Deck 32: 2: Sec 322 Mc Equilibrium in the Open Economy

Question 1

If the exchange rate rises,which of the following falls in the open-economy macroeconomic model?

A)desired net exports and desired net capital outflow
B)desired net exports but not desired net capital outflow
C)desired net capital outflow but not desired net exports
D)neither desired net exports nor desired net capital outflow

Answer 1

C

Question 2

If imports = 500 billion euros,exports = 700 billion euros,purchases of domestic assets by foreign residents = 600 billion euros,and purchases of foreign assets by domestic residents = 800 billion euros,what is the quantity of euros demanded in the market for foreign-currency exchange?

A)1,100 billion euros
B)600 billion euros
C)500 billion euros
D)200 billion euros

Answer 2

D

Question 3

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

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 rate

Answer 3

D

Question 4

Which of the following is correct concerning the open-economy macroeconomic model?

A)The net-capital-outflow curve slopes upward.
B)The key determinant of net capital outflow is the real exchange rate.
C)The supply of dollars in the market for foreign-currency exchange is vertical.
D)None of the above is correct.

Question 5

In the open-economy macroeconomic model,the key determinant of net capital outflow is the

A)nominal exchange rate.
B)nominal interest rate.
C)real exchange rate.
D)real interest rate.

Question 6

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

A)net capital outflow and net exports rise.
B)net capital outflow rises and its net exports fall.
C)net capital outflow falls and its net exports rise.
D)net capital outflow and net exports fall.

Question 7

U.S.net capital outflow

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.

Question 8

When the U.S.real interest rate falls

A)U.S.purchases of foreign assets and foreign purchases of U.S.assets rise
B)U.S.purchases of foreign assets rise and foreign purchases of U.S.assets fall
C)U.S.purchases of foreign assets fall and foreign purchases of U.S.assets rise
D)U.S.purchases of foreign assets and foreign purchases of U.S.assets fall

Question 9

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

A)either the exchange rate rises or the real interest rate falls.
B)either the exchange rate falls or the real interest rate rises.
C)the real interest rate rises.Net capital outflow does not depend on the exchange rate.
D)the real interest rate falls.Net capital outflow does not depend on the exchange rate.

Question 10

In the open-economy macroeconomic model,if a country's interest rate falls,then its

A)net capital outflow and its net exports rise.
B)net capital outflow rises and its net exports fall.
C)net capital outflow falls and its net exports rise.
D)net capital outflow and its net exports fall.

Question 11

When the U.S.real interest rate falls,purchasing U.S.assets becomes

A)less attractive and so U.S.net capital outflow rises.
B)less attractive and so U.S.net capital outflow falls.
C)more attractive and so U.S.net capital outflow rises.
D)more attractive and so U.S.net capital outflow falls.

Question 12

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

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.

Question 13

Other things the same,if the Japanese real interest rate were to increase,Japanese net capital outflow

A)and net capital outflow of other countries would rise.
B)and net capital outflow of other countries would fall.
C)would rise,while net capital outflow of other countries would fall.
D)would fall,while net capital outflow of other countries would rise.

Question 14

When the U.S.real interest rate falls,purchasing U.S.assets becomes

A)more attractive to both U.S.and foreign residents.
B)more attractive to U.S.residents and less attractive to foreign residents.
C)less attractive to U.S.residents and more attractive to foreign residents.
D)less attractive to both U.S.residents and foreign residents.

Question 15

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

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.

Question 16

The quantity of U.S.bonds foreigners want to buy is taken into account

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.

Question 17

In the open-economy macroeconomic model,the key determinant of net capital outflow is

A)the real exchange rate.When the real exchange rate rises,net capital outflow rises.
B)the real exchange rate.When the real exchange rate rises,net capital outflow falls.
C)the real interest rate.When the real interest rate rises,net capital outflow rises.
D)the real interest rate.When the real interest rate rises,net capital outflow falls.

Question 18

The variable that links the market for loanable funds and the market for foreign-currency exchange is

A)net capital outflow.
B)national saving.
C)exports.
D)domestic investment.

Question 19

If the exchange rate falls,U.S.residents pay

A)more dollars for foreign bonds and get more dollars from interest payments.
B)more dollars for foreign bonds but get fewer dollars from interest payments.
C)fewer dollars for foreign bonds and also get fewer dollars from interest payments.
D)fewer dollars for foreign bonds but get more dollars from interest payments.

Question 20

Which of the following is always correct in an open economy?

A)S = I
B)S = NX + NCO
C)S = NCO
D)S = I + NCO

Question 21

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

A)net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts right.
B)net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right.
C)net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
D)net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right.

Question 22

If U.S.residents want to buy more foreign bonds,then in the market for foreign-currency exchange the exchange rate

A)and the quantity of dollars traded rises.
B)rises and the quantity of dollars traded falls.
C)falls and the quantity of dollars traded rises.
D)and the quantity of dollars traded falls.

Question 23

In the open-economy macroeconomic model,if foreign interest rates rise and the U.S interest rate stays the same then,U.S.

A)net capital outflow rises,so the supply of dollars in the market for foreign exchange shifts right.
B)net capital outflow rises,so the demand for dollars in the market for foreign exchange shifts right.
C)net capital outflow falls,so the supply of dollars in the market for foreign exchange shifts left.
D)net capital outflow falls,so the demand for dollars in the market for foreign exchange shifts left.

