Question 1

When a country experiences capital flight its currency
A)appreciates and net exports rise.
B)appreciates and net exports fall.
C)depreciates and net exports rise.
D)depreciates and net exports fall.

Accepted Answer

The answer of When a country experiences capital flight its...

Question 2

When a country suffers from capital flight, the demand for loanable funds in that country shifts
A)right, which increases interest rates in that country.
B)right, which decreases interest rates in that country.
C)left, which increases interest rates in that country.
D)left, which decreases interest rates in that country.

Accepted Answer

The answer of When a country suffers from capital flight,...

Question 3

If a country experiences capital flight, which curves shift right?
A)the demand for loanable funds and the demand for its currency in the market for foreign-currency exchange
B)the demand for loanable funds and the supply of its currency in the market for foreign-currency exchange
C)the supply of loanable funds and the demand for its currency in the market for foreign-currency exchange
D)the supply of loanable funds and the supply of its currency in the market for foreign-currency exchange

Accepted Answer

Capital flight means that the residents of a country are selling their assets and deposits denominated in the country's currency and buying assets and deposits denominated in foreign currencies. This leads to an increase in the supply of the country's currency in the market for foreign-currency exchange, which shifts the supply curve to the right. At the same time, the demand for loanable funds in the country decreases as people move their money abroad, which shifts the demand curve for loanable funds to the right. Therefore, the correct answer is B, which reflects the shift in both the supply of the currency and the demand for loanable funds.

Question 4

When a country experiences capital flight, the interest rate
A)falls because the demand for loanable funds shifts left.
B)falls because the supply for loanable funds shifts right.
C)rises because the demand for loanable funds shifts right.
D)rises because the supply for loanable funds shifts left.

Accepted Answer

Capital flight refers to the movement of financial assets and capital out of a country due to economic or political instability. This results in a decrease in the supply of loanable funds in the country, leading to a higher demand for these funds from borrowers. As the demand for loanable funds increases, lenders may be willing to charge higher interest rates to meet this demand. Therefore, the interest rate rises because the demand for loanable funds shifts right.

Question 5

When a country experiences capital flight its
A)net capital outflow increases and its real exchange rate rises.
B)net capital outflow increases and its real exchange rate falls.
C)net capital outflow decreases and its real exchange rate rises.
D)net capital outflow decreases and its real exchange rate falls.

Accepted Answer

Capital flight refers to the sudden outflow of large amounts of capital from a country, usually due to political or economic instability. This leads to an increase in net capital outflow, as more money is leaving the country than is coming in. As a result, the demand for the country's currency decreases, causing the currency to depreciate and the real exchange rate to fall. This ultimately makes the country's exports cheaper and more attractive to foreign buyers, but also makes imports more expensive, which can lead to inflation.

Question 6

When a country experiences capital flight, which of the following rise?
A)its real interest rate and its real exchange rate
B)its real interest rate but not its real exchange rate
C)its real exchange rate but not its real interest rate
D)neither its real interest rate nor its foreign exchange rate

Accepted Answer

The answer of When a country experiences capital flight, which...

Question 7

In the market for foreign-currency exchange, capital flight shifts
A)the demand curve right.
B)the demand curve left.
C)the supply curve right.
D)the supply curve left.

Accepted Answer

The answer of In the market for foreign-currency exchange, capital...

Question 8

When Mexico suffered from capital flight in 1994, Mexico's net exports
A)decreased.
B)did not change.
C)increased.
D)decreased until the peso appreciated, then increased.

Accepted Answer

The answer of When Mexico suffered from capital flight in...

Question 9

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a
A)surplus of loanable funds, so the interest rate increases.
B)surplus of loanable funds, so the interest rate decreases.
C)shortage of loanable funds, so the interest rate increases.
D)shortage of loanable funds, so the interest rate decreases.

Accepted Answer

If people decide that a country is more risky to keep their saving, they will withdraw their funds, causing a shortage of loanable funds. As a result, the interest rate will increase to encourage savers to keep their funds in the country.

Question 10

When a country experiences capital flight, its net capital outflow,
A)which is part of the demand for loanable funds, increases.
B)which is part of the supply of loanable funds, increases.
C)which is part of the demand for loanable funds, decreases.
D)which is part of the supply of loanable funds, decreases.

Accepted Answer

The answer of When a country experiences capital flight, its...

Question 11

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds
A)and U.S. net capital outflow rose.
B)and U.S. net capital outflow fell.
C)fell and U.S. net capital outflow rose.
D)rose and U.S. net capital outflow fell.

Accepted Answer

The answer of When Mexico suffered from capital flight in...

Question 12

When a country suffers from capital flight, the exchange rate
A)depreciates, because demand in the market for foreign-currency exchange shifts left.
B)depreciates, because supply in the market for foreign-currency exchange shifts right.
C)appreciates, because demand in the market for foreign-currency exchange shifts right.
D)appreciates, because supply in the market for foreign-currency exchange shifts left.

Accepted Answer

The answer of When a country suffers from capital flight,...

Question 13

When a country experiences capital flight its interest rate
A)and net capital outflow rise.
B)rises and net capital outflow falls.
C)falls and net capital outflow rises.
D)interest rate and net capital outflow fall.

