Question 1

In the macroeconomic model of the open economy developed in the text, if the central bank increases the money supply, the price level will:

Accepted Answer

A)  rise, the real interest rate will rise, the nominal interest rate will rise, the real exchange rate will rise and the nominal exchange rate will rise
B)  rise, the real interest rate will be unaffected, the nominal interest rate will rise, the real exchange rate will be unaffected and the nominal exchange rate will rise
C)  rise, the real interest rate will be unaffected, the nominal interest rate will be unaffected, the real exchange rate will be unaffected and the nominal exchange rate will be unaffected
D)  rise, the real interest rate will be unaffected, the nominal interest rate will rise, the real exchange rate will be unaffected and the nominal exchange rate will fallE) B) and C)
F) B) and D)

Question 2

In the open economy:

Accepted Answer

A)  Net foreign investment = Exports
B)  Net foreign investment = Imports
C)  Net foreign investment = Net exports
D)  Net foreign investment = Exports - Imports
E)  both C and DF) A) and B)
G) A) and C)

Question 3

If a country experienced a large and sudden movement of funds out of it, the interest rate would:

Accepted Answer

A)  increase
B)  decrease
C)  be unaffected
D)  fluctuateE) B) and C)
F) A) and D)

Question 4

Explain why the Australian dollar may appreciate owing to a change in interest rates?

Accepted Answer

Relatively high rates in Australia, comp...

Question 5

If exports are greater than imports, the country is said to have a:

Accepted Answer

A)  trade advantage
B)  trade balance
C)  trade surplus
D)  trade deficitE) A) and B)
F) A) and C)

Question 6

If the interest rate were below the equilibrium level, the quantity of loanable funds supplied would _____ the quantity demanded.

Accepted Answer

A)  be greater than
B)  exactly equal
C)  be less than
D)  be independent ofE) All of the above
F) A) and C)

Question 7

In the market for foreign-currency exchange, E₁ is:

Accepted Answer

A)  the price of goods and services in the present relative to goods and services in the future
B)  the price of goods and services in the future relative to goods and services in the present
C)  the price of foreign goods and services relative to domestic goods and services
D)  the price of domestic goods and services relative to foreign goods and servicesE) All of the above
F) A) and B)

Question 8

In an open economy, an increase in national saving _______ the equilibrium domestic real interest rate and the quantity of net capital inflows _____ and the quantity of domestic investment ______.

Accepted Answer

A)  increases; increases; increases
B)  increases; increases; decreases
C)  increases; decreases; decreases
D)  decreases; decreases; increasesE) All of the above
F) A) and B)

Question 9

In an open economy, domestic investment equals:

Accepted Answer

A)  net capital inflows
B)  net capital outflows
C)  domestic saving
D)  domestic saving plus net capital inflowsE) A) and C)
F) A) and B)

Question 10

Graph 13-2 2 in panel (c)  B) B to A in panel (a)  and from E2 to E₁ in panel (c)  C) A to B in panel (a)  and from E2 to E₁ in panel (c)  D) B to A in panel (a)  and from E₁ to E2 in panel (c) " class="answers-bank-image d-inline" rel="preload" >
-In Graph 13-2, an increase in the government budget deficit causes the equilibrium in the economy to move from:

Accepted Answer

A)  A to B in panel (a)  and from E₁ to E2 in panel (c) 
B)  B to A in panel (a)  and from E2 to E₁ in panel (c) 
C)  A to B in panel (a)  and from E2 to E₁ in panel (c) 
D)  B to A in panel (a)  and from E₁ to E2 in panel (c) E) C) and D)
F) A) and B)

Question 11

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is:

Accepted Answer

A)  downward-sloping
B)  upward-sloping
C)  vertical
D)  horizontal
E)  the theory doesn't imply anything about the shape of the demand curveF) None of the above
G) A) and B)

Question 12

A strong domestic dollar, ceteris paribus, may have minimal impact on export industries.

Accepted Answer

A) True 
 B)False

Question 13

Net foreign investment must be equal to current balance.

Accepted Answer

A) True 
 B)False

Question 14

The current account is defined as that part of the balance of payments that records transactions leading to a change of ownership of commodities, or a direct flow of income or similar payment.

