1. Which of the following is always correct in an open economy?
a.
S = I
b.
S = NX + NCO
c.
S = NCO
d.
S = I + NCO
2. If imports = 500 billion euros, exports = 700 billion euros, purchases of domestic assets by foreign residents = 600
billion euros, and purchases of foreign assets by domestic residents = 800 billion euros, what is the quantity of euros
demanded in the market for foreign-currency exchange?
a.
b.
c.
d.
3. In the open-economy macroeconomic model, the key determinant of net capital outflow is the
a.
nominal exchange rate.
b.
nominal interest rate.
c.
real exchange rate.
d.
real interest rate.
4. When the U.S. real interest rate falls, purchasing U.S. assets becomes
a.
more attractive to both U.S. and foreign residents.
b.
more attractive to U.S. residents and less attractive to foreign residents.
c.
less attractive to U.S. residents and more attractive to foreign residents.
d.
less attractive to both U.S. residents and foreign residents.
5. When the U.S. real interest rate falls
a.
U.S. purchases of foreign assets and foreign purchases of U.S. assets rise
b.
U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall
c.
U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise
d.
U.S. purchases of foreign assets and foreign purchases of U.S. assets fall
6. When the U.S. real interest rate falls, purchasing U.S. assets becomes
a.
less attractive and so U.S. net capital outflow rises.
b.
less attractive and so U.S. net capital outflow falls.
c.
more attractive and so U.S. net capital outflow rises.
d.
more attractive and so U.S. net capital outflow falls.
7. In the open-economy macroeconomic model, the key determinant of net capital outflow is
a.
the real exchange rate. When the real exchange rate rises, net capital outflow rises.
b.
the real exchange rate. When the real exchange rate rises, net capital outflow falls.
c.
the real interest rate. When the real interest rate rises, net capital outflow rises.
d.
the real interest rate. When the real interest rate rises, net capital outflow falls.
8. In the open-economy macroeconomic model, which of the following increases net capital outflow?
a.
a fall in the real exchange rate, but not a fall in the real interest rate
b.
a fall in the real interest rate, but not a fall in the real exchange rate
c.
both a fall in the real exchange rate and a fall in the real interest rate
d.
neither a fall in the real exchange rate nor a fall in the real interest rate
9. In the open-economy macroeconomic model, net capital outflow rises if
a.
either the exchange rate rises or the real interest rate falls.
b.
either the exchange rate falls or the real interest rate rises.
c.
the real interest rate rises. Net capital outflow does not depend on the exchange rate.
d.
the real interest rate falls. Net capital outflow does not depend on the exchange rate.
10. Which of the following is correct concerning the open-economy macroeconomic model?
a.
The net-capital-outflow curve slopes upward.
b.
The key determinant of net capital outflow is the real exchange rate.
c.
The supply of dollars in the market for foreign-currency exchange is vertical.
d.
None of the above is correct.
11. If the exchange rate falls, U.S. residents pay
a.
more dollars for foreign bonds and get more dollars from interest payments.
b.
more dollars for foreign bonds but get fewer dollars from interest payments.
c.
fewer dollars for foreign bonds and also get fewer dollars from interest payments.
d.
fewer dollars for foreign bonds but get more dollars from interest payments.
12. If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?
a.
desired net exports and desired net capital outflow
b.
desired net exports but not desired net capital outflow
c.
desired net capital outflow but not desired net exports
d.
neither desired net exports nor desired net capital outflow
13. In the open-economy macroeconomic model, if a country’s interest rate rises, then its
a.
net capital outflow and net exports rise.
b.
net capital outflow rises and its net exports fall.
c.
net capital outflow falls and its net exports rise.
d.
net capital outflow and net exports fall.
14. In the open-economy macroeconomic model, if a country’s interest rate falls, then its
a.
net capital outflow and its net exports rise.
b.
net capital outflow rises and its net exports fall.
c.
net capital outflow falls and its net exports rise.
d.
net capital outflow and its net exports fall.
