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a.
the movement of workers across international borders in response to exchange rate changes.
b.
the movement of funds between financial intermediaries when interest rates change.
c.
the ability of foreign direct investment to lift a country out of poverty.
d.
a large and sudden movement of funds out of a country.
114. When Mexico suffered from capital flight in 1994, Mexico's net capital outflow
a.
and net exports decreased.
b.
and net exports increased.
c.
increased while net exports decreased.
d.
decreased while net exports increased.
115. When Mexico suffered from capital flight in 1994, Mexico's real interest rate
a.
fell and the peso appreciated.
b.
fell and the peso depreciated.
c.
rose and the peso appreciated.
d.
rose and the peso depreciated.
116. 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.
117. 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.
118. 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.
119. 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
120. 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.
121. 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.
122. 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.
123. 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.
124. 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.
125. 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
126. 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.
127. 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.
128. 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.
129. 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
130. 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.
131. 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.
132. 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.
133. 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.
134. 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.
135. 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
136. In 2009 Greece’s budget deficit rose and people became worried about the ability of the Greek government to make
payments on its debt. Which of the these events reduces a country’s real exchange rate?
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
137. The country of Solidia is politically very stable and has a long tradition of respecting property rights. If several other
countries suddenly became politically unstable, we would expect Solidia’s
a.
real interest rate to rise.
b.
real exchange rate to rise.
c.
net exports to rise.
d.
None of the above is likely.
138. Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the
United States?
a.
U.S. net exports will fall
b.
U.S. net capital outflow will rise
c.
U.S. domestic investment will rise
d.
the dollar will appreciate
139. A firm produces construction equipment, some of which it sells to domestic businesses and some of which it exports.
Which of the following effects of capital flight in the country where it produces would likely increase the quantity of
equipment it sells?
a.
both what happens to the interest rate and what happens to the exchange rate
b.
what happens to the interest rate but not what happens to the exchange rate
c.
what happens to the exchange rate but not what happens to the interest rate
d.
neither what happens to the interest rate nor what happens to the interest rate.
140. In 1995 House Speaker Newt Gingrich threatened to send the United States into default on its debt. During the day of
this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of these
changes is consistent with the results of the open-economy macroeconomic model?
a.
the increase in U.S. interest rates
b.
the depreciation of the real exchange rate of the U.S. dollar
c.
Both a and b are consistent.
d.
Neither a nor b are consistent.
141. In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). The open-
economy macroeconomic model predicts that this should have
a.
raised Argentinean interest rates and caused the Argentinean currency to appreciate.
b.
raised Argentinean interest rates and caused the Argentinean currency to depreciate.
c.
lowered Argentinean interest rates and caused the Argentinean currency to appreciate.
d.
lowered Argentinean interest rates and caused the Argentinean currency to depreciate.
142. In 1998 the Russian government defaulted on its bonds. According to the open-economy macroeconomic model, this
should have
a.
increased Russian interest rates and net exports.
b.
reduced Russian interest rates and net exports.
c.
increased Russian interest rates and reduced Russian net exports.
d.
reduced Russian interest rates and increased Russian net exports.
143. If the people thought that many banks in a certain country were at or near the point of bankruptcy, then that country’s
real exchange rate
a.
and net exports would rise.
b.
would rise and its net exports would fall.
c.
would fall and its net exports would rise.
d.
and its net exports would fall.
144. If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country’s
interest rate
a.
and net exports would rise.
b.
would rise and its net exports would fall.
c.
would fall and its net exports would rise.
d.
and its net exports would fall.
145. If the risk of holding assets in foreign countries rises relative to the risk of holding U.S assets, then
a.
U.S. net capital outflow rises which increases the U.S. exchange rate.
b.
U.S. net capital outflow rises which decreases the U.S. exchange rate.
c.
U.S. net capital outflow falls which increases the U.S. exchange rate.
d.
U.S. net capital outflow falls which decreases the U.S. exchange rate.
146. When fear of default on bonds issued by U.S. corporations decline, then
a.
net capital outflow and the exchange rate both rise.
b.
net capital outflow rises and the exchange rate falls.
c.
net capital outflow falls and the exchange rate rises.
d.
net capital outflow and the exchange rate both fall.
147. If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated
borrowers prior to lending them funds, then
a.
net capital outflow and the real exchange rate will rise.
b.
net capital outflow will rise and the real exchange rate will fall.
c.
net capital outflow will fall and the real exchange rate will rise.
d.
net capital outflow and the exchange rate will fall.
148. If the risk of buying U.S. assets rises because it is discovered that lending institutions had not carefully evaluated
borrowers prior to lending them funds, then
a.
the real exchange rate and the interest rate will rise.
b.
the real exchange rate will rise and the interest rate will fall.
c.
the real exchange rate will fall and the interest rate will rise.
d.
the real exchange rate and the interest rate will fall.
