Question 1

An increase in the government's budget deficit shifts the supply of loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 2

An increase in the government budget deficit

Accepted Answer

A)  has no impact on the real interest rate and fails to crowd out investment because foreigners buy assets in the deficit country.
B)  decreases the real interest rate and crowds out investment.
C)  None of these answers.
D)  increases the real interest rate and crowds out investment.E) All of the above
F) A) and C)

Question 3

If a country had capital flight, then the real exchange rate would

Accepted Answer

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.E) A) and C)
F) B) and C)

Question 4

Which of the following groups would NOT benefit from an SA import quota on Japanese cars?

Accepted Answer

A)  SA consumers who buy electronics from Japan.
B)  SA farmers who export grain.
C)  Employees of SA car manufacturers.
D)  Shareholders of German carmaker BMW.E) None of the above
F) B) and C)

Question 5

Other things the same, a lower real interest rate decreases the quantity of

Accepted Answer

A)  loanable funds demanded.
B)  loanable funds supplied.
C)  domestic investment.
D)  net capital outflow.E) B) and D)
F) A) and D)

Question 6

Which of the following groups would be most harmed by a SA government budget deficit?

Accepted Answer

A)  Foreigners who wish to buy assets in SA.
B)  An SA company wishing to sell aircraft to Saudi Arabia.
C)  SA residents wishing to buy foreign produced cars.
D)  Lenders of loanable funds.E) C) and D)
F) None of the above

Question 7

If SA imposes a quota on the importing of clothing produced in China, so reducing SA imports of clothing, which of the following is true regarding the market for foreign currency exchange?

Accepted Answer

A)  The demand for rands decreases and the rand depreciates.
B)  The supply of rands increases and the rand depreciates.
C)  The supply of rands decreases and the rand appreciates.
D)  The demand for rands increases and the rand appreciates.E) B) and C)
F) A) and D)

Question 8

Suppose that the Turkish government budget deficit increases.What curves in the open economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Accepted Answer

The supply of Turkish loanable funds cur...

Question 9

The supply of foreign exchange is

Accepted Answer

A)  determined by the real exchange rate.
B)  independent of the real exchange rate.
C)  determined by central bankers.
D)  determined by the government of the country concerned.E) A) and B)
F) A) and C)

Question 10

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 11

Which of the following statements regarding the market for foreign currency exchange is true? An increase in SA net exports

Accepted Answer

A)  decreases the supply of rands and the rand depreciates.
B)  increases the demand for rands and the rand appreciates.
C)  increases the supply of rands and the rand depreciates.
D)  decreases the demand for rands and the rand appreciates.E) C) and D)
F) All of the above

Question 12

An increase in SA net capital outflow increases the supply of rands in the market for foreign currency exchange and decreases the real exchange rate of the rands.

Accepted Answer

A) True 
 B)False

Question 13

State what, if anything, each of the following does to the supply or demand of loanable funds.
a.Net capital outflow increases at each interest rate.
b.Domestic investment increases at each interest rate.
c.The government deficit increases.
d.Private saving increases.

Accepted Answer

a.The demand for loanable fund...

Question 14

If a county becomes more likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Accepted Answer

A higher probability of default leads to...

Question 15

A rise in SA's net exports will increase the demand for the SA rands in the market for foreign currency exchange and the rand will appreciate in value.

Accepted Answer

A) True 
 B)False

Question 16

Capital flight

Accepted Answer

A)  decreases a country's net exports and increases its long run growth path.
B)  increases a country's net exports and increases its long run growth path.
C)  increases a country's net exports and decreases its long run growth path.
D)  decreases a country's net exports and decreases its long run growth path.E) B) and C)
F) All of the above

Question 17

What impact do trade policies, such as tariffs and quotas, have on the standard of living?

Accepted Answer

Trade policies reduce both imports and e...

Question 18

Increased foreign investment in SA causes the

Accepted Answer

A)  balance on current account to become positive.
B)  sum of the capital and current accounts to be positive.
C)  balance of trade to become negative.
D)  foreign exchange value of the rand to increase.E) C) and D)
F) A) and D)

Question 19

If a country experiences a tremendous increase in the demand for loanable funds as many new infrastructure building projects are initiated, then the interest rate will

Accepted Answer

A)  rise, there will be a decrease in net capital outflow, and the real exchange rate will fall.
B)  rise, there will be a decrease in net capital outflow, and the real exchange rate will rise.
C)  fall, there will be an increase in net capital outflow, and the real exchange rate will rise.
D)  fall, there will be an increase in net capital outflow, and the real exchange rate will fall.E) None of the above
F) A) and B)

Question 20

An increase in the SA government budget deficit

Accepted Answer

A)  increases SA net exports and decreases SA net capital outflow.
B)  decreases SA net exports and SA net capital outflow the same amount.
C)  increases SA net exports and SA net capital outflow the same amount.
D)  decreases SA net exports and increases SA net capital outflow.E) All of the above
F) C) and D)

Exam 12: A Macroeconomic Theory of the Open Economy

Which of the following groups would NOT benefit from an SA import quota on Japanese cars?

Correct AnswerverifiedShow Answer

What impact do trade policies, such as tariffs and quotas, have on the standard of living?

Correct AnswerverifiedTrade policies reduce both imports and e...View AnswerShow Answer

If a country experiences a tremendous increase in the demand for loanable funds as many new infrastructure building projects are initiated, then the interest rate will

Correct AnswerverifiedShow Answer

Increased foreign investment in SA causes the

Correct AnswerverifiedShow Answer

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

Which of the following groups would be most harmed by a SA government budget deficit?

Correct AnswerverifiedShow Answer

If a county becomes more likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Correct AnswerverifiedA higher probability of default leads to...View AnswerShow Answer

An increase in the SA government budget deficit

Correct AnswerverifiedShow Answer

The supply of foreign exchange is

Correct AnswerverifiedShow Answer

An increase in the government's budget deficit shifts the supply of loanable funds to the right.

Correct AnswerverifiedShow Answer

If a country had capital flight, then the real exchange rate would

Correct AnswerverifiedShow Answer

If SA imposes a quota on the importing of clothing produced in China, so reducing SA imports of clothing, which of the following is true regarding the market for foreign currency exchange?

Correct AnswerverifiedShow Answer

Other things the same, a lower real interest rate decreases the quantity of

Correct AnswerverifiedShow Answer

An increase in SA net capital outflow increases the supply of rands in the market for foreign currency exchange and decreases the real exchange rate of the rands.

Correct AnswerverifiedShow Answer

Which of the following statements regarding the market for foreign currency exchange is true? An increase in SA net exports

Correct AnswerverifiedShow Answer

A rise in SA's net exports will increase the demand for the SA rands in the market for foreign currency exchange and the rand will appreciate in value.

Correct AnswerverifiedShow Answer

An increase in the government budget deficit

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Capital flight

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State what, if anything, each of the following does to the supply or demand of loanable funds. a.Net capital outflow increases at each interest rate. b.Domestic investment increases at each interest rate. c.The government deficit increases. d.Private saving increases.

Correct Answerverifieda.The demand for loanable fund...View AnswerShow Answer

Suppose that the Turkish government budget deficit increases.What curves in the open economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Correct AnswerverifiedThe supply of Turkish loanable funds cur...View AnswerShow Answer

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Trade policies reduce both imports and e...
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S is national saving, which is the sourc...
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A higher probability of default leads to...
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a.The demand for loanable fund...
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The supply of Turkish loanable funds cur...
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