149. If after a country experiences capital flight, people become more confident about the safety of its assets, then in that
country
a.
the real exchange rate and the real interest rate will rise.
b.
the real exchange rate will rise and the real interest rate will fall.
c.
the real exchange rate will fall and the real interest rate will rise.
d.
the real exchange rate and the real interest rate will fall.
Figure 32-7
Refer to this diagram of the open-economy macroeconomic model of the Mexican economy to answer the questions
below.
150. Refer to Figure 32-7. Suppose that the Mexican economy starts at r2 and e3. Which of the following is consistent
with the effects of capital flight?
a.
a shift from D2 to D1 in Panel A
b.
a shift from NCO1 to NCO2 in Panel B
c.
a shift from D2 to D1 in Panel C
d.
All of the above shifts are consistent with the effects of capital flight.
151. Refer to Figure 32-7. Suppose the Mexican economy starts at r2 and e2. Which of the following new equilibrium is
consistent with capital flight?
a.
b.
c.
d.
152. In which case(s) does(do) a country’s demand for loanable funds shift right?
a.
both an increase in the budget deficit and capital flight
b.
an increase in the budget deficit, but not capital flight
c.
capital flight, but not an increase in the budget deficit
d.
neither an increase in the budget deficit nor capital flight
153. In which case(s) does(do) a country’s demand for loanable funds shift left?
a.
both an increase in the budget deficit and capital flight
b.
an increase in the budget deficit, but not capital flight
c.
capital flight, but not an increase in the budget deficit
d.
neither an increase in the budget deficit nor capital flight
154. In which case(s) does(do) a country’s supply of loanable funds shift right?
a.
both an increase in the budget deficit and capital flight
b.
an increase in the budget deficit, but not capital flight
c.
capital flight, but not an increase in the budget deficit
d.
neither an increase in the budget deficit nor capital flight
155. In which case(s) does(do) a country’s supply of loanable funds shift left?
a.
both an increase in the budget deficit and capital flight
b.
an increase in the budget deficit, but not capital flight
c.
capital flight, but not an increase in the budget deficit
d.
neither an increase in the budget deficit nor capital flight
156. Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?
a.
the U.S. government budget deficit decreases
b.
capital flight from foreign countries
c.
the U.S. imposes import quotas
d.
None of the above is correct.
157. Which of the following would cause the real exchange rate of the U.S. dollar to appreciate?
a.
the U.S. government budget deficit decreases
b.
capital flight from the U.S.
c.
the U.S. imposes import quotas
d.
None of the above is correct.
158. Which of the following would both raise the U.S. exchange rate?
a.
capital flight from other countries to the U.S. occurs and the U.S. moves from budget surplus to budget deficit
b.
capital flight from other countries to the U.S. occurs and the U.S. moves from budget deficit to budget surplus
c.
capital flight from the U.S. to other countries occurs, the U.S. moves from budget surplus to budget deficit
d.
capital flight from U.S. to other countries occurs, the U.S. moves from budget deficit to budget surplus
159. Which of the following will not change the U.S. real interest rate?
a.
capital flight from the United States
b.
the government budget deficit increases
c.
the U.S. imposes import quotas
d.
None of the above is correct.
160. Which of the following would both make a country’s real exchange rate rise?
a.
its budget deficit increases and bonds issued in the country become riskier
b.
bonds issued in that country become riskier and it imposes an import quota
c.
it imposes an import quota and the budget deficit increases
d.
None of the above are correct.
161. Which of the following can explain a decrease in the U.S. real exchange rate?
a.
the U.S. government budget deficit falls
b.
the U.S. impose import quotas
c.
the default risk of U.S. assets falls
d.
All of the above are correct.
162. Which of the following will decrease U.S. net capital outflow?
a.
capital flight from the United States
b.
the government budget deficit increases
c.
the U.S. imposes import quotas
d.
None of the above is correct.
163. Which of the following is correct?
a.
capital flight from the United States decreases net capital outflow
b.
an increase in the government budget deficit creates no change in net capital outflow
c.
if the U.S. imposes a restriction on imports, net capital outflow increases
d.
None of the above is correct.
164. Which of the following is most likely to increase U.S. exports?
a.
The government gives subsidies to U.S. firms that export goods or services.
b.
The government reduces the size of the budget surplus.
c.
The United States unilaterally reduces its restrictions on foreign imports.
d.
Taxes on domestic saving rise.
165. Which of the following is most likely to increase the exports of a country?
a.
The government gives subsidies to firms that export goods or services.
b.
The government reduces the size of the budget surplus.
c.