Question 24

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

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.

Question 25

If foreigners want to buy more U.S.bonds,then in the market for foreign-currency exchange the exchange rate

A)and the quantity of dollars traded rises.
B)rises and the quantity of dollars traded falls.
C)falls and the quantity of dollars traded rises.
D)and the quantity of dollars traded falls.

Question 26

In the open-economy macroeconomic model,if investment demand increases,then

A)net exports and the real exchange rate rise.
B)net exports rise and the real exchange rate falls.
C)net exports fall and the real exchange rate rises.
D)net exports and the real exchange rate fall.

Question 27

If U.S.residents chose to travel overseas less due to concerns about the safety of foreign travel,then in the open-economy macroeconomic model

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.

Question 28

If the demand for net exports rises,which of the following happens in the open-economy macroeconomic model?

A)the exchange rate rises
B)the interest rate falls
C)net capital outflow rises
D)All of the above are correct.

Question 29

In the open-economy macroeconomic model,if the U.S.interest rate rises,then U.S.

A)net capital outflow rises,so the supply of dollars in the market for foreign exchange shifts right.
B)net capital outflow rises,so the demand for dollars in the market for foreign exchange shifts right.
C)net capital outflow falls,so the supply of dollars in the market for foreign exchange shifts left.
D)net capital outflow falls,so the demand for dollars in the market for foreign exchange shifts left.

Question 30

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

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.

Question 31

In the open-economy macroeconomic model,if the supply of loanable funds increases,net capital outflow

A)and the real exchange rate increase.
B)and the real exchange rate decrease.
C)increases and the real exchange rate decreases.
D)decreases and the real exchange rate increases.

Question 32

In the open-economy macroeconomic model,if investment demand decreases,then

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.

Question 33

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

A)net capital outflow rises,so the exchange rate rises.
B)net capital outflow rises,so the exchange rate falls.
C)net capital outflow falls,so the exchange rate rises.
D)net capital outflow falls,so the exchange rate falls.

Question 34

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

A)the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.
B)the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts left.
C)the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.
D)the interest rate falls and the supply of dollars in the market for foreign currency exchange shifts left.

Question 35

In the open-economy macroeconomic model,if the supply of loanable funds increases,then the interest rate

A)and the real exchange rate increase.
B)and the real exchange rate decrease.
C)increases and the real exchange rate decreases.
D)decreases and the real exchange rate increases.

Question 36

In the open-economy macroeconomic model,a decrease in the domestic interest rate shifts

A)demand in the market for foreign-currency exchange to the right.
B)demand in the market for foreign-currency exchange to the left.
C)supply in the market for foreign-currency exchange to the right.
D)supply in the market for foreign-currency exchange to the left.

Question 37

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

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 rises

Question 38

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

A)the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right.
B)the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left.
C)the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right.
D)the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left.

Question 39

A German company wants to buy dollars to purchase U.S.bonds.In the open-economy macroeconomic model of the U.S. ,this transaction would be accounted for in

A)the supply of currency in the foreign exchange market,and the supply of loanable funds.
B)the supply of currency in the foreign exchange market,and the demand for loanable funds.
C)the demand for currency in the foreign exchange market,and the supply of loanable funds.
D)the demand for currency in the foreign exchange market,and the demand for loanable funds.

Question 40

Other things the same,in the open-economy macroeconomic model,which of the following would make China's net capital outflow increase?

A)an increase in U.S.interest rates
B)an increase in Chinese interest rates
C)an appreciation of the Chinese yuan
D)None of the above is correct.

Question 41

Other things the same,if foreign companies desired to buy more U.S.medical equipment and U.S.residents desired to buy more foreign bonds

A)net exports and the exchange rate would rise.
B)net exports would rise,but what would happen to the exchange rate is uncertain.
C)net exports would fall,but what would happen to the exchange rate is uncertain.
D)net exports and the exchange rate would fall.

Question 42

Other things the same,an increase in the U.S.interest rate causes U.S.net capital outflow to

A)rise,so supply in the market for foreign-currency exchange shifts right.
B)rise,so demand in the market for foreign-currency exchange shifts right.
C)fall,so supply in the market for foreign-currency exchange shifts left.
D)fall,so demand in the market for foreign-currency exchange shifts left.

Question 43

Other things the same,an increase in the U.S.interest rate causes

A)demand in the market for foreign-currency exchange to increase so the exchange rate increases.
B)demand in the market for foreign-currency exchange to decrease so the exchange rate decreases.
C)supply in the market for foreign-currency exchange to increase so the exchange rate decreases.
D)supply in the market for foreign-currency exchange to decrease so the exchange rate increases.

Question 44

When the U.S.real interest rate rises,foreigners will want to purchase

A)more U.S.assets so U.S.net capital outflow rises.
B)more U.S.assets so U.S.net capital outflow falls.
C)less U.S.assets so U.S.net capital outflow rises.
D)less U.S.assets so U.S.net capital outflow falls.

Question 45

Other things the same,if U.S.residents wanted to buy more foreign-made computers and foreign residents wanted to purchase more U.S.bonds then,

A)U.S.net exports and the exchange rate would rise.
B)U.S.net exports would rise,but what would happen to the exchange rate is uncertain.
C)U.S.net exports would fall,but what would happen to the exchange rate is uncertain.
D)U.S.net exports and the exchange rate would fall.