15. The variable that links the market for loanable funds and the market for foreign-currency exchange is
a.
net capital outflow.
b.
national saving.
c.
exports.
d.
domestic investment.
16. Other things the same, if the Japanese real interest rate were to increase, Japanese net capital outflow
a.
and net capital outflow of other countries would rise.
b.
and net capital outflow of other countries would fall.
c.
would rise, while net capital outflow of other countries would fall.
d.
would fall, while net capital outflow of other countries would rise.
17. U.S. net capital outflow
a.
is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange
market.
b.
is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange
market.
c.
is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange
market.
d.
is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange
market.
18. If a U.S. resident purchases a foreign bond, her transactions are included
a.
in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
b.
in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
c.
in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
d.
in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.
19. The quantity of U.S. bonds foreigners want to buy is taken into account
a.
in the U.S. supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
b.
in the U.S. supply of loanable funds and the demand for dollars in the market for foreign-currency exchange.
c.
in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
d.
in the U.S. demand for loanable funds and the demand for dollars in the market for foreign-currency exchange.
20. A U.S. bank wants to buy euros in order to buy German bonds. In the open-economy macroeconomic model, this
transaction would be part of
a.
the supply of currency in the foreign exchange market, and part of the supply of loanable funds.
b.
the demand for currency in the foreign exchange market, and part of the supply of loanable funds.
c.
the supply of currency in the foreign exchange market, and part of the demand for loanable funds.
d.
the demand for currency in the foreign exchange market, and part of the demand for loanable funds.
21. A German company wants to buy dollars to purchase U.S. bonds. In the open-economy macroeconomic model of the
U.S., this transaction would be accounted for in
a.
the supply of currency in the foreign exchange market, and the supply of loanable funds.
b.
the supply of currency in the foreign exchange market, and the demand for loanable funds.
c.
the demand for currency in the foreign exchange market, and the supply of loanable funds.
d.
the demand for currency in the foreign exchange market, and the demand for loanable funds.
22. In the open-economy macroeconomic model, if the U.S. interest rate rises, then U.S.
a.
net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right.
b.
net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right.
c.
net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left.
d.
net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.
23. In the open-economy macroeconomic model, if foreign interest rates rise and the U.S interest rate stays the same then,
U.S.
a.
net capital outflow rises, so the supply of dollars in the market for foreign exchange shifts right.
b.
net capital outflow rises, so the demand for dollars in the market for foreign exchange shifts right.
c.
net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left.
d.
net capital outflow falls, so the demand for dollars in the market for foreign exchange shifts left.
24. In the open-economy macroeconomic model, a decrease in the domestic interest rate shifts
a.
demand in the market for foreign-currency exchange to the right.
b.
demand in the market for foreign-currency exchange to the left.
c.
supply in the market for foreign-currency exchange to the right.
d.
supply in the market for foreign-currency exchange to the left.
25. Other things the same, in the open-economy macroeconomic model, which of the following would make China’s net
capital outflow increase?
a.
an increase in U.S. interest rates
b.
an increase in Chinese interest rates
c.
an appreciation of the Chinese yuan
d.
None of the above is correct.
26. If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate
a.
and the quantity of dollars traded rises.
b.
rises and the quantity of dollars traded falls.
c.
falls and the quantity of dollars traded rises.
d.
and the quantity of dollars traded falls.
27. If U.S. residents want to buy more foreign bonds, then in the market for foreign-currency exchange the exchange rate
a.
and the quantity of dollars traded rises.
b.
rises and the quantity of dollars traded falls.
c.
falls and the quantity of dollars traded rises.
d.
and the quantity of dollars traded falls.
28. In the open-economy macroeconomic model, if a country’s interest rate rises, its net capital outflow
a.
rises and the real exchange rate rises.
b.
falls and the real exchange rate falls.
c.
rises and the real exchange rate falls.
d.
falls and the real exchange rate rises.
