Question 1

Which statement best defines capital flight?

Accepted Answer

A)   The process of taking advantage of differences in prices in different markets
B)   The movement of funds between financial intermediaries when interest rates change
C)   The ability of investment expenditures to lift a country out of poverty
D)   The large and sudden reduction in the demand for assets located in a countryE) B) and D)
F) All of the above

Question 2

If a government increases its budget deficit,which statement would best describe the consequences?

Accepted Answer

A)   Interest rates and domestic investment rise.
B)   Interest rates and domestic investment fall.
C)   Interest rates rise,and domestic investment falls.
D)   Interest rates fall,and domestic investment rises.E) None of the above
F) All of the above

Question 3

What does the value of net exports equal?

Accepted Answer

A)   the value of national saving-net capital outflow
B)   the value of public saving
C)   the value of national saving minus imports
D)   the value of national saving minus domestic investmentE) B) and C)
F) A) and B)

Question 4

In the open-economy macroeconomic model,what would make Panama's net capital outflow decrease?

Accepted Answer

A)   a decrease in Canadian interest rates
B)   a decrease in Panamanian interest rates
C)   an appreciation of the Panamanian balboa
D)   an increase in Panama's net exportsE) B) and C)
F) A) and B)

Question 5

Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,what would be the most likely result?

Accepted Answer

A)   This policy would lower the real exchange rate and increase net exports.
B)   This policy would lower the real exchange rate and have no effect on net exports.
C)   This policy would raise the real exchange rate and decrease net exports.
D)   This policy would raise the real exchange rate and have no effect on net exports.E) A) and D)
F) A) and C)

Question 6

According to the open-economy macroeconomic model,if the Canadian government decreased the government budget deficit,both Canadian domestic investment and Canadian net capital outflow would fall.

Accepted Answer

A) True 
 B)False

Question 7

Figure 13-1 
-Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

Accepted Answer

A)   There would be an increase in net capital outflow.
B)   The demand for loanable funds curve to shift right.
C)   The supply for loanable funds curve to shift left.
D)   There would be a decrease in net capital outflow.E) A) and B)
F) A) and C)

Question 8

Suppose the Federal Reserve,which is the central bank of the U.S.,decided to lower the monetary policy interest rate.Use the macroeconomic model studied in thisChapter to analyze the possible effects of this event on Canada's net capital outflow,net exports,and exchange rate.(Hint: Consider the United States a large economy,which is able to influence the world interest rate.)

Accepted Answer

Since the United States is a large econo...

Question 9

Which of the following will decrease Canadian net capital outflow?

Accepted Answer

A)   capital flight from Canada
B)   a decrease in the tax on investment income
C)   the imposition of Canadian government import quotas
D)   a decrease in the tax on capital gainsE) C) and D)
F) None of the above

Question 10

Which statement best describes the effects of trade policies?

Accepted Answer

A)   Trade policies affect the trade balance,plus all industries in the same ways.
B)   Trade policies affect the trade balance,plus some industries differently than others.
C)   Trade policies do not affect the trade balance,but they affect some industries differently than others.
D)   Trade policies do not affect the trade balance,but they affect all industries in the same ways.E) All of the above
F) B) and C)

Question 11

Suppose a foreign real estate company wants to build a number of new resort condominiums in Canada.How does this affect the Canadian market for loanable funds?

Accepted Answer

A)   The supply of loanable funds increases.
B)   The demand for loanable funds increases.
C)   The supply of loanable funds decreases.
D)   The demand for loanable funds decreases.E) B) and C)
F) A) and D)

Question 12

What is the most likely result from an increase in the government's budget surplus?

Accepted Answer

A)   higher interest rates
B)   lower imports
C)   lower net capital outflows
D)   lower domestic investmentE) All of the above
F) C) and D)

Question 13

What is consistent with capital flight from Mexico?

Accepted Answer

A)   Mexican net exports decrease.
B)   Mexican investment increases.
C)   Mexican savings increase.
D)   Mexican real interest rate decreases.E) C) and D)
F) All of the above

Question 14

Which statement best defines a trade policy?

Accepted Answer

A)   It is a government policy directed toward the goal of improving the tradeoff between equity and efficiency.
B)   It is a government policy that directly influences the quantity of goods and services that a country imports or exports.
C)   It is a government policy directed toward the goal of increasing domestic trade.
D)   It is a government policy designed to limit the power of trade unions.E) A) and B)
F) All of the above

Question 15

Explain why saving need not equal domestic investment in an open economy.

Accepted Answer

This is because saving equals ...

Question 16

The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r; in country 2,it is I = 18 - 4r and S = 8 + 2r.
a)Find the relationships between net capital outflow and the world interest rate (rw)in the two countries.
b)What is the nature of these relationships? (Are they both positive,both negative,or one positive and the other negative?)
c)Calculate the world equilibrium interest rate.
d)How can you reconcile the result from part b with the one from part c?

Accepted Answer

a)In country 1,NCO1 = S - I when r = rw:...

Question 17

In the open-economy macroeconomic model,where does the supply of loanable funds come from?