Political instability within the country increases modestly.
d.
None of the above will increase exports.
166. Which of the following leads to an increase in net exports in the long run?
a.
either a decrease in the budget deficit or imposing an import quota
b.
a decrease in the budget deficit but not imposing an import quota
c.
imposing an import quota but not a decrease in the budget deficit
d.
neither a decrease in the budget deficit nor imposing an import quota
167. Which of the following is most likely to increase exports?
a.
a reduction in domestic political instability
b.
ending investment tax credits which subsidize domestic investment
c.
a reduction in the size of the government’s budget surplus
d.
None of the above will increase exports.
168. Which of the following would do the most to reduce a trade deficit?
a.
increase domestic saving
b.
increase domestic political stability and respect of property rights
c.
other countries reduce their trade restrictions
d.
raise tariffs
169. If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate
a.
decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
b.
decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
c.
increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
d.
increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
170. If U.S. citizens decide to save a smaller fraction of their incomes, U.S. domestic investment
a.
increases, and U.S. net capital outflow increases.
b.
increases, and U.S. net capital outflow decreases.
c.
decreases, and U.S. net capital outflow increases.
d.
decreases, and U.S. net capital outflow decreases.
171. If the government of India implemented a policy that decreased national saving, its real exchange rate would
a.
depreciate and Indian net exports would rise.
b.
depreciate and Indian net exports would fall.
c.
appreciate and Indian net exports would rise.
d.
appreciate and Indian net exports would fall.
172. If government policy encouraged households to save more at each interest rate, then
a.
the real exchange rate and net exports would rise.
b.
the real exchange rate and net exports would fall.
c.
the real exchange rate would rise and net exports would fall.
d.
the real exchange rate would fall and net exports would rise.
173. If a country repeals an investment tax credit that, subsidizes domestic investment,
a.
net capital outflow and the real exchange rate rise.
b.
net capital outflow rises and the real exchange rate falls.
c.
net capital outflow falls and the real exchange rate rises.
d.
net capital outflow and the real exchange rate fall.
174. During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax
credit would
a.
shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange
right.
b.
shift the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency
exchange left.
c.
shift the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency
exchange right.
d.
shift both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange
left.
175. During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax
credit would
a.
raise both the interest rate and the real exchange rate.
b.
raise the interest rate and reduce the real exchange rate.
c.
reduce the interest rate and raise the real exchange rate.
d.
reduce both the interest rate and the real exchange rate.
176. If U.S. citizens decide to purchase more foreign assets at each interest rate, the U.S. real interest rate
a.
increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
b.
increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.
c.
decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow decreases.
d.
decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow increases.
177. If the government of Venezuela made policy changes that increased national saving, the real exchange rate of the
peso would
a.
depreciate and Venezuelan net exports would rise.
b.
depreciate and Venezuelan net exports would fall.
c.
appreciate and Venezuelan net exports would rise.
d.
appreciate and Venezuelan net exports would fall.
178. If a country had capital flight, then the real exchange rate would
a.
fall. To offset this fall the government could increase the budget deficit.
b.
fall. To offset this fall the government could decrease the budget deficit.
c.
rise. To offset this rise the government could increase the budget deficit.
d.
rise. To offset this rise the government could decrease the budget deficit.
179. When a government raises its budget deficit, then that country’s
a.
national saving rises, so its supply of loanable funds shifts right.
b.
national saving falls, so its supply of loanable funds shifts left.
c.
national saving rises, so its demand for loanable funds shifts right.
d.
national saving falls, so its demand for loanable funds shifts left.
180. A reduction in a country’s government budget deficit
a.
shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the
market for foreign-currency exchange right.
b.
shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the
market for foreign-currency exchange left.
c.
shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the
market for foreign-currency exchange right.
d.
shifts both the demand for loanable funds in the market for loanable funds and the demand for dollars in the
market for foreign-currency exchange left.
181. When a government reduces its budget deficit, then that country’s
a.
supply of loanable funds shifts right.
b.
supply of loanable funds shifts left.
c.
demand for loanable funds shifts right.
d.
demand for loanable funds shifts left.
182. If a country imposes a tariff on some good, then which of the following curves shifts right?
a.
both the demand for loanable funds and demand in the market for foreign-currency exchange.
b.
the demand for loanable funds and demand in the market for foreign-currency exchange.
c.
demand in the market for foreign-currency exchange but not the demand for loanable funds.
d.
neither the demand for loanable funds nor demand in the market for foreign-currency exchange.