Question 1

Explain why saving need not equal domestic investment in an open economy.

Accepted Answer

This is because saving equals ...

Question 2

What does the open-economy macroeconomic model examine?

Accepted Answer

A)  the determination of output growth rate and the real interest rate
B)  the determination of unemployment and the exchange rate
C)  the determination of output growth rate and the inflation rate
D)  the determination of the trade balance and the exchange rateE) B) and D)
F) B) and C)

Question 3

What is the variable that links the loanable funds market and the foreign-currency exchange market?

Accepted Answer

A)  net capital outflow
B)  national saving
C)  exports
D)  importsE) A) and B)
F) B) and C)

Question 4

Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r.
a)Find the relationship between net capital outflow and the world interest rate rw.
b)If net exports are described by NX = 16 - 4X,find the relationship between NX and the world interest rate at the equilibrium exchange rate.
c)For rʷ = 1.4,what is the elasticity of NX with respect to rʷ?
d)What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

Accepted Answer

a) NCO = S - I when r = rʷ: NCO = 8 + 4r...

Question 5

Which of the following would cause the real exchange rate of the Canadian dollar to depreciate?

Accepted Answer

A)  an increase in the Canadian government budget deficit
B)  capital flight from Canada
C)  the imposition of Canadian government import quotas
D)  a decrease in the world interest rateE) A) and C)
F) B) and C)

Question 6

In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 7

In the market for foreign-currency exchange in the open-economy macroeconomic model,which of the following results from a higher real exchange rate?

Accepted Answer

A)  It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
B)  It makes Canadian goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
C)  It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars supplied.
D)  It makes foreign goods more expensive relative to Canadian goods and reduces the quantity of dollars demanded.E) All of the above
F) B) and C)

Question 8

Figure 13-1
 
-Refer to the FigurE₁3-1.If the world interest rate equals 6 percent,what is the net capital outflow?

Accepted Answer

A)  -4
B)  -2
C)  2
D)  4E) A) and B)
F) A) and C)

Question 9

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model?

Accepted Answer

A)  A firm in Kenya wants to buy wheat from a Canadian firm.
B)  A Japanese bank desires to purchase Canadian government securities.
C)  A Canadian citizen wants to buy a bond issued by a Mexican corporation.
D)  A Canadian citizen exchanges dollars for euros.E) B) and C)
F) A) and D)

Question 11

Figure 13-2
 
-Refer to the FigurE₁3-2.Suppose that these diagrams refer to Canada.If the interest rate was initially at r₀ and China voluntarily restricted its exports to Canada,what would happen to the interest rate?

Accepted Answer

A)  It would stay at r₀.
B)  It would decrease because supply would shift right.
C)  It would increase because supply would shift left.
D)  It would decrease because demand would shift left.E) A) and D)
F) All of the above

Question 12

If a government increases its budget deficit,which of the following best predicts the effects?

Accepted Answer

A)  The real exchange rate appreciates, and the trade balance moves toward surplus.
B)  The real exchange rate appreciates, and the trade balance moves toward deficit.
C)  The real exchange rate depreciates, and the trade balance moves toward surplus.
D)  The real exchange rate depreciates, and the trade balance moves toward deficit.E) A) and D)
F) C) and D)

Question 13

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

Accepted Answer

A)  increasing domestic saving
B)  increasing political stability and respect for property rights
C)  negotiating with other countries to get them to reduce their trade restrictions
D)  imposing higher tariffs on imported goodsE) A) and B)
F) A) and C)

Question 14

At the equilibrium interest rate in the open-macroeconomic model,which of the following is the amount that people want to save?

Accepted Answer

A)  the desired quantity of net capital outflow
B)  the desired quantity of domestic investment
C)  the desired quantity of net capital outflow plus domestic investment
D)  the desired quantity of net capital outflow minus domestic investmentE) B) and D)
F) A) and C)

Question 15

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

Accepted Answer

A)  the nominal exchange rate
B)  the nominal interest rate
C)  the real exchange rate
D)  the real interest rateE) C) and D)
F) A) and D)

Question 16

According to the open-economy macroeconomic model,an increase in the Canadian government budget surplus increases Canadian net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases Canadian net exports.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is the correct way to show the effects of a new import quota?

Accepted Answer

A)  Shift the demand for loanable funds right, the supply of dollars for foreign exchange right, and the demand for dollars left.
B)  Shift the demand for loanable funds right, and the supply of dollars for foreign exchange left.
C)  Shift the demand for dollars for foreign-currency exchange left.
D)  Shift the demand for dollars for foreign-currency exchange right.E) B) and D)
F) None of the above

Question 18

What is the effect of an increase in Canadian government deficit?

Accepted Answer

A)  Canadian national saving increases.
B)  The real exchange rate of the dollar increases.
C)  Canadian net exports increase.
D)  Canadian domestic investment increases.E) C) and D)
F) A) and D)

Question 19

Which of the following best predicts the effects of an increase in a country's real interest rate?

