Macro C32

1. Holding other things constant, an increase in a nation’s interest rate reduces

• a. national saving and domestic investment.

• b. national saving and the net capital outflow.

• c. domestic investment and the net capital outflow.

• d. national saving only

2. Holding other things constant, an appreciation of a nation’s currency causes

• a. exports to rise and imports to fall.

• b. exports to fall and imports to rise

• c. both exports and imports to rise.

• d. both exports and imports to fall.

3. in the model just developed, two markets determine two prices, which are

• a. the nominal exchange rate and the nominal
  interest rate.

• b. the nominal exchange rate and the real interest
  rate.

• c. the real exchange rate and the nominal interest
  rate.

• d. the real exchange rate and the real interest rate.

4. other things equal, an increase in the u.S. net capital outflow _________ the demand for loanable funds and _________ the supply of dollars in the market for foreign currency exchange.

• a. increases; increases

• b. increases; decreases

• c. decreases; increases

• d. decreases; decreases

5. 5. the government in an open economy cuts spending to reduce the budget deficit. as a result, the interest rate _________, leading to a capital _________ and a currency _________.
   

• a. falls; outflow; appreciation

• b. falls; outflow; depreciation

• c. falls; inflow; appreciation

• d. rises; inflow; appreciation

6. the nation of elbonia has long banned the export of its highly prized puka shells. a newly elected president, however, removes the export ban. this change in policy causes the nation’s currency to _________, making the goods elbonia imports _________ expensive.

• a. depreciate; less

• b. depreciate; more

• c. appreciate; less

• d. appreciate; more

7. a civil war abroad causes foreign investors to move their funds to the safe haven of the united States, leading to _________u.S. interest rates and a _________ u.S. dollar.

• a. higher; weaker

• b. higher; stronger

• c. lower; weaker

• d. lower; stronger

8. if business leaders in Great britain become more confident in their economy, they will increase investment, causing the british pound to _________ and pushing the british trade balance toward _________.

• a. appreciate; deficit

• b. appreciate; surplus

• c. depreciate; deficit

• d. depreciate; surplus