Question 1

Which of the following groups would NOT benefit from an EU import quota on Japanese cars?

Accepted Answer

A)   EU consumers who buy electronics from Japan.
B)   EU farmers who export grain.
C)   Employees of EU car manufacturers.
D)   Shareholders of German carmaker BMW.E) A) and D)
F) A) and C)

Question 2

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve. Use the UK as an example.

Accepted Answer

When the UK real exchange rate appreciat...

Question 3

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

Accepted Answer

Higher UK interest rates make UK assets ...

Question 4

An example of a trade policy is

Accepted Answer

A)   A tariff on sugar.
B)   All are examples of trade policy.
C)   Capital flight because it increases a country's net exports.
D)   An increase in the government budget deficit because it reduces a country's net exports.E) All of the above
F) A) and B)

Question 5

An increase in Europe's taste for UK-produced Hondas would cause the pound to

Accepted Answer

A)   Depreciate and would increase UK net exports.
B)   Appreciate and would increase UK net exports.
C)   Depreciate and would decrease UK net exports.
D)   Appreciate and would decrease UK net exports.
E)   Appreciate, but the total value of UK net export stays the same.F) A) and D)
G) A) and C)

Question 6

A rise in Denmark's net exports will increase the demand for the Danish krone in the market for foreign currency exchange and the krone will appreciate in value.

Accepted Answer

A) True 
 B)False

Question 7

If a county becomes more likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Accepted Answer

A higher probability of default leads to...

Question 8

A large and sudden movement of capital out of a country is called

Accepted Answer

A)   capital inflow.
B)   capital flight.
C)   trade deficit.
D)   trade surplus.E) All of the above
F) B) and C)

Question 9

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

S is national saving, which is the sourc...

Question 10

Suppose that the Turkish government budget deficit increases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Accepted Answer

The supply of Turkish loanable funds cur...

Question 11

Crowding-out caused by government budget deficits will lead to

Accepted Answer

A)   An increase in the real exchange rate.
B)   A decrease in the real exchange rate.
C)   No change in the real exchange rate.
D)   A devaluation in a nation's currency.E) All of the above
F) A) and D)

Question 12

If the EU imposes a quota on the importing of clothing produced in China, so reducing UK imports of clothing, which of the following is true regarding the market for foreign currency exchange?

Accepted Answer

A)   The demand for pounds decreases and the pound depreciates.
B)   The supply of pounds increases and the pound depreciates.
C)   The supply of pounds decreases and the pound appreciates.
D)   The demand for pounds increases and the pound appreciates.E) A) and D)
F) None of the above

Question 13

The supply of foreign exchange is

Accepted Answer

A)   Determined by the real exchange rate.
B)   Independent of the real exchange rate.
C)   Determined by central bankers.
D)   Determined by the government of the country concerned.E) A) and C)
F) None of the above

Question 14

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

Accepted Answer

A)   An increase in UK net capital outflow increases the supply of pounds and the pound depreciates.
B)   An increase in UK net capital outflow increases the demand for pounds and the pound appreciates.
C)   An increase in UK net capital outflow increases the demand for pounds and the pound depreciates.
D)   An increase in UK net capital outflow increases the supply of pounds and the pound appreciates.E) B) and C)
F) A) and D)

Question 15

If the EU raises its tariff on imported sugar, it will reduce imports and improve the trade balance of EU members.

