Question 1

Figure 32-1 
-Refer to Figure 32-1. The loanable funds market is in equilibrium at
A)2 percent, $20 billion.
B)4 percent, $40 billion.
C)6 percent, $60 billion.
D)None of the above is correct.

Accepted Answer

The answer of Figure 32-1 
-Refer to Figure 32-1. The...

Question 2

If U.S. net exports are negative, then net capital outflow is
A)positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Accepted Answer

Net exports are negative when a country is importing more goods and services than it is exporting them, which means that domestic spending is higher than income. This excess spending is typically financed through borrowing or selling assets to foreigners, which leads to a negative net capital outflow. Therefore, choice D is correct - net capital outflow is negative, and American assets bought by foreigners are greater than foreign assets bought by Americans.

Question 3

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

Accepted Answer

The answer of If the supply of loanable funds shifts...

Question 4

Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?
A)the exchange rate rises
B)the exchange rate falls
C)the expected rate of return on U.S. assets rises
D)the expected rate of return on U.S. assets falls

Accepted Answer

The answer of Which of the following would tend to...

Question 5

Which of the following would make the equilibrium real interest rate increase and the equilibrium quantity of funds decrease?
A)The demand for loanable funds shifts right.
B)The demand for loanable funds shifts left.
C)The supply of loanable funds shifts right.
D)The supply of loanable funds shifts left.

Accepted Answer

If the supply of loanable funds shifts left, this means that there are fewer funds available for borrowing at each interest rate. As a result, the equilibrium real interest rate will increase (due to an increase in demand for the remaining funds), and the equilibrium quantity of funds exchanged will decrease.

Question 6

Which of the following is included in the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?
A)a U.S. bank loans dollars to Tom to buy a U.S. made motorcycle
B)a U.S. tire maker wants to build a new factory in China
C)a U.S. company wants to import goods to sell in its retail stores
D)All of the above are correct.

Accepted Answer

The answer of Which of the following is included in...

Question 7

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars
A)supplied for the purpose of selling assets domestically.
B)supplied for the purpose of buying foreign assets.
C)demanded for the purpose of buying U.S. net exports of goods and services.
D)demanded for the purpose of importing foreign goods and services.

Accepted Answer

Net capital outflow refers to the difference between the amount of domestic investment made by residents of a country and the amount of foreign investment made by residents of other countries in that country. In other words, it represents the quantity of dollars supplied for the purpose of buying foreign assets, which is option B. Option A refers to the opposite scenario, where dollars are supplied for the purpose of selling assets domestically, which is not applicable in this case. Option C refers to the demand for dollars for the purpose of buying U.S. net exports, which is not related to capital flows. Option D refers to the demand for dollars for the purpose of importing foreign goods and services, which is a component of net exports and not relevant to capital flows.

Question 8

If U.S. net exports are positive, then net capital outflow is
A)positive, so foreign assets bought by Americans are greater than American assets bought by foreigners.
B)positive, so American assets bought by foreigners are greater than foreign assets bought by Americans.
C)negative, so foreign assets bought by Americans are greater than American assets bought by foreigners.
D)negative, so American assets bought by foreigners are greater than foreign assets bought by Americans.

Accepted Answer

Net exports represent the difference between exports and imports of goods and services. Therefore, if U.S. net exports are positive, it means that the value of U.S. exports exceeds the value of U.S. imports. This excess of exports over imports implies that foreigners are buying more U.S. goods and services than Americans are buying from abroad, leading to an inflow of foreign currency. This inflow of foreign currency increases the supply of dollars in the foreign exchange market, leading to a decrease in the exchange rate. As a result, American assets become relatively cheaper for foreigners, and they are likely to purchase more American assets such as stocks, bonds, and real estate. This increase in the demand for American assets leads to a positive net capital outflow. Therefore, choice A is correct.

Question 9

If net exports are positive, then
A)exports are greater than imports.
B)net capital outflow is negative.
C)Both of the above are correct.
D)Neither of the above is correct.

Accepted Answer

Positive net exports mean that a country is exporting more goods and services than it imports, which is equivalent to saying that its exports exceed its imports.

Question 10

Suppose the U.S. supply of loanable funds shifts left. This will
A)increase U.S. net capital outflow and increase the quantity of loanable funds demanded.
B)increase U.S. net capital outflow and decrease the quantity of loanable funds demanded.
C)decrease U.S. net capital outflow and increase the quantity of loanable funds demanded.
D)decrease U.S. net capital outflow and decrease the quantity of loanable funds demanded.

Accepted Answer

The answer of Suppose the U.S. supply of loanable funds...

Question 11

Figure 32-1 
-Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a
A)surplus of $20 billion.
B)surplus of $40 billion.
C)shortage of $20 billion.
D)shortage of $40 billion.

Accepted Answer

The answer of Figure 32-1 
-Refer to Figure 32-1. If...