29. In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then
a.
net capital outflow increases so the demand for dollars in the market for foreign-currency exchange shifts
right.
b.
net capital outflow increases so the supply of dollars in the market for foreign-currency exchange shifts right.
c.
net capital outflow decreases so the demand for dollars in the market for foreign-currency exchange shifts left.
d.
net capital outflow decreases so the supply of dollars in the market for foreign-currency exchange shifts right.
30. In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then
a.
the supply of dollars in the market for foreign-currency exchange shifts left.
b.
the supply of dollars in the market for foreign-currency exchange shifts right.
c.
the demand for dollars in the market for foreign-currency exchange shifts left.
d.
the demand for dollars in the market for foreign-currency exchange shifts right.
31. In the open-economy macroeconomic model, if a country’s supply of loanable funds shifts right, then
a.
net capital outflow rises, so the exchange rate rises.
b.
net capital outflow rises, so the exchange rate falls.
c.
net capital outflow falls, so the exchange rate rises.
d.
net capital outflow falls, so the exchange rate falls.
32. In the open-economy macroeconomic model, if the supply of loanable funds increases, then the interest rate
a.
and the real exchange rate increase.
b.
and the real exchange rate decrease.
c.
increases and the real exchange rate decreases.
d.
decreases and the real exchange rate increases.
33. In the open-economy macroeconomic model, if the supply of loanable funds increases, net capital outflow
a.
and the real exchange rate increase.
b.
and the real exchange rate decrease.
c.
increases and the real exchange rate decreases.
d.
decreases and the real exchange rate increases.
34. In the open-economy macroeconomic model, if the supply of loanable funds shifts right
a.
the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts right.
b.
the interest rate rises and the demand for dollars in the market for foreign currency exchange shifts left.
c.
the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.
d.
the interest rate falls and the supply of dollars in the market for foreign currency exchange shifts left.
35. In the open-economy macroeconomic model, if the supply of loanable funds shifts left
a.
the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts right.
b.
the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left.
c.
the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts right.
d.
the interest rate falls and the demand for dollars in the market for foreign currency exchange shifts left.
36. In the open-economy macroeconomic model, if investment demand decreases, then
a.
the supply of dollars in the market for foreign-currency exchange shifts left.
b.
the supply of dollars in the market for foreign-currency exchange shifts right.
c.
the demand for dollars in the market for foreign-currency exchange shifts left.
d.
the demand for dollars in the market for foreign-currency exchange shifts right.
37. In the open-economy macroeconomic model, if investment demand increases, then
a.
net exports and the real exchange rate rise.
b.
net exports rise and the real exchange rate falls.
c.
net exports fall and the real exchange rate rises.
d.
net exports and the real exchange rate fall.
38. If the demand for net exports rises, which of the following happens in the open-economy macroeconomic model?
a.
the exchange rate rises
b.
the interest rate falls
c.
net capital outflow rises
d.
All of the above are correct.
39. In the open-economy macroeconomic model, other things the same, which of the following both make the exchange
rate fall?
a.
U.S. investment demand falls and foreign demand for U.S. goods falls
b.
U.S. investment demand falls and foreign demand for U.S. goods rises
c.
U.S. investment demand rises and foreign demand for U.S. goods falls
d.
U.S. investment demand rises and foreign demand for U.S. goods rises
Figure 32-3
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.
40. Refer to Figure 32-3. National saving is represented by the
a.
demand curve in panel a.
b.
demand curve in panel c.
c.
supply curve in panel a.
d.
supply curve in panel c.
41. Refer to Figure 32-3. Domestic investment plus net capital outflow is represented by the
a.
demand curve in panel a.
b.
demand curve in panel c.
c.
supply curve in panel a.
d.
None of the above is correct.
42. Refer to Figure 32-3. At an interest rate of 4 percent, the diagram indicates that
a.
there is a surplus in the market for foreign-currency exchange.
b.
national saving equals domestic investment.
c.
net capital outflow + domestic investment = national saving.
d.
in the market for foreign-currency exchange the quantity of dollars supplied equals the quantity of dollars
demanded.