Accepted Answer

A) True 
 B)False

Question 16

If a country has a high savings rate relative to other countries, then the

Accepted Answer

A)   Supply of loanable funds is larger, interest rates are lower, and net capital outflow is higher for that country than for others.
B)   Supply of loanable funds is smaller, interest rates are higher, and net capital outflow is lower for that country than for others.
C)   Demand for loanable funds is larger, interest rates are higher, and net capital outflow is lower for that country than for others.
D)   Government must subsidize production in order to encourage international trade.E) All of the above
F) A) and B)

Question 17

An increase in Japanese citizens' purchases of holidays in the UK would

Accepted Answer

A)   Cause the pound to appreciate, but the total value of UK net exports stays the same.
B)   Cause the pound to depreciate, but the total value of UK net exports stays the same.
C)   Cause the total value of UK net exports to increase, but the foreign exchange value of the pound to appreciate stays the same.
D)   Cause the total value of UK net exports to decrease, but the foreign exchange value of the pound to appreciate stays the same.E) A) and D)
F) All of the above

Question 18

The open-economy macroeconomic model takes

Accepted Answer

A)   GDP, but not the price level as given.
B)   The price level, but not GDP as given.
C)   Both the price level and GDP as given.
D)   The price level and GDP as variables to be determined by the model.E) B) and C)
F) All of the above

Question 19

The phrase "twin deficits" refers to

Accepted Answer

A)   A country's trade deficit and its government budget deficit.
B)   The fact that if a country has a trade deficit, its trading partners must also have trade deficits.
C)   The equality of a country's saving deficit and its investment deficit.
D)   A country's trade deficit and its net capital outflow deficit.E) A) and D)
F) A) and B)

Question 20

Capital flight is often caused by

Accepted Answer

A)   Political stability.
B)   Shifts away from the industrial sector and towards the service sector.
C)   Political instability.
D)   Policies of the International Monetary Fund.E) B) and C)
F) A) and D)

Exam 30: A Macroeconomic Theory of the Open Economy

If the EU imposes a quota on the importing of clothing produced in China, so reducing UK imports of clothing, which of the following is true regarding the market for foreign currency exchange?

Correct AnswerverifiedShow Answer

Crowding-out caused by government budget deficits will lead to

Correct AnswerverifiedShow Answer

If a county becomes more likely to default on its bonds, what happens to that country's interest rate and exchange rate? Explain.

Correct AnswerverifiedA higher probability of default leads to...View AnswerShow Answer

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

Correct AnswerverifiedHigher UK interest rates make UK assets ...View AnswerShow Answer

If the EU raises its tariff on imported sugar, it will reduce imports and improve the trade balance of EU members.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A rise in Denmark's net exports will increase the demand for the Danish krone in the market for foreign currency exchange and the krone will appreciate in value.

Correct AnswerverifiedShow Answer

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve. Use the UK as an example.

Correct AnswerverifiedWhen the UK real exchange rate appreciat...View AnswerShow Answer

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Correct AnswerverifiedS is national saving, which is the sourc...View AnswerShow Answer

Suppose that the Turkish government budget deficit increases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Correct AnswerverifiedThe supply of Turkish loanable funds cur...View AnswerShow Answer

If a country has a high savings rate relative to other countries, then the

Correct AnswerverifiedShow Answer

An example of a trade policy is

Correct AnswerverifiedShow Answer

An increase in Japanese citizens' purchases of holidays in the UK would

Correct AnswerverifiedShow Answer

Which of the following groups would NOT benefit from an EU import quota on Japanese cars?

Correct AnswerverifiedShow Answer

A large and sudden movement of capital out of a country is called

Correct AnswerverifiedShow Answer

The open-economy macroeconomic model takes

Correct AnswerverifiedShow Answer

The phrase "twin deficits" refers to

Correct AnswerverifiedShow Answer

An increase in Europe's taste for UK-produced Hondas would cause the pound to

Correct AnswerverifiedShow Answer

Capital flight is often caused by

Correct AnswerverifiedShow Answer

The supply of foreign exchange is

Correct AnswerverifiedShow Answer

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A higher probability of default leads to...
View Answer

Correct Answer
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Higher UK interest rates make UK assets ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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When the UK real exchange rate appreciat...
View Answer

Correct Answer
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S is national saving, which is the sourc...
View Answer

Correct Answer
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The supply of Turkish loanable funds cur...
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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