Accepted Answer

A)   national saving
B)   private saving
C)   public saving
D)   the sum of domestic investment and net capital outflowE) A) and B)
F) None of the above

Question 18

Suppose the market for loanable funds is described by the equations I = 18 - 6r and S = 8 + 4r.
a)Find the relationship between net capital outflow and the world interest rate rw.
b)If net exports are described by NX = 16 - 4X,find the relationship between NX and the world interest rate at the equilibrium exchange rate.
c)For rw = 1.4,what is the elasticity of NX with respect to rw?
d)What is the relationship between the equilibrium exchange rate and the world interest rate? Discuss your result.

Accepted Answer

a)NCO = S - I when r = rw:NCO = 8 + 4rw ...

Question 19

Figure 13-1 
-Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

Accepted Answer

A)   surplus of $4000
B)   surplus of $2000
C)   shortage of $4000
D)   shortage of $2000E) A) and D)
F) B) and D)

Question 20

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

Accepted Answer

A)   Canadian interest rates rise.
B)   Canadian net capital outflow falls.
C)   The real exchange rate of the Canadian dollar depreciates.
D)   The Canadian supply of loanable funds shifts left.E) All of the above
F) C) and D)

Exam 13: A Macroeconomic Theory of the Small Open Economy

What does the value of net exports equal?

Correct Answer
verified

If a government increases its budget deficit,which statement would best describe the consequences?

Correct Answer
verified

Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,what would be the most likely result?

Correct Answer
verified

Correct Answer
verified
Since the United States is a large econo...
View Answer

In the open-economy macroeconomic model,where does the supply of loanable funds come from?

Correct Answer
verified

Figure 13-1 -Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

Correct Answer
verified

What is consistent with capital flight from Mexico?

Correct Answer
verified

Explain why saving need not equal domestic investment in an open economy.

Correct Answer
verified
This is because saving equals ...
View Answer

In the open-economy macroeconomic model,what would make Panama's net capital outflow decrease?

Correct Answer
verified

What is the most likely result from an increase in the government's budget surplus?

Correct Answer
verified

According to the open-economy macroeconomic model,if the Canadian government decreased the government budget deficit,both Canadian domestic investment and Canadian net capital outflow would fall.

Correct Answer
verified

Which statement best defines capital flight?

Correct Answer
verified

Suppose a foreign real estate company wants to build a number of new resort condominiums in Canada.How does this affect the Canadian market for loanable funds?

Correct Answer
verified

Which statement best describes the effects of trade policies?

Correct Answer
verified

Correct Answer
verified
a)In country 1,NCO1 = S - I when r = rw:...
View Answer

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

Correct Answer
verified

Correct Answer
verified
a)NCO = S - I when r = rw:NCO = 8 + 4rw ...
View Answer

Which of the following will decrease Canadian net capital outflow?

Correct Answer
verified

Figure 13-1 -Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

Correct Answer
verified

Which statement best defines a trade policy?

Correct Answer
verified

Exam 13: A Macroeconomic Theory of the Small Open Economy

What does the value of net exports equal?

Correct AnswerverifiedShow Answer

If a government increases its budget deficit,which statement would best describe the consequences?

Correct AnswerverifiedShow Answer

Suppose that Canada imposes restrictions on the importation of steel into Canada.According to the open-economy macroeconomic model,what would be the most likely result?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedSince the United States is a large econo...View AnswerShow Answer

In the open-economy macroeconomic model,where does the supply of loanable funds come from?

Correct AnswerverifiedShow Answer

Figure 13-1 -Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

Correct AnswerverifiedShow Answer

What is consistent with capital flight from Mexico?

Correct AnswerverifiedShow Answer

Explain why saving need not equal domestic investment in an open economy.

Correct AnswerverifiedThis is because saving equals ...View AnswerShow Answer

In the open-economy macroeconomic model,what would make Panama's net capital outflow decrease?

Correct AnswerverifiedShow Answer

What is the most likely result from an increase in the government's budget surplus?

Correct AnswerverifiedShow Answer

According to the open-economy macroeconomic model,if the Canadian government decreased the government budget deficit,both Canadian domestic investment and Canadian net capital outflow would fall.

Correct AnswerverifiedShow Answer

Which statement best defines capital flight?

Correct AnswerverifiedShow Answer

Suppose a foreign real estate company wants to build a number of new resort condominiums in Canada.How does this affect the Canadian market for loanable funds?

Correct AnswerverifiedShow Answer

Which statement best describes the effects of trade policies?

Correct AnswerverifiedShow Answer

Correct Answerverifieda)In country 1,NCO1 = S - I when r = rw:...View AnswerShow Answer

Which of the following would NOT be a consequence of an increase in the Canadian government's budget deficit?

Correct AnswerverifiedShow Answer

Correct Answerverifieda)NCO = S - I when r = rw:NCO = 8 + 4rw ...View AnswerShow Answer

Which of the following will decrease Canadian net capital outflow?

Correct AnswerverifiedShow Answer

Figure 13-1 -Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

Correct AnswerverifiedShow Answer

Which statement best defines a trade policy?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Since the United States is a large econo...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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This is because saving equals ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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a)In country 1,NCO1 = S - I when r = rw:...
View Answer

Correct Answer
verified

Correct Answer
verified
a)NCO = S - I when r = rw:NCO = 8 + 4rw ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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