Question 1

If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would

Accepted Answer

A)  depreciate and Kenyan net exports would rise.
B)  depreciate and Kenyan net exports would fall.
C)  appreciate and Kenyan net exports would rise.
D)  appreciate and Kenyan net exports would fall.E) B) and C)
F) A) and D)

Question 2

Which of the following would do the most to reduce a trade deficit?

Accepted Answer

A)  increase domestic saving
B)  increase domestic political stability and respect of property rights
C)  other countries reduce their trade restrictions
D)  raise tariffsE) All of the above
F) B) and C)

Question 3

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 4

A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Accepted Answer

A)  $30 billion
B)  $40 billion
C)  $50 billion
D)  $70 billionE) A) and C)
F) B) and D)

Question 5

If the budget deficit increases, then

Accepted Answer

A)  U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase more U.S. assets
B)  U.S. residents will want to purchase more foreign assets and foreign residents will want to purchase fewer U.S. assets
C)  U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets
D)  U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase fewer U.S. assetsE) A) and C)
F) None of the above

Question 6

U.S. corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. Borrowing for which well is included in the demand for loanable funds in the U.S.?

Accepted Answer

A)  The U.S. and Venezuela.
B)  The U.S. only.
C)  Venezuela only.
D)  Neither the U.S. or Venezuela.E) A) and B)
F) A) and C)

Question 7

In an open economy, the supply of loanable funds comes from national saving.

Accepted Answer

A) True 
 B)False

Question 8

If a country's budget deficit rises, then its exchange rate

Accepted Answer

A)  rises, so its imports rise.
B)  rises, so its imports fall.
C)  falls, so its imports rise.
D)  falls so its imports fall.E) A) and D)
F) All of the above

Question 9

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 10

In the open-economy macroeconomic model, which of the following increases net capital outflow?

Accepted Answer

A)  a fall in the real exchange rate, but not a fall in the real interest rate
B)  a fall in the real interest rate, but not a fall in the real exchange rate
C)  both a fall in the real exchange rate and a fall in the real interest rate
D)  neither a fall in the real exchange rate nor a fall in the real interest rateE) A) and D)
F) None of the above

Question 11

A U.S. company wants to buy yen in order to buy Japanese 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) A) and D)
F) A) and C)

Question 12

From 2001 to 2004 the U.S. budget went from surplus to deficit. According to the open economy macroeconomic model, this change should have

Accepted Answer

A)  increased U.S. interest rates and increased the real exchange rate of the dollar.
B)  increased U.S. interest rates and decreased the real exchange rate of the dollar.
C)  decreased U.S. interest rates and increased the real exchange rate of the dollar.
D)  decreased U.S. interest rates and decreased the real exchange rate of the dollar.E) B) and C)
F) C) and D)

Question 13

Other things the same, a lower real interest rate decreases the quantity of

Accepted Answer

A)  loanable funds demanded.
B)  loanable funds supplied.
C)  domestic investment.
D)  net capital outflow.E) B) and D)
F) A) and C)

Question 14

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then

Accepted Answer

A)  the demand for dollars in the market for foreign-currency exchange shifts right.
B)  the demand for dollars in the market for foreign-currency exchange shifts 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) A) and B)
F) A) and C)

Question 15

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

Question 16

U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s)  is included in the U.S. demand for loanable funds?

Accepted Answer

A)  The U.S. only.
B)  Denmark only.
C)  The U.S. and Denmark.
D)  Neither the U.S. nor Denmark.E) A) and B)
F) B) and C)

Question 17

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) None of the above
F) A) and D)

Question 18

U.S. net capital outflow

Accepted Answer

A)  is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market.
B)  is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market.
C)  is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market.
D)  is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market.E) B) and C)
F) C) and D)

Question 19

If a country experiences capital flight, which of the following curves shift right?

Accepted Answer

A)  only the demand for loanable funds.
B)  only the supply of dollars in the market for foreign-currency exchange.
C)  only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange.
D)  the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.E) None of the above
F) A) and D)

Question 20

In the open-economy macroeconomic model, other things the same, which of the following both make the exchange rate fall?

Accepted Answer

A)  U.S. investment demand falls and foreign demand for U.S. goods falls
B)  U.S. investment demand falls and foreign demand for U.S. goods rises
C)  U.S. investment demand rises and foreign demand for U.S. goods falls
D)  U.S. investment demand rises and foreign demand for U.S. goods risesE) A) and B)
F) A) and C)

Exam 19: A Macroeconomic Theory of the Open Economy

Other things the same, a lower real interest rate decreases the quantity of

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If a country has a positive net capital outflow, then

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Which of the following would do the most to reduce a trade deficit?

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U.S. net capital outflow

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U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?

Correct AnswerverifiedShow Answer

From 2001 to 2004 the U.S. budget went from surplus to deficit. According to the open economy macroeconomic model, this change should have

Correct AnswerverifiedShow Answer

If a country's budget deficit rises, then its exchange rate

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, other things the same, which of the following both make the exchange rate fall?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, which of the following increases net capital outflow?

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

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If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would

Correct AnswerverifiedShow Answer

If a country has a negative net capital outflow, then

Correct AnswerverifiedShow Answer

If a country experiences capital flight, which of the following curves shift right?

Correct AnswerverifiedShow Answer

If the budget deficit increases, then

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U.S. corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. Borrowing for which well is included in the demand for loanable funds in the U.S.?

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

In the open-economy macroeconomic model, if for some reason foreign citizens want to purchase more U.S. goods and services at each exchange rate, then

Correct AnswerverifiedShow Answer

In an open economy, the supply of loanable funds comes from national saving.

Correct AnswerverifiedShow Answer

A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

Correct AnswerverifiedShow Answer

A U.S. company wants to buy yen in order to buy Japanese bonds. In the open-economy macroeconomic model, this transaction would be part of

Correct AnswerverifiedShow Answer

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