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Exam 32: A Macroeconomic Theory of the Open Economy

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Question 51

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Define net capital outflow.

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Net capital outflow equals the...

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Question 52

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In the long run, import quotas increase net exports.

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B) False

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Question 53

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Other things the same, a higher real interest rate

Over the past two decades the U.S. has persistently had trade deficits.

Figure 32-3 Refer to the following diagram of the open-economy macroeconomic model to answer the questions that follow. ​ Graph (a) Graph (b) Graph (c) ​ -Refer to Figure 32-3. Which curve shows the relation between the exchange rate and net exports?

Scenario 32-1 ​ During a recession government revenues from the income tax fall and government transfers rise as the reduction in income and the rise in unemployment raise the number of people who qualify for benefits. -Refer to Scenario 32-1. This change in the deficit causes the exchange rate to change. What does the change in the exchange rate do to net exports?

In the open-economy macroeconomic model, the supply curve of currency is vertical because the quantity of currency supplied does not depend on the real exchange rate.

According to the open-economy macroeconomic model, a decrease in the U.S. government budget deficit increases U.S. net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases U.S. net exports.

What happens to each of the following if the supply of loanable funds shifts left? A. the interest rate B. net capital outflow C. the exchange rate

If the exchange rate rises, domestic goods become relatively ______ expensive. This change in the affordability of domestic goods makes domestic goods _____ attractive to foreigners. So, _______ ______.

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

In the open-economy macroeconomic model, the supply of dollars in the market for foreign-currency exchange is upward sloping.

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

If a country places tariffs on imported goods, then its

Other things the same, which of the following would cause the real exchange rate to rise?

Scenario 32-4 ​ In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks. -Refer to Scenario 32-4. What happened to the domestic equilibrium interest rate and quantity of loanable funds supplied?

Other things the same, which curve in the market for foreign-currency exchange shifts and which direction does it shift if net capital outflow rises?

In the open-economy macroeconomic model, at the equilibrium real interest rate, the amount that people (including government) want to save equals desired quantities of domestic investment and net capital outflow.

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?

What are the sources of the demand for loanable funds? What happens to the quantity of loanable funds demanded when the interest rate rises?