Accepted Answer

A) True 
 B)False

Question 15

In recent times China overtook Germany to become the world's biggest exporter.On one measure it now looks likely to become the world's biggest economy within 10 years.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that foreign investors are worried about the political stability of Acadia.How would that fear affect the real interest rate and the real exchange rate?

Accepted Answer

In light of this political uncertainty, ...

Question 17

Suppose that the government imposes a quota on imports.Explain why the result is a fall in imports and an equal fall in exports.(Hint: Think about what happens to net exports, and about what happens to the exchange rate.)

Accepted Answer

A quota on imports does not affect the o...

Question 18

Introducing tariffs will _____ exports, _____ imports, leaving _____ unaffected.

Accepted Answer

A)  reduce; reduce; trade balance
B)  reduce; raise; national income
C)  reduce; reduce; national income
D)  reduce; raise; trade balanceE) B) and C)
F) None of the above

Question 19

Explain how net foreign investment is part of the demand for loanable funds and simultaneously part of the supply of dollars in the foreign exchange market.

Accepted Answer

To carry out net foreign investment, an ...

Question 20

In the market for foreign-currency exchange, the supply curve represents:

Accepted Answer

A)  national saving
B)  private saving
C)  domestic investment
D)  net foreign investment
E)  none of the aboveF) None of the above
G) B) and C)

Exam 32: A Macroeconomic Theory of the Open Economy

If exports are greater than imports, the country is said to have a:

Correct AnswerverifiedShow Answer

Explain why the Australian dollar may appreciate owing to a change in interest rates?

Correct AnswerverifiedRelatively high rates in Australia, comp...View AnswerShow Answer

The current account is defined as that part of the balance of payments that records transactions leading to a change of ownership of commodities, or a direct flow of income or similar payment.

Correct AnswerverifiedShow Answer

Introducing tariffs will _____ exports, _____ imports, leaving _____ unaffected.

Correct AnswerverifiedShow Answer

The theory of purchasing-power parity implies that the demand curve for foreign-currency exchange is:

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If the interest rate were below the equilibrium level, the quantity of loanable funds supplied would _____ the quantity demanded.

Correct AnswerverifiedShow Answer

Net foreign investment must be equal to current balance.

Correct AnswerverifiedShow Answer

If a country experienced a large and sudden movement of funds out of it, the interest rate would:

Correct AnswerverifiedShow Answer

Suppose that foreign investors are worried about the political stability of Acadia.How would that fear affect the real interest rate and the real exchange rate?

Correct AnswerverifiedIn light of this political uncertainty, ...View AnswerShow Answer

In an open economy, domestic investment equals:

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange, the supply curve represents:

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A strong domestic dollar, ceteris paribus, may have minimal impact on export industries.

Correct AnswerverifiedShow Answer

Explain how net foreign investment is part of the demand for loanable funds and simultaneously part of the supply of dollars in the foreign exchange market.

Correct AnswerverifiedTo carry out net foreign investment, an ...View AnswerShow Answer

In the macroeconomic model of the open economy developed in the text, if the central bank increases the money supply, the price level will:

Correct AnswerverifiedShow Answer

In recent times China overtook Germany to become the world's biggest exporter.On one measure it now looks likely to become the world's biggest economy within 10 years.

Correct AnswerverifiedShow Answer

Suppose that the government imposes a quota on imports.Explain why the result is a fall in imports and an equal fall in exports.(Hint: Think about what happens to net exports, and about what happens to the exchange rate.)

Correct AnswerverifiedA quota on imports does not affect the o...View AnswerShow Answer

In an open economy, an increase in national saving _______ the equilibrium domestic real interest rate and the quantity of net capital inflows _____ and the quantity of domestic investment ______.

Correct AnswerverifiedShow Answer

In the market for foreign-currency exchange, E₁ is:

Correct AnswerverifiedShow Answer

In the open economy:

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Graph 13-2 -In Graph 13-2, an increase in the government budget deficit causes the equilibrium in the economy to move from:

Correct AnswerverifiedShow Answer

Correct Answer
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Relatively high rates in Australia, comp...
View Answer

Correct Answer
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Introducing tariffs will ___ exports, _ imports, leaving ___ unaffected.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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In light of this political uncertainty, ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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To carry out net foreign investment, an ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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A quota on imports does not affect the o...
View Answer

In an open economy, an increase in national saving _____ the equilibrium domestic real interest rate and the quantity of net capital inflows _ and the quantity of domestic investment ____.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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