Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that Canadian investors decide that investment opportunities in African countries have improved. What happens to Canadian net capital outflow? What happens to the Canadian real interest rate?

Accepted Answer

Canadian net capital outflow w...

Question 3

Which of the following best identifies the effects of trade policies? And on firms or industries?

Accepted Answer

A)  Trade policies affect the trade balance and all firms and industries the same.
B)  Trade policies affect the trade balance and some firms or industries differently than others.
C)  Trade policies do not affect the trade balance, but they affect some firms or industries differently than others.
D)  Trade policies affect neither the trade balance nor specific firms or industries.E) A) and B)
F) A) and C)

Question 4

Suppose that Canada imposes an import quota on automobiles. Which of the following describes the most likely effects of this quota?

Accepted Answer

A)  The quota would cause the real exchange rate of Canadian dollars to appreciate, but it would not change the real interest rate in Canada.
B)  The quota would cause the real exchange rate of Canadian dollars to appreciate and the real interest rate in Canada to increase.
C)  The quota would cause the real exchange rate of Canadian dollars to depreciate and the real interest rate in Canada to decrease.
D)  The quota would cause the real exchange rate of Canadian dollars to depreciate, but it would not change the real interest rate in Canada.E) C) and D)
F) A) and D)

Question 5

In the open-economy macroeconomic model, how can the market for loanable funds identity be written?

Accepted Answer

A)  S = I
B)  S = NCO
C)  S = I + NCO
D)  S + I = NCOE) A) and B)
F) A) and C)

Question 6

Which of the following refers to a limit on the quantity of an imported good?

Accepted Answer

A)  a tariff
B)  an excise tax
C)  an import quota
D)  net importsE) A) and C)
F) All of the above

Question 7

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

Accepted Answer

A)  The Canadian real interest rate rose, and the real exchange rate of the dollar appreciated.
B)  The Canadian real interest rate rose, and the real exchange rate of the dollar depreciated.
C)  The Canadian real interest rate fell, and the real exchange rate of the dollar appreciated.
D)  The Canadian real interest rate fell, and the real exchange rate of the dollar depreciated.E) A) and C)
F) None of the above

Question 8

If a government increases its budget deficit, which of the following best predicts the effects?

Accepted Answer

A)  Interest rates rise and the real exchange rate appreciates.
B)  Interest rates fall and the real exchange rate depreciates.
C)  Interest rates rise and the real exchange rate depreciates.
D)  Interest rates fall and the real exchange rate appreciates.E) None of the above
F) C) and D)

Question 9

If the government of Colombia implemented a policy that reduced national saving, which of the following best predicts the consequences?

Accepted Answer

A)  Its real exchange rate would depreciate, and Colombian net exports would rise.
B)  Its real exchange rate would depreciate, and Colombian net exports would fall.
C)  Its real exchange rate would appreciate, and Colombian net exports would rise.
D)  Its real exchange rate would appreciate, and Colombian net exports would fall.E) A) and B)
F) A) and C)

Question 10

Suppose Canada imposes an import quota on steel. Which of the following describes the most likely effects of this quota?

Accepted Answer

A)  Canadian exports would increase, the real exchange rate of the Canadian dollar would appreciate, and Canadian net capital outflow would increase.
B)  Canadian exports would increase, the real exchange rate of the Canadian dollar would depreciate, and Canadian net capital outflow would remain unchanged.
C)  Canadian exports would decrease, the real exchange rate of the Canadian dollar would appreciate, and Canadian net capital outflow would remain unchanged.
D)  Canadian exports would decrease, the real exchange rate of the Canadian dollar would depreciate, and Canadian net capital outflow would decrease.E) B) and D)
F) A) and B)

Question 11

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

Higher Canadian interest rates make Cana...

Question 12

Suppose a prime ministerial candidate promises to increase the government budget surplus and claims that doing so will stop Canadian citizens from investing in foreign companies and increase the value of the dollar. Evaluate this promise.

Accepted Answer

An increase in the government budget sur...

Question 13

Which of the following is consistent with a depreciation of the dollar?

Accepted Answer

A)  Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.
B)  Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise.
C)  Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall.
D)  Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.E) A) and D)
F) A) and B)

Question 14

The key determinant of net capital outflow is the real exchange rate.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is consistent with an appreciation of the dollar?

