Tut 11: Open economy macroeconomics theory

Which of the following statements regarding the loanable-funds market is not true?

• An increase in a country’s net capital outflow raises its real interest rate

• An increase in a country’s net capital outflow shifts the supply of loanable funds to the left.

• An increase in domestic investment shifts the demand for loanable funds to the right.

• A decrease in a country’s net capital outflow shifts the demand for loanable funds to the left.

An increase in the government budget deficit

•  Increases the real interest rate and crowds out investment.

• Decreases the real interest rate and crowds out investment

• Has no impact on the real interest rate and fails to crowd out investment because foreigners buy assets in the deficit country.

Which of the following statements regarding the loanable-funds market is true?

• An increase in private saving shifts the supply of loanable funds to the left

• A decrease in the government budget deficit increases the real interest rate

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

• An increase in the government budget deficit shifts the supply of loanable funds to the left.

Other things unchanging, a higher U.S. real interest rate

• Increases U.S. net capital outflow because U.S. residents and foreigners prefer to invest in the United States.

•  Decreases U.S. net capital outflow because U.S. residents and foreigners prefer to invest in the United States.

• Decreases U.S. net capital outflow because U.S. residents and foreigners prefer to invest abroad.

An increase in Europe’s taste for U.S.-produced Fords would cause the dollar to

• Depreciate and would increase U.S. net exports.

• Depreciate and would decrease U.S. net exports.

• Appreciate and would increase U.S. net exports.

• Appreciate, but the total value of U.S. net exports stays the same.

An increase in the U.S. government budget deficit

• Increases U.S. net exports and decreases U.S. net capital outflow.

• Decreases U.S. net exports and increases U.S. net capital outflow.

• Decreases U.S. net exports and U.S. net capital outflow the same amount.

• Increases U.S. net exports and U.S. net capital outflow the same amount.

The phrase “twin deficits” refer to

• A country’s trade deficit and its government budget deficit.

• A country’s trade deficit and its net capital outflow deficit

• The equality of a country’s saving deficit and its investment deficit

•  The fact that if a country has a trade deficit, it’s trading partners must also have a trade deficit.

Which of the following statements regarding the market for foreign-currency exchange is true?

• An increase in U.S. net exports increases the supply of dollars and the dollar depreciates.

• An increase in U.S. net exports decreases the supply of dollars and the dollar depreciates.

• An increase in U.S. net exports decreases the demand for dollars and the dollar appreciates.

• An increase in U.S. net exports increases the demand for dollars and the dollar appreciates.

Which of the following statements regarding the market for foreign-currency exchange is true?

• An increase in U.S. net capital outflow increases the supply of dollars and the dollar appreciates.

• An increase in U.S. net capital outflow increases the supply of dollars and the dollar depreciates.

• An increase in U.S. net capital outflow increases the demand for dollars and the dollar appreciates

• An increase in U.S. net capital outflow increases the demand for dollars and the dollar depreciates.

If the United States imposes a quota on the importing of apparel produced in China, which of the following is true regarding the market for foreign-currency exchange?

• The supply of dollars increases and the dollar depreciates.

• The supply of dollars decreases and the dollar appreciates.

• The demand for dollars increases and the dollar appreciates.

• The demand for dollars decreases and the dollar depreciates.