Accepted Answer

A)  Its net capital outflow and the real exchange rate increase.
B)  Its net capital outflow and the real exchange rate decrease.
C)  Its net capital outflow increases, and the real exchange rate decreases.
D)  Its net capital outflow decreases, and the real exchange rate increases.E) B) and C)
F) A) and D)

Question 20

Which of the following is consistent with negative net exports?

Accepted Answer

A)  Net capital outflow is positive, so foreign assets bought by Canadians are greater than Canadian assets bought by foreigners.
B)  Net capital outflow is positive, so Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.
C)  Net capital outflow is negative, so foreign assets bought by Canadians are greater than Canadian assets bought by foreigners.
D)  Net capital outflow is negative, so Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.E) All of the above
F) C) and D)

Exam 13: A Macroeconomic Theory of the Small Open Economy

At the equilibrium interest rate in the open-macroeconomic model,which of the following is the amount that people want to save?

Correct Answer
verified

According to the open-economy macroeconomic model,an increase in the Canadian government budget surplus increases Canadian net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases Canadian net exports.

Correct Answer
verified

In the market for foreign-currency exchange in the open-economy macroeconomic model,which of the following results from a higher real exchange rate?

Correct Answer
verified

If a government increases its budget deficit,which of the following best predicts the effects?

Correct Answer
verified

What is the variable that links the loanable funds market and the foreign-currency exchange market?

Correct Answer
verified

Which of the following best predicts the effects of an increase in a country's real interest rate?

Correct Answer
verified

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model?

Correct Answer
verified

In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Correct Answer
verified

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

Correct Answer
verified

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct Answer
verified

What is the effect of an increase in Canadian government deficit?

Correct Answer
verified

Figure 13-2 -Refer to the FigurE₁3-2.Suppose that these diagrams refer to Canada.If the interest rate was initially at r₀ and China voluntarily restricted its exports to Canada,what would happen to the interest rate?

Correct Answer
verified

Which of the following would cause the real exchange rate of the Canadian dollar to depreciate?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
a) NCO = S - I when r = rʷ: NCO = 8 + 4r...
View Answer

What does the open-economy macroeconomic model examine?

Correct Answer
verified

Which of the following is consistent with negative net exports?

Correct Answer
verified

Explain why saving need not equal domestic investment in an open economy.

Correct Answer
verified
This is because saving equals ...
View Answer

Figure 13-1 -Refer to the FigurE₁3-1.If the world interest rate equals 6 percent,what is the net capital outflow?

Correct Answer
verified

Which of the following is the correct way to show the effects of a new import quota?

Correct Answer
verified

Exam 13: A Macroeconomic Theory of the Small Open Economy

At the equilibrium interest rate in the open-macroeconomic model,which of the following is the amount that people want to save?

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model,an increase in the Canadian government budget surplus increases Canadian net capital outflow,causes the real exchange rate of the dollar to depreciate,and increases Canadian net exports.

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange in the open-economy macroeconomic model,which of the following results from a higher real exchange rate?

Correct AnswerverifiedShow Answer

If a government increases its budget deficit,which of the following best predicts the effects?

Correct AnswerverifiedShow Answer

What is the variable that links the loanable funds market and the foreign-currency exchange market?

Correct AnswerverifiedShow Answer

Which of the following best predicts the effects of an increase in a country's real interest rate?

Correct AnswerverifiedShow Answer

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model,the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model,at the equilibrium real interest rate,the amount that people (including government)want to save exactly balances desired domestic investment.

Correct AnswerverifiedShow Answer

What is the price that balances supply and demand in the market for foreign-currency exchange in the open-economy macroeconomic model?

Correct AnswerverifiedShow Answer

What is the effect of an increase in Canadian government deficit?

Correct AnswerverifiedShow Answer

Figure 13-2 -Refer to the FigurE₁3-2.Suppose that these diagrams refer to Canada.If the interest rate was initially at r₀ and China voluntarily restricted its exports to Canada,what would happen to the interest rate?

Correct AnswerverifiedShow Answer

Which of the following would cause the real exchange rate of the Canadian dollar to depreciate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answerverifieda) NCO = S - I when r = rʷ: NCO = 8 + 4r...View AnswerShow Answer

What does the open-economy macroeconomic model examine?

Correct AnswerverifiedShow Answer

Which of the following is consistent with negative net exports?

Correct AnswerverifiedShow Answer

Explain why saving need not equal domestic investment in an open economy.

Correct AnswerverifiedThis is because saving equals ...View AnswerShow Answer

Figure 13-1 -Refer to the FigurE₁3-1.If the world interest rate equals 6 percent,what is the net capital outflow?

Correct AnswerverifiedShow Answer

Which of the following is the correct way to show the effects of a new import quota?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a) NCO = S - I when r = rʷ: NCO = 8 + 4r...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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This is because saving equals ...
View Answer

Correct Answer
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Correct Answer
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