflow, so the supply of its currency in the market for foreign-currency exchange shifts left.E) B) and C)
F) A) and C)

Question 2

In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts

Accepted Answer

A)  demand in the market for foreign-currency exchange to the right.
B)  demand in the market for foreign-currency exchange to the left.
C)  supply in the market for foreign-currency exchange to the right.
D)  supply in the market for foreign-currency exchange to the left.E) A) and D)
F) None of the above

Question 3

Refer to Budget in Recession. This change in the deficit causes the exchange rate to change. What does the change in the exchange rate do to net exports?

Accepted Answer

Because the exchange...

Question 4

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?

Accepted Answer

A)  the exchange rate falls causing U.S. residents to import more
B)  the exchange rate falls causing U.S. residents to import less
C)  the exchange rate rises causing U.S. residents to import more
D)  the exchange rate rises causing U.S. residents to import lessE) None of the above
F) B) and D)

Question 5

An increase in the budget deficit makes domestic interest rates

Accepted Answer

A)  rise because the supply of loanable funds shifts left.
B)  fall because the supply of loanable funds shifts left.
C)  rise because the demand for loanable funds shifts right.
D)  fall because the demand for loanable funds shifts right.E) B) and D)
F) B) and C)

Question 6

Refer to Budget in Recession. This change in the deficit causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Accepted Answer

The supply of domestic currenc...

Question 7

Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases?

Accepted Answer

A)  U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment
B)  U.S. imports, U.S. interest rates, the real exchange rate of the dollar
C)  U.S. interest rates, the real exchange rate of the dollar, U.S. domestic investment
D)  the real exchange rate of the dollar, U.S. net capital outflow, U.S. net exportsE) C) and D)
F) A) and D)

Question 8

A reduction in a country's government budget deficit

Accepted Answer

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

Question 9

If U.S. residents want to buy more foreign bonds, then in the market for foreign-currency exchange the exchange rate

Accepted Answer

A)  and the quantity of dollars traded rises.
B)  rises and the quantity of dollars traded falls.
C)  falls and the quantity of dollars traded rises.
D)  and the quantity of dollars traded falls.E) A) and D)
F) B) and C)

Question 10

If a U.S. resident purchases a foreign bond, her transactions are included

Accepted Answer

A)  in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)  in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
C)  in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
D)  in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.E) None of the above
F) All of the above

Question 11

-Refer to Figure 32-6. Which of the following shifts show the effects of an import quota?

Accepted Answer

A)   shifting the middle supply curve in panel c to the one to its left.
B)   shifting the demand curve from the right to the left in panel c.
C)   shifting the demand curve from the left to the right in panel c.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 12

If at a given exchange rate U.S. citizens wanted to buy more foreign bonds

Accepted Answer

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

Question 13

Capital flight raises a country's real exchange rate.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  a U.S. company decides to expand its factory
B)  a U.S. citizen decides to purchase fewer foreign bonds
C)  a German mutual fund decides to increase its deposits at a U.S. bank
D)  All of the above are consistent.E) C) and D)
F) A) and B)

Question 15

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . The open-economy macroeconomic model predicts that this should have

Accepted Answer

A)  raised Argentinean interest rates and caused the Argentinean currency to appreciate.
B)  raised Argentinean interest rates and caused the Argentinean currency to depreciate.
C)  lowered Argentinean interest rates and caused the Argentinean currency to appreciate.
D)  lowered Argentinean interest rates and caused the Argentinean currency to depreciate.E) A) and D)
F) All of the above

Question 16

If the U.S. government imposed quotas on imports of clothing, then U.S.

Accepted Answer

A)  imports and exports would both fall.
B)  imports would fall and exports would rise.
C)  imports would rise and exports would fall.
D)  None of the above is correct.E) A) and C)
F) A) and B)

Question 17

What is the source of the demand for dollars in the market for foreign-currency exchange?

Accepted Answer

The answer of What is the source of the demand...

Question 18

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

Question 19

Capital flight shifts the NCO curve to the left.

Accepted Answer

A) True 
 B)False

Question 20

In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

Accepted Answer

A)  and the real exchange rate increase.
B)  and the real exchange rate decrease.
C)  increases and the real exchange rate decreases.
D)  decreases and the real exchange rate increases.E) None of the above
F) All of the above

Exam 32: A Macroeconomic Theory of the Open Economy

What is the source of the demand for dollars in the market for foreign-currency exchange?

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If at a given exchange rate U.S. citizens wanted to buy more foreign bonds

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Capital flight raises a country's real exchange rate.

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An increase in the budget deficit makes domestic interest rates

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In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts

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If a U.S. resident purchases a foreign bond, her transactions are included

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Refer to Budget in Recession. This change in the deficit causes net capital outflow to change. How is this change in net capital outflow shown in the market for foreign-currency exchange? What happens to the exchange rate?

Correct AnswerverifiedThe supply of domestic currenc...View AnswerShow Answer

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

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-Refer to Figure 32-6. Which of the following shifts show the effects of an import quota?

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Capital flight shifts the NCO curve to the left.

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Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases?

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Refer to Budget in Recession. This change in the deficit causes the exchange rate to change. What does the change in the exchange rate do to net exports?

Correct AnswerverifiedBecause the exchange...View AnswerShow Answer

If U.S. residents want to buy more foreign bonds, then in the market for foreign-currency exchange the exchange rate

Correct AnswerverifiedShow Answer

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . The open-economy macroeconomic model predicts that this should have

Correct AnswerverifiedShow Answer

If the U.S. government imposed quotas on imports of clothing, then U.S.

Correct AnswerverifiedShow Answer

An increase in a country's budget deficit

Correct AnswerverifiedShow Answer

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?

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In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow

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

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A reduction in a country's government budget deficit

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The supply of domestic currenc...
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Because the exchange...
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