Chapter 32 Quizzes

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

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

An increase in the government budget deficit

increases the real interest rate and crowds out investment.

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

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

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

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

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

An increase in the U.S. government budget deficit

decreases U.S. net exports and U.S. net capital outflow the same amount.

The phrase "twin deficits" refers to

a country's trade deficit and its government budget deficit.

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

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 depreciates.

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

The demand for dollars increases and the dollar appreciates.

If the United States imposes a quota on the importing of apparel produced in China, which of the following istrue regarding U.S. net exports?

Net exports will remain unchanged.

Suppose, due to political instability, Mexicans suddenly choose to invest in U.S. assets as opposed to Mexican assets. Which of the following statements istrue regarding U.S. net capital outflow?

U.S. net capital outflow falls.

Suppose, due to political instability, Mexicans suddenly choose to purchase U.S. assets as opposed to Mexican assets. Which of the following statements is true regarding the value of the dollar and U.S. net exports?

The dollar appreciates, and U.S. net exports fall.

An increase in U.S. private saving

increases U.S. net exports