Question 1

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

Accepted Answer

The real interest rate is the key determinant of net capital outflow because it affects the return on foreign investments compared to domestic investments. If the real interest rate in a country is high, then foreign investors are more likely to invest in that country's assets, leading to a capital inflow. On the other hand, if the real interest rate is low, then domestic investors are more likely to invest abroad, leading to a capital outflow.

Question 2

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.

Accepted Answer

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save exactly balances the sum of desired domestic investment and the net capital outflow (which includes the current account balance).

Question 3

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

Accepted Answer

A higher real exchange rate makes exports more expensive and imports cheaper, therefore reducing net exports.

Question 4

A drop in a country's real interest rate reduces that country's net capital outflow.

Accepted Answer

The answer of A drop in a country's real interest...

Question 5

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

Accepted Answer

Net capital outflow represents the amount of domestic savings that is being invested in foreign assets, and it is represented in the market for loanable funds. It also affects the exchange rate in the foreign-currency exchange market. Therefore, net capital outflow is a key link between these two markets in the open-economy macroeconomic model.

Question 6

In the open-economy macroeconomic model,if the real exchange rate of the U.S.dollar were above its equilibrium level,the real exchange rate of the U.S.dollar would appreciate.

Accepted Answer

If the real exchange rate of the U.S. dollar were above its equilibrium level, it would mean that the U.S. dollar is overvalued and therefore, its price should decrease to reach equilibrium. This would result in a depreciation of the U.S. dollar, not an appreciation.

Question 7

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.

Accepted Answer

In the open-economy macroeconomic model, the supply curve of currency is vertical because it is determined by the monetary authorities and is not affected by changes in the real exchange rate. Therefore, the quantity of currency supplied remains constant regardless of the levels of exchange rates.

Question 8

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

Accepted Answer

When interest rates rise, foreigners may be more attracted to investing in the domestic market due to the higher returns. This could result in an increase in capital inflow to the country, which would lead to a decrease in net capital outflow. On the other hand, if domestic investors find foreign markets more attractive due to higher interest rates, there could be a decrease in capital inflow and an increase in net capital outflow, leading to a negative value.

Question 9

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

Accepted Answer

A higher domestic interest rate increases the cost of borrowing, and therefore reduces the demand for loanable funds by households and firms.

Question 10

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

Accepted Answer

The answer of Other things the same,when the real exchange...

Question 11

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

Accepted Answer

If the real interest rate were above the equilibrium rate, it would discourage borrowing and encourage saving, leading to a surplus of loanable funds, not a shortage.

Question 12

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

Accepted Answer

The purchase of a capital asset adds to the demand for loanable funds regardless of whether it is a domestic or foreign asset.

Question 13

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

Accepted Answer

Net capital outflow represents the amount of capital that flows from one country to another, and it is typically measured in dollars. Therefore, it represents the quantity of dollars supplied in the foreign-currency exchange market.

Question 14

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

Accepted Answer

In the open-economy macroeconomic model, the quantity of dollars demanded in the foreign-currency exchange market equals net exports. This is known as the net exports identity.

Question 15

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.

Accepted Answer

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

Question 16

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

Accepted Answer

This is because C+I+G represents domestic demand, which exceeds domestic supply (Y). This means that there is a greater propensity to import goods (net exports are less than zero) and a greater propensity to invest abroad (net capital outflow is less than zero) to meet the excess demand.

Question 17

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.

Accepted Answer

This is the central idea behind the open-economy macroeconomic model, where the equilibrium real interest rate ensures that savings, investment, and net capital outflow are all equal.

Question 18

A higher U.S.interest rate discourages Americans from buying foreign assets and encourages foreigners to buy U.S.assets.

Accepted Answer

A higher U.S. interest rate typically makes U.S. assets more attractive to foreign investors, as they can earn a higher return on their investments. At the same time, it may make foreign assets relatively less attractive to Americans, as they can earn a good return by investing domestically.

Question 19

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

Accepted Answer

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is vertical, reflecting that the supply of dollars is determined by the domestic money supply and is not directly affected by the exchange rate.

Question 20

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.

Accepted Answer

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

Quiz 32: A Macroeconomic Theory of the Open Economy