Accepted Answer

A)  Canadian goods become less expensive relative to foreign goods, which makes exports rise and imports fall.
B)  Canadian goods become less expensive relative to foreign goods, which makes exports fall and imports rise.
C)  Canadian goods become more expensive relative to foreign goods, which makes exports rise and imports fall.
D)  Canadian goods become more expensive relative to foreign goods, which makes exports fall and imports rise.E) A) and B)
F) B) and C)

Question 16

According to the open-economy macroeconomic model, if Canada moved from a government budget deficit to a government budget surplus, Canadian real interest rates would increase and the real exchange rate of the Canadian dollar would appreciate.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is consistent with negative net exports?

Accepted Answer

A)  Net capital outflow is positive, so foreign assets bought by Canadians are greater than Canadian assets bought by foreigners.
B)  Net capital outflow is positive, so Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.
C)  Net capital outflow is negative, so foreign assets bought by Canadians are greater than Canadian assets bought by foreigners.
D)  Net capital outflow is negative, so Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.E) A) and B)
F) A) and C)

Question 18

Which of the following best predicts the effects of an increase in a country's real interest rate?

Accepted Answer

A)  Its net capital outflow and the real exchange rate increase.
B)  Its net capital outflow and the real exchange rate decrease.
C)  Its net capital outflow increases and the real exchange rate decreases.
D)  Its net capital outflow decreases and the real exchange rate increases.E) A) and D)
F) C) and D)

Question 19

In the open-economy macroeconomic model, net exports represent the quantity of dollars demanded in the foreign-currency exchange market.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is consistent with an above-the-equilibrium exchange rate of the dollar?

Accepted Answer

A)  The quantity of dollars supplied is greater than the quantity demanded, and the dollar will appreciate.
B)  The quantity of dollars supplied is greater than the quantity demanded, and the dollar will depreciate.
C)  The quantity of dollars supplied is less than the quantity demanded, and the dollar will appreciate.
D)  The quantity of dollars supplied is less than the quantity demanded, and the dollar will depreciate.E) B) and D)
F) A) and B)

Exam 13: A Macroeconomic Theory of the Open Economy

According to the open-economy macroeconomic model, if Canada moved from a government budget deficit to a government budget surplus, Canadian real interest rates would increase and the real exchange rate of the Canadian dollar would appreciate.

Correct AnswerverifiedShow Answer

Which of the following best predicts the effects of an increase in a country's real interest rate?

Correct AnswerverifiedShow Answer

Which of the following is consistent with negative net exports?

Correct AnswerverifiedShow Answer

In the open-economy macroeconomic model, how can the market for loanable funds identity be written?

Correct AnswerverifiedShow Answer

Suppose that Canadian investors decide that investment opportunities in African countries have improved. What happens to Canadian net capital outflow? What happens to the Canadian real interest rate?

Correct AnswerverifiedCanadian net capital outflow w...View AnswerShow Answer

Which of the following is consistent with an appreciation of the dollar?

Correct AnswerverifiedShow Answer

Which of the following is consistent with a depreciation of the dollar?

Correct AnswerverifiedShow Answer

If a government increases its budget deficit, which of the following best predicts the effects?

Correct AnswerverifiedShow Answer

If the government of Colombia implemented a policy that reduced national saving, which of the following best predicts the consequences?

Correct AnswerverifiedShow Answer

Suppose Canada imposes an import quota on steel. Which of the following describes the most likely effects of this quota?

Correct AnswerverifiedShow Answer

Why do higher real interest rates lead to lower net capital outflow?

Correct AnswerverifiedHigher Canadian interest rates make Cana...View AnswerShow Answer

In the open-economy macroeconomic model, net exports represent the quantity of dollars demanded in the foreign-currency exchange market.

Correct AnswerverifiedShow Answer

Suppose a prime ministerial candidate promises to increase the government budget surplus and claims that doing so will stop Canadian citizens from investing in foreign companies and increase the value of the dollar. Evaluate this promise.

Correct AnswerverifiedAn increase in the government budget sur...View AnswerShow Answer

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

Correct AnswerverifiedShow Answer

Suppose that Canada imposes an import quota on automobiles. Which of the following describes the most likely effects of this quota?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following refers to a limit on the quantity of an imported good?

Correct AnswerverifiedShow Answer

The key determinant of net capital outflow is the real exchange rate.

Correct AnswerverifiedShow Answer

Which of the following is consistent with an above-the-equilibrium exchange rate of the dollar?

Correct AnswerverifiedShow Answer

Which of the following best identifies the effects of trade policies? And on firms or industries?

Correct AnswerverifiedShow Answer

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Canadian net capital outflow w...
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Higher Canadian interest rates make Cana...
View Answer

Correct Answer
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An increase in the government budget sur...
View Answer

Correct Answer
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