Question 1

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Accepted Answer

A)  downward sloping.
B)  upward sloping.
C)  horizontal.
D)  vertical.E) A) and D)
F) A) and C)

Question 2

According to the open-economy macroeconomic model,if the U.S.government reduced its government budget deficit,both U.S.domestic investment and U.S.net capital outflow would fall.

Accepted Answer

A) True 
 B)False

Question 3

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) None of the above
F) All of the above

Question 4

The purchase of a capital asset adds to the demand for loanable funds

Accepted Answer

A)  only if the asset is located at home.
B)  only if the asset is located abroad.
C)  whether the asset is located at home or abroad.
D)  None of the above is correct.E) None of the above
F) All of the above

Question 5

If there is a surplus of loanable funds,the quantity demanded is

Accepted Answer

A)  greater than the quantity supplied and the interest rate will rise.
B)  greater than the quantity supplied and the interest rate will fall.
C)  less than the quantity supplied and the interest rate will rise.
D)  less than the quantity supplied and the interest rate will fall.E) A) and B)
F) C) and D)

Question 6

You see on the Internet that the U.S.exchange rate has fallen.This might have been caused by

Accepted Answer

A)  a decrease in the demand for or a decrease in the supply of dollars in the market for foreign-currency exchange.
B)  a decrease in the demand for or an increase in the supply of dollars in the market for foreign-currency exchange.
C)  an increase in the demand for or a decrease in the supply of dollars in the market for foreign-currency exchange.
D)  an increase in the demand for or a increase in the supply of dollars in the market for foreign-currency exchange.E) B) and C)
F) A) and D)

Question 7

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

Accepted Answer

A)  U.S.net exports, U.S.domestic investment, U.S.net capital outflow
B)  U.S.supply of loanable funds, U.S.interest rates, U.S.domestic investment
C)  U.S.imports, U.S.interest rates, the real exchange rate of the dollar
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 8

In the open-economy macroeconomic model,net exports equal the quantity of dollars demanded in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 9

In the United States in the early 1980s,there was a government budget

Accepted Answer

A)  surplus and a trade surplus.
B)  deficit and a trade deficit.
C)  surplus and a trade deficit.
D)  deficit and a trade surplus.E) None of the above
F) A) and B)

Question 10

When Mexico suffered from capital flight in 1994,Mexico's net exports

Accepted Answer

A)  decreased.
B)  did not change.
C)  increased.
D)  decreased until the peso appreciated, then increased.E) B) and C)
F) A) and B)

Question 11

If a government of a country with a zero trade balance increases its budget deficit,then the real exchange rate

Accepted Answer

A)  appreciates and there is a trade surplus.
B)  appreciates and there is a trade deficit.
C)  depreciates and there is a trade surplus.
D)  depreciates and there is a trade deficit.E) A) and D)
F) A) and C)

Question 12

If policymakers impose import restrictions on electronics,the U.S.trade deficit will shrink.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following will decrease U.S.net capital outflow?

Accepted Answer

A)  capital flight from the United States
B)  the government budget deficit increases
C)  the U.S.imposes import quotas
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 14

If U.S.firms decide to invest more domestically at each interest rate,the real interest rate in the United States

Accepted Answer

A)  decreases, the real exchange rate of the dollar depreciates, and U.S.net capital outflow decreases.
B)  decreases, the real exchange rate of the dollar appreciates, and U.S.net capital outflow increases.
C)  increases, the real exchange rate of the dollar appreciates, and U.S.net capital outflow decreases.
D)  increases, the real exchange rate of the dollar depreciates, and U.S.net capital outflow increases.E) None of the above
F) A) and C)

Question 15

If the U.S.government imposes an import quota on French wine,U.S.net exports will

Accepted Answer

A)  increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S.wine will increase.
B)  not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S.wine will increase.
C)  not change, the dollar will depreciate, and domestic sales of U.S.wine will not change.
D)  None of the above is correct.E) A) and C)
F) B) and C)

Question 16

In an open economy,the market for loanable funds equates national saving with

Accepted Answer

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

Question 17

In the open-economy macroeconomic model,the demand for loanable funds comes from

Accepted Answer

A)  domestic investment.
B)  net exports.
C)  net capital outflow.
D)  the sum of net capital outflow and domestic investment.E) All of the above
F) C) and D)

Question 18

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

Accepted Answer

A)  depreciate and Indian net exports would rise.
B)  depreciate and Indian net exports would fall.
C)  appreciate and Indian net exports would rise.
D)  appreciate and Indian net exports would fall.E) All of the above
F) A) and B)

Question 19

Capital flight refers to

Accepted Answer

A)  the movement of workers across international borders in response to exchange rate changes.
B)  the movement of funds between financial intermediaries when interest rates change.
C)  the ability of foreign direct investment to lift a country out of poverty.
D)  a large and sudden movement of funds out of a country.E) A) and B)
F) A) and C)

Question 20

When the real exchange rate for the dollar depreciates,U.S.goods become

Accepted Answer

A)  less expensive relative to foreign goods, which makes exports rise and imports fall.
B)  less expensive relative to foreign goods, which makes exports fall and imports rise.
C)  more expensive relative to foreign goods, which makes exports rise and imports fall.
D)  more expensive relative to foreign goods, which makes exports fall and imports rise.E) B) and C)
F) A) and D)

Exam 32: A Macroeconomic Theory of the Open Economy

In the open-economy macroeconomic model,net exports equal the quantity of dollars demanded in the foreign-currency exchange market.

Correct AnswerverifiedShow Answer

If policymakers impose import restrictions on electronics,the U.S.trade deficit will shrink.

Correct AnswerverifiedShow Answer

If a government of a country with a zero trade balance increases its budget deficit,then the real exchange rate

Correct AnswerverifiedShow Answer

Which of the following will decrease U.S.net capital outflow?

Correct AnswerverifiedShow Answer

When the real exchange rate for the dollar depreciates,U.S.goods become

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994,Mexico's net exports

Correct AnswerverifiedShow Answer

Capital flight refers to

Correct AnswerverifiedShow Answer

In an open economy,the market for loanable funds equates national saving with

Correct AnswerverifiedShow Answer

If the U.S.government imposes an import quota on French wine,U.S.net exports will

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model,if the U.S.government reduced its government budget deficit,both U.S.domestic investment and U.S.net capital outflow would fall.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is

Correct AnswerverifiedShow Answer

If U.S.firms decide to invest more domestically at each interest rate,the real interest rate in the United States

Correct AnswerverifiedShow Answer

The purchase of a capital asset adds to the demand for loanable funds

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds,the quantity demanded is

Correct AnswerverifiedShow Answer

You see on the Internet that the U.S.exchange rate has fallen.This might have been caused by

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model,the demand for loanable funds comes from

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the United States in the early 1980s,there was a government budget

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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