Accepted Answer

Capital flight refers to the situation where investors move their funds out of a country due to economic or political concerns. This leads to a decrease in the demand for domestic assets and an increase in the supply of domestic currency, causing the value of the currency to depreciate. To counter this, the central bank raises interest rates to make domestic assets more attractive to investors, which leads to an increase in interest rates and net capital outflow.

Question 14

If a country experiences capital flight, which of the following curves shift right?
A)only the demand for loanable funds.
B)only the supply of dollars in the market for foreign-currency exchange.
C)only the net capital outflow curve and the supply of dollars in the market for foreign currency exchange.
D)the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.

Accepted Answer

When a country experiences capital flight, it means that investors are withdrawing their assets from the country and bringing them abroad. This leads to a decrease in the supply of loanable funds in the country, which increases the interest rates and leads to a decrease in investment. As a result, the demand for loanable funds shifts to the right, reflecting the higher interest rates. At the same time, the net capital outflow curve shifts to the right, reflecting the increase in capital leaving the country. This also leads to an increase in the supply of dollars in the market for foreign currency exchange, as investors sell domestic currency to buy foreign currency. Therefore, all three curves shift to the right: the demand for loanable funds, the net capital outflow curve, and the supply of dollars in the market for foreign currency exchange.

Question 15

Which of the following happens in the market for loanable funds when there is capital flight?
A)the demand curve shifts right.
B)the demand curve shifts left.
C)the supply curve shifts right.
D)the supply curve shifts left.

Accepted Answer

The answer of Which of the following happens in the...

Question 16

In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to continue to make payments on its debt. Which of these events raise a country's interest rates?
A)an increase in the budget deficit and increased concerns about the ability of the government to pay back its debt
B)an increase in the budget deficit, but not increased concerns about the ability of the government to pay back its debt
C)increased concerns about the ability of the government to pay back its debt, but not an increase in the budget deficit
D)neither an increase in the budget deficit nor increased concerns about the ability of the government to pay back its debt

Accepted Answer

An increase in the budget deficit and increased concerns about the ability of the government to pay back its debt can lead to a decrease in investor confidence in the country's economy, which in turn can lead to an increase in the country's interest rates. On the other hand, if there is only an increase in the budget deficit or only concerns about the government's ability to pay back its debt, it may not necessarily lead to an increase in interest rates.

Question 17

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift
A)left, which would make the real exchange rate of the Chinese yuan appreciate.
B)left, which would make the real exchange rate of the Chinese yuan depreciate.
C)right, which would make the real exchange rate of the Chinese yuan appreciate.
D)right, which would make the real exchange rate of the Chinese yuan depreciate.

Accepted Answer

The answer of If China experienced capital flight, the supply...

Question 18

Suppose a country experiences capital flight. Of the demand for loanable funds and the supply of currency in the market for foreign-currency exchange, which shifts right?
A)only the demand for loanable funds
B)only the supply of its currency in the market for foreign-currency exchange
C)both curves shift right
D)neither curve shifts right

Accepted Answer

The answer of Suppose a country experiences capital flight. Of...

Question 19

When Mexico suffered from capital flight in 1994, the U.S. real interest rate
A)rose and the real exchange rate of the dollar appreciated.
B)rose and the real exchange rate of the dollar depreciated.
C)fell and the real exchange rate of the dollar appreciated.
D)fell and the real exchange rate of the dollar depreciated.

Accepted Answer

The answer of When Mexico suffered from capital flight in...

Question 20

If there is capital flight from the United States, then the demand for loanable funds
A)and the supply of dollars in the foreign-exchange market shift right.
B)and the supply of dollars in the foreign-exchange market shift left.
C)shifts left while the supply of dollars in the foreign-exchange market shifts right.
D)shifts right while the supply of dollars in the foreign-exchange market shifts left.

Accepted Answer

The answer of If there is capital flight from the...

Quiz 32: A Macroeconomic Theory of the Open Economy

When a country experiences capital flight its currency

When a country suffers from capital flight, the demand for loanable funds in that country shifts

If a country experiences capital flight, which curves shift right?

When a country experiences capital flight, the interest rate

When a country experiences capital flight its

When a country experiences capital flight, which of the following rise?

In the market for foreign-currency exchange, capital flight shifts

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

If people decide that some country is now a more risky place to keep their saving, then at the original interest rate in that country there is a

When a country experiences capital flight, its net capital outflow,

When Mexico suffered from capital flight in 1994, U.S. demand for loanable funds

When a country suffers from capital flight, the exchange rate

When a country experiences capital flight its interest rate

If a country experiences capital flight, which of the following curves shift right?

Which of the following happens in the market for loanable funds when there is capital flight?

In 2009 Greece's budget deficit rose and people became worried about the ability of the Greek government to continue to make payments on its debt. Which of these events raise a country's interest rates?

If China experienced capital flight, the supply of Chinese yuan in the market for foreign-currency exchange would shift

Suppose a country experiences capital flight. Of the demand for loanable funds and the supply of currency in the market for foreign-currency exchange, which shifts right?

When Mexico suffered from capital flight in 1994, the U.S. real interest rate

If there is capital flight from the United States, then the demand for loanable funds