Deck 32: A Macroeconomic Theory of the Open Economy

Question 1

Over the past two decades the U.S. has persistently had trade deficits.

Answer 1

True

Question 2

If the real interest rate were above the equilibrium rate, there would be a shortage of loanable funds.

Answer 2

False

Question 3

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one.

Answer 3

False

Question 4

In an open economy, the demand for loanable funds comes from both domestic investment and net capital outflow.

Question 5

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.

Question 6

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

Question 7

In an open economy, the supply of loanable funds comes from national saving.

Question 8

An increase in a country's real interest rate reduces that country's net capital outflow.

Question 9

In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

Question 10

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.

Question 11

Net capital outflow represents the quantity of dollars supplied in the foreign-currency exchange market.

Question 12

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save equals desired quantities of domestic investment and net capital outflow.

Question 13

Other things the same, when the real exchange rate of the dollar appreciates, U.S. goods become more desirable to U.S. residents, but less desirable to foreign residents.

Question 14

The primary focus of the open-economy macroeconomic model is the determination of GDP and the price level.

Question 15

Because depreciation of the real exchange rate of the dollar increases U.S. net exports, the demand curve for dollars in the foreign-currency exchange market is downward sloping.

Question 16

In the open-economy macroeconomic model, a higher domestic interest rate reduces the quantity of loanable funds demanded

Question 17

Over the past two decades, the U.S. has persistently exported more goods and services than it has imported.

Question 18

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

Question 19

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

Question 20

Other things the same, if foreigners desire to purchase more U.S. bonds, then the demand for loanable funds shifts left.

Question 21

In the open-economy macroeconomic model, if there were a surplus in the market for foreign-currency exchange, the real exchange rate would appreciate.

Question 22

According to the open-economy macroeconomic model, if the United States moved from a government budget deficit to a government budget surplus, U.S. real interest rates would increase and the real exchange rate of the U.S. dollar would appreciate.

Question 23

An increase in the U.S. interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S. assets.

Question 24

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

Question 25

According to the open-economy macroeconomic model, if the U.S. government budget deficit increases, then both U.S. domestic investment and U.S. net capital outflow decrease.

Question 26

When the government budget deficit increases, national saving decreases.

Question 27

As the interest rate rises, it is possible that net capital outflow could move from a positive to a negative value.

Question 28

Other things the same, when a Canadian company imports bicycles from the U.S., the open-economy macroeconomic model treats this transaction as part of the demand for dollars in the U.S. foreign-currency exchange market.

Question 29

An increase in the government budget deficit shifts the demand for loanable funds to the right.

Question 30

In the open-economy macroeconomic model, other things the same, when a U.S. resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

Question 31

In the open-economy macroeconomic model, the real exchange rate does not affect net capital outflow.

Question 32

In the open-economy macroeconomic model, net capital outflow links the markets for loanable funds and foreign-currency exchange.

Question 33

In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

Question 34

The key determinant of net capital outflow is the real interest rate.

Question 35

An increase in the government budget deficit shifts the supply of loanable funds to the left.

Question 36

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

Question 37

In the open-economy macroeconomic model, other things the same, an increase in the exchange rate raises the quantity of dollars supplied in the market for foreign-currency exchange.

Question 38

According to the open-economy macroeconomic model, if the U.S. government budget deficit decreases, then both U.S. domestic investment and net capital outflow increase.

Question 39

In the 1980s, both the U.S. government budget and U.S. trade deficits increased.

Question 40

When a country imposes a trade restriction, the real exchange rate of that country's currency appreciates.

Question 41

Capital flight raises a country's real exchange rate.

Question 42

Capital flight raises both a country's exchange rate and its interest rate.

Question 43

Capital flight shifts the NCO curve to the left.

Question 44

Capital flight shifts the demand for loanable funds to the left.

Question 45

Capital flight raises a country's interest rate.

Question 46

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

Question 47

What is the source of the supply of loanable funds in the open-economy macroeconomic model?

Question 48

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

Question 49

What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?

Question 50

What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens.

Question 51

When a country imposes a trade quota, the demand for currency in the market for foreign exchange shifts to the right

Question 52

An increase in the government budget deficit shifts the supply of domestic currency in the market for foreign exchange to the right.

Question 53

An increase in national saving reduces the interest rate and so reduces net capital outflow.

Question 54

In the long run, import quotas increase net exports.

Question 55

Although trade policies do not affect a country's overall trade balance, they do affect specific firms and industries.

Question 56

What is the source of the demand for loanable funds in the open-economy macroeconomic model ?

Question 57

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

Question 58

A tax credit for purchases of capital goods causes the interest rate to increase and the exchange rate to appreciate.

Question 59

If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline.

Question 60

In the long run import quotas do not affect the size of net exports.

Question 61

If the government budget deficit rises, what happens to the interest rate? What does this change in the interest rate do to net capital outflow? Provide a detailed explanation of why this change in the interest rate changes net capital outflow.

Question 62

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

Question 63

If the exchange rate falls, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to domestic residents. So, _______ ______.

Question 64

Other things the same, if the U.S. interest rate rises, what happens to the net capital outflow of other countries?

Question 65

What is the source of the supply of dollars in the market for foreign-currency exchange?

Question 66

If a country's government moves from a budget deficit to a budget surplus, which curve in the market for loanable funds shifts and which direction does it shift? What happens to the interest rate?

Question 67

Other things the same, if the U.S. interest rate rises, U.S. assets become ____ attractive. So, desired net capital outflow _____. This change in net capital outflow, shifts the __________ curve in the market for foreign-currency exchange to the ______.

Question 68

What happens to net capital outflow as the real interest rate falls? Explain your answer.

Question 69

What happens to domestic investment as the real interest rate rises? Explain your answer.

Question 70

What is the source of the demand for dollars in the market for foreign-currency exchange?

Question 71

In the market for foreign-currency exchange, the source of the supply of dollars is _________. The supply curve is _________ because _____________.

Question 72

Other things the same, which of the following would a rise in the real interest rate raise:
desired investment spending, desired national saving, desired net capital outflow?

Question 73

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

Question 74

A country recently had 500 billion euros of national saving and 200 billion euros of domestic investment. What was its net capital outflow? What was its quantity of loanable funds demanded?

Question 75

If there is a shortage in the market for foreign-currency exchange, what happens to the exchange rate and to net exports?

Question 76

An economy recently had 800 billion euros of saving and 600 billion euros of net capital outflow. What was its investment? What was its quantity of loanable funds supplied?

Question 77

If a country's exchange rate rises, what happens to its exports and what happens to its imports?

Question 78

If the exchange rate rises, foreign residents want to purchase ______ domestic goods and domestic residents want to purchase _____ foreign goods. In the market for foreign-currency exchange, these changes are shown as a _______ in the quantity of dollars ______.

Question 79

Define net capital outflow.

Question 80

A country recently had 500 billion euros of national saving and -200 billion euros of net capital outflow. What was its domestic investment? What was its quantity of loanable funds supplied?