Question 1

Which of the following is most likely to increase U.S. exports?

Accepted Answer

A)   The government gives subsidies to U.S. firms that export goods or services.
B)   The government reduces the size of the budget surplus.
C)   The United States unilaterally reduces its restrictions on foreign imports.
D)   Taxes on domestic saving rise.E) All of the above
F) A) and C)

Question 2

An increase in real interest rates in the United States

Accepted Answer

A)   discourages both U.S. and foreign residents from buying U.S. assets.
B)   encourages both U.S. and foreign residents to buy U.S. assets.
C)   encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets.
D)   encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets.E) A) and C)
F) B) and C)

Question 3

Other things the same, a higher real exchange rate reduces net exports.

Accepted Answer

A) True 
 B)False

Question 4

When a country suffers from capital flight, the demand for loanable funds in that country shifts

Accepted Answer

A)   right, which increases interest rates in that country.
B)   right, which decreases interest rates in that country.
C)   left, which increases interest rates in that country.
D)   left, which decreases interest rates in that country.E) B) and C)
F) C) and D)

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) A) and B)
F) B) and C)

Question 6

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

Accepted Answer

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

Question 7

An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

Accepted Answer

A) True 
 B)False

Question 8

Over the past three decades, the United States has

Accepted Answer

A)   generally had, or been very near to a trade balance.
B)   had trade deficits in about as many years as it has trade surpluses.
C)   persistently had a trade deficit.
D)   persistently had a trade surplus.E) A) and D)
F) None of the above

Question 9

In which case(s)  does(do)  a country's demand for loanable funds shift left?

Accepted Answer

A)   both an increase in the budget deficit and capital flight
B)   an increase in the budget deficit, but not capital flight
C)   capital flight, but not an increase in the budget deficit
D)   neither an increase in the budget deficit nor capital flightE) C) and D)
F) B) and D)

Question 10

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

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

Question 12

At the equilibrium real interest rate in the open-economy macroeconomic model

Accepted Answer

A)   saving = domestic investment
B)   saving = net capital outflow
C)   net capital outflow = domestic investment
D)   net capital outflow + domestic investment = savingE) All of the above
F) A) and C)

Question 13

If the supply of loanable funds shifts right, then the equilibrium

Accepted Answer

A)   levels of net capital outflow and domestic investment decrease.
B)   level of net capital outflow increases and the equilibrium level of domestic investment decreases.
C)   level of net capital outflow decreases and the equilibrium level of domestic investment increases.
D)   levels of net capital outflow and domestic investment increase.E) A) and C)
F) A) and B)

Question 14

If the U.S. government imposed a quota on toy imports, then

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) B) and C)
F) A) and B)

Question 15

If a quota on lumber were implemented, then at the original exchange rate there would be a

Accepted Answer

A)   surplus in the market for foreign-currency exchange, so the real exchange rate appreciates.
B)   surplus in the market for foreign-currency exchange, so the real exchange rate depreciates.
C)   shortage in the market for foreign-currency exchange, so the real exchange rate appreciates.
D)   shortage in the market for foreign-currency exchange, so the real exchange rate depreciates.E) A) and D)
F) B) and C)

Question 16

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

Accepted Answer

A)   domestic investment.
B)   net capital outflow.
C)   national consumption minus domestic investment.
D)   None of the above is correct.E) B) and D)
F) A) and B)

Question 17

Trade policies

Accepted Answer

A)   alter the trade balance because they alter imports of the country that implemented them.
B)   alter the trade balance because they alter net capital outflow of the country that implemented them.
C)   do not alter the trade balance because they cannot alter the national saving or domestic investment of the country that implements them.
D)   do not alter the trade balance because they cannot alter the real exchange rate of the currency of the country that implements them.E) None of the above
F) All of the above

Question 18

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

Accepted Answer

A)   rises and the real exchange rate rises.
B)   falls and the real exchange rate falls.
C)   rises and the real exchange rate falls.
D)   falls and the real exchange rate rises.E) A) and C)
F) None of the above

Question 19

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Accepted Answer

A)   the interest rate
B)   net exports
C)   the exchange rate
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 20

In the open-economy macroeconomic model, the supply of loanable funds comes from

Accepted Answer

A)   national saving.
B)   private saving.
C)   domestic investment.
D)   the sum of domestic investment and net capital outflow.E) B) and C)
F) None of the above

Exam 14: A Macroeconomic Theory of the Open Economy

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

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

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At the equilibrium real interest rate in the open-economy macroeconomic model

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An increase in real interest rates in the United States

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An import quota imposed by the U.S. would reduce U.S. imports, but have no impact on U.S. exports.

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Over the past three decades, the United States has

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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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When a country suffers from capital flight, the demand for loanable funds in that country shifts

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In the open-economy macroeconomic model, the market for loanable funds equates national saving with

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Other things the same, a higher real exchange rate reduces net exports.

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Trade policies

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In the open-economy macroeconomic model, the supply of loanable funds comes from

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In which case(s) does(do) a country's demand for loanable funds shift left?

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In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

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If the supply of loanable funds shifts right, then the equilibrium

Correct AnswerverifiedShow Answer

Which of the following is most likely to increase U.S. exports?

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If a quota on lumber were implemented, then at the original exchange rate there would be a

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In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

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If the U.S. government imposed a quota on toy imports, then

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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?

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