43. Refer to Figure 32-3. The curve in panel b shows that as the interest rate rises,
a.
domestic investment declines.
b.
net capital outflow declines.
c.
net capital outflow and domestic investment decline.
d.
None of the above is correct.
44. Refer to Figure 32-3. Which curve is determined by net capital outflow only?
a.
the demand curve in panel a.
b.
the demand curve in panel c.
c.
the supply curve in panel a.
d.
the supply curve in panel c.
45. Refer to Figure 32-3. Which curve shows the relation between the exchange rate and net exports?
a.
the demand curve in panel a.
b.
the demand curve in panel c.
c.
the supply curve in panel a.
d.
the supply curve in panel c.
46. If U.S. residents chose to travel overseas less due to concerns about the safety of foreign travel, then in the open-
economy macroeconomic model
a.
the demand for dollars in the market for foreign-currency exchange shifts right.
b.
the demand for dollars in the market for foreign-currency exchange shifts left.
c.
the supply of dollars in the market for foreign-currency exchange shifts right.
d.
the supply of dollars in the market for foreign-currency exchange shifts left.
47. When the U.S. real interest rate rises, foreigners will want to purchase
a.
more U.S. assets so U.S. net capital outflow rises.
b.
more U.S. assets so U.S. net capital outflow falls.
c.
less U.S. assets so U.S. net capital outflow rises.
d.
less U.S. assets so U.S. net capital outflow falls.
48. Other things the same, an increase in the U.S. interest rate causes U.S. net capital outflow to
a.
rise, so supply in the market for foreign-currency exchange shifts right.
b.
rise, so demand in the market for foreign-currency exchange shifts right.
c.
fall, so supply in the market for foreign-currency exchange shifts left.
d.
fall, so demand in the market for foreign-currency exchange shifts left.
49. Other things the same, an increase in the U.S. interest rate causes
a.
demand in the market for foreign-currency exchange to increase so the exchange rate increases.
b.
demand in the market for foreign-currency exchange to decrease so the exchange rate decreases.
c.
supply in the market for foreign-currency exchange to increase so the exchange rate decreases.
d.
supply in the market for foreign-currency exchange to decrease so the exchange rate increases.
50. Other things the same, which of the following would cause the exchange rate to rise?
a.
both an increase in the interest rate and an increase in foreign demand for U.S. goods and services.
b.
an increase in the interest rate, but not an increase in foreign demand for U.S. goods and services.
c.
an increase in foreign demand for U.S. goods and service, but not an increase in the U.S. interest rate.
d.
neither an increase in the U.S. interest rate nor an increase in the demand for U.S. goods and services.
51. Other things the same, if U.S. residents choose to buy more Chinese goods and services
a.
the demand for dollars in the market for foreign-currency exchange shifts right.
b.
the demand for dollars in the market for foreign-currency exchange shifts left.
c.
the supply of dollars in the market for foreign-currency exchange shifts right.
d.
the supply of dollars in the market for foreign-currency exchange shifts left.
52. Other things the same, if foreign residents desired to purchase more U.S. wheat
a.
the exchange rate and net exports would rise.
b.
the exchange rate would rise and net exports would be unchanged.
c.
the exchange rate would fall and net exports would be unchanged.
d.
the exchange rate would fall and net exports would rise.
53. Other things the same, if foreign companies desired to buy more U.S. medical equipment and U.S. residents desired to
buy more foreign bonds
a.
net exports and the exchange rate would rise.
b.
net exports would rise, but what would happen to the exchange rate is uncertain.
c.
net exports would fall, but what would happen to the exchange rate is uncertain.
d.
net exports and the exchange rate would fall.
54. Other things the same, if U.S. residents wanted to buy more foreign-made computers and foreign residents wanted to
purchase more U.S. bonds then,
a.
U.S. net exports and the exchange rate would rise.
b.
U.S. net exports would rise, but what would happen to the exchange rate is uncertain.
c.
U.S. net exports would fall, but what would happen to the exchange rate is uncertain.
d.
U.S. net exports and the exchange rate would fall.