Question 12

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?
A)both a U.S. bank wanting to lend money to a Canadian company and a U.S. firm wanting to buy computers made in South Korea
B)a U.S. bank wanting to lend money to a Canadian company, but not a U.S. firm wanting to buy computers made in South Korea
C)a U.S. firm wanting to buy computers made in South Korea, but not a U.S.bank wanting to lend money to a Canadian company
D)neither a U.S. bank wanting to lend money to a Canadian company nor a U.S. firm wanting to buy computers made in South Korea

Accepted Answer

The answer of Which of the following is considered part...

Question 13

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from
A)net exports
B)net capital outflow
C)net exports + net capital outflow
D)net exports - net capital outflow

Accepted Answer

The answer of In the open-economy macroeconomic model, the supply...

Question 14

In an open economy,
A)net capital outflow = imports.
B)net capital outflow = net exports.
C)net capital outflow = exports.
D)None of the above is correct.

Accepted Answer

In an open economy, net capital outflow (NCO) equals net exports (NX) because every dollar used to purchase imports is a dollar that leaves the country and is considered part of NCO. Similarly, every dollar earned from exports is a dollar that enters the country and is considered part of NX. Therefore, NCO = NX in an open economy.

Question 15

Figure 32-1 
-Refer to Figure 32-1. If the real interest rate is 6 percent, the quantity of loanable funds demanded is
A)$20 billion, and the quantity supplied is $40 billion.
B)$20 billion, and the quantity supplied is $60 billion.
C)$60 billion, and the quantity supplied is $20 billion.
D)$60 billion, and the quantity supplied is $40 billion.

Accepted Answer

The real interest rate of 6% is shown on the vertical axis. At this interest rate, the quantity of loanable funds demanded is $20 billion (shown by the point where the D curve intersects the 6% interest rate line) and the quantity of loanable funds supplied is $60 billion (shown by the point where the S curve intersects the same 6% interest rate line). Therefore, choice B is correct.

Question 16

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from
A)national saving
B)domestic investment
C)net exports
D)net capital outflow

Accepted Answer

The supply of dollars in the market for foreign-currency exchange comes from net capital outflow, which is the difference between domestic investment and domestic saving. When domestic investment exceeds domestic saving, there is a net outflow of capital, and dollars are supplied to the foreign-currency exchange market. Therefore, choice D, net capital outflow, is the correct answer.

Question 17

Figure 32-1 
-Refer to Figure 32-1. If the real interest rate is 6 percent, there will be pressure for
A)the real interest rate to fall.
B)the demand for loanable funds curve to shift left.
C)the supply for loanable funds curve to shift right.
D)All of the above are correct.

Accepted Answer

When the real interest rate is higher than the equilibrium level shown in the graph (6%), there is pressure for the real interest rate to fall. This is because there is excess supply of loanable funds (S1>D1) at the higher interest rate causing borrowers to demand less and lenders to supply more, resulting in downward pressure on the real interest rate. Neither the demand for loanable funds curve nor the supply for loanable funds curve shifts in this case. Therefore, only choice A is correct.

Question 18

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?
A)The demand for loanable funds shifts right.
B)The demand for loanable funds shifts left
C)The supply of loanable funds shifts right.
D)The supply of loanable funds shifts left.

Accepted Answer

An increase in the supply of loanable funds will decrease the equilibrium real interest rate and increase the equilibrium quantity of loanable funds. This is because with a greater supply of loanable funds, lenders will be willing to provide loans to borrowers at lower interest rates, leading to a decrease in the equilibrium real interest rate. Furthermore, borrowers will take advantage of the lower interest rates and borrow more, leading to an increase in the equilibrium quantity of loanable funds.

Question 19

The value of net exports equals the value of
A)national saving.
B)public saving.
C)national saving - net capital outflow.
D)national saving - domestic investment.

Accepted Answer

The answer of The value of net exports equals the...

Question 20

In the open-economy macroeconomic model, if net capital outflow increases then
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.

Accepted Answer

The answer of In the open-economy macroeconomic model, if net...

Quiz 32: A Macroeconomic Theory of the Open Economy

Figure 32-1 -Refer to Figure 32-1. The loanable funds market is in equilibrium at

If U.S. net exports are negative, then net capital outflow is

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

Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right?

Which of the following would make the equilibrium real interest rate increase and the equilibrium quantity of funds decrease?

Which of the following is included in the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

In the open-economy macroeconomic model, the amount of net capital outflow represents the quantity of dollars

If U.S. net exports are positive, then net capital outflow is

If net exports are positive, then

Suppose the U.S. supply of loanable funds shifts left. This will

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 2 percent, there will be a

Which of the following is considered part of the supply of U.S. dollars in the market for foreign-currency exchange in the open-economy macroeconomic model?

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from

In an open economy,

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 6 percent, the quantity of loanable funds demanded is

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange comes from

Figure 32-1 -Refer to Figure 32-1. If the real interest rate is 6 percent, there will be pressure for

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

The value of net exports equals the value of

In the open-economy macroeconomic model, if net capital outflow increases then