Question 1

Suppose that Canada imposes an import quota on automobiles. In the open-economy macroeconomic model, this quota would shift which of the following curves?

Accepted Answer

A)  supply of loanable funds left
B)  demand for loanable funds left
C)  demand for Canadian dollars right
D)  supply of Canadian dollars leftE) All of the above
F) B) and C)

Question 2

Which of the following lists contains only things that increase when the budget deficit of the Canadian government increases?

Accepted Answer

A)  Canadian supply of loanable funds, Canadian domestic investment
B)  Canadian imports, the real exchange rate of the dollar
C)  The real exchange rate of the dollar, Canadian domestic investment
D)  the real exchange rate of the dollar, Canadian net exportsE) B) and C)
F) All of the above

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

In the open-economy macroeconomic model, where does the supply of loanable funds come from?

Accepted Answer

A)  national saving
B)  private saving
C)  domestic investment
D)  the sum of domestic investment and net capital outflowE) A) and B)
F) C) and D)

Question 5

When Mexico suffered from capital flight in 1994, what happened to Mexico's real interest rate and the peso?

Accepted Answer

A)  The real interest rate fell and the peso appreciated.
B)  The real interest rate fell and the peso depreciated.
C)  The real interest rate rose and the peso appreciated.
D)  The real interest rate rose and the peso depreciated.E) A) and B)
F) B) and C)

Question 6

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

Accepted Answer

A)  A retail outlet in Afghanistan wants to buy watches from a Canadian manufacturer.
B)  A Canadian bank loans dollars to Blair, a Canadian resident, who wants to purchase a new car made in Canada.
C)  A Canadian-based mutual fund wants to purchase stock issued by a Polish company.
D)  A Canadian resident imports a car made in Japan.E) A) and B)
F) A) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

If there is a surplus of loanable funds, which of the following best describes the consequences?

Accepted Answer

A)  The quantity demanded is greater than the quantity supplied, and the interest rate will rise.
B)  The quantity demanded is greater than the quantity supplied, and the interest rate will fall
C)  The quantity demanded is less than the quantity supplied, and the interest rate will rise.
D)  The quantity demanded is less than the quantity supplied, and the interest rate will fall.E) A) and B)
F) B) and C)

Question 9

If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed, then the Canadian net capital outflow will be which of the following?

Accepted Answer

A)  positive
B)  negative
C)  decreasing
D)  increasingE) B) and D)
F) A) and B)

Question 10

Which of the following best describes the effects of an increase in real interest rates in Canada?

Accepted Answer

A)  It discourages both Canadian and foreign residents from buying Canadian assets.
B)  It encourages both Canadian and foreign residents to buy Canadian assets.
C)  It encourages Canadian residents to buy Canadian assets, but discourages foreign residents from buying Canadian assets.
D)  It encourages foreign residents to buy Canadian assets, but discourages Canadian residents from buying Canadian assets.E) A) and B)
F) None of the above

Question 11

Which of the following does the open-economy macroeconomic model examine?

Accepted Answer

A)  the determination of output growth rate and the real interest rate
B)  the determination of unemployment and the exchange rate
C)  the determination of output growth rate and the inflation rate
D)  the determination of the trade balance and the exchange rateE) A) and B)
F) B) and D)

Question 12

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

Accepted Answer

A)  Canadian demand for loanable funds and Canadian net capital outflow rose.
B)  Canadian demand for loanable funds and Canadian net capital outflow fell.
C)  Canadian demand for loanable funds fell, and Canadian net capital outflow rose.
D)  Canadian demand for loanable funds rose, and Canadian net capital outflow fell.E) B) and C)
F) All of the above

Question 13

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

Accepted Answer

A)  the nominal exchange rate
B)  the nominal interest rate
C)  the real exchange rate
D)  the real interest rateE) C) and D)
F) A) and B)

Question 14

What are the effects of an increase in the supply of loanable funds?

Accepted Answer

A)  Net capital outflow and the real exchange rate both increase.
B)  Net capital outflow and the real exchange rate both decrease.
C)  Net capital outflow increases, and the real exchange rate decreases.
D)  Net capital outflow decreases, and the real exchange rate increases.E) None of the above
F) All of the above

Question 15

An import quota imposed by Egypt would reduce Egyptian imports, but have no impact on Egyptian exports.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

According to the theory of purchasing-power parity, what is the shape of the demand curve for foreign-currency exchange?

Accepted Answer

A)  downward sloping
B)  upward sloping
C)  horizontal
D)  verticalE) A) and C)
F) A) and B)

Question 18

If the world real interest rate is less than the real interest rate that would occur in Canada if there was no trade, then how does Canadian net capital outflow change?

Accepted Answer

A)  It decreases.
B)  It increases.
C)  It does not change.
D)  There is not sufficient information to determine the change in capital outflow.E) B) and C)
F) A) and C)

Question 19

Figure 32-1 
-Refer to Figure 32-1. If the world interest rate equals 6 percent, what is the net capital outflow?

Accepted Answer

A)  positive
B)  negative
C)  either positive or negative
D)  Net capital outflow is not determined by the world interest rate.E) B) and D)
F) A) and D)

Question 20

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model?

Accepted Answer

A)  A firm in Kenya wants to buy wheat from a Canadian firm.
B)  A Japanese bank desires to purchase Canadian government securities.
C)  A Canadian citizen wants to buy a bond issued by a Mexican corporation.
D)  A Canadian citizen exchanges dollars for Euros.E) None of the above
F) B) and D)

Exam 13: A Macroeconomic Theory of the Open Economy

Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model?

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, which of the following best describes the consequences?

Correct AnswerverifiedShow Answer

Which of the following best describes the effects of an increase in real interest rates in Canada?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed, then the Canadian net capital outflow will be which of the following?

Correct AnswerverifiedShow Answer

Suppose that Canada imposes an import quota on automobiles. In the open-economy macroeconomic model, this quota would shift which of the following curves?

Correct AnswerverifiedShow Answer

Which of the following lists contains only things that increase when the budget deficit of the Canadian government increases?

Correct AnswerverifiedShow Answer

An import quota imposed by Egypt would reduce Egyptian imports, but have no impact on Egyptian exports.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the theory of purchasing-power parity, what is the shape of the demand curve for foreign-currency exchange?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, where does the supply of loanable funds come from?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the world real interest rate is less than the real interest rate that would occur in Canada if there was no trade, then how does Canadian net capital outflow change?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following does the open-economy macroeconomic model examine?

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

Correct AnswerverifiedShow Answer

When Mexico suffered from capital flight in 1994, what happened to Mexico's real interest rate and the peso?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What are the effects of an increase in the supply of loanable funds?

Correct AnswerverifiedShow Answer

Figure 32-1 -Refer to Figure 32-1. If the world interest rate equals 6 percent, what is the net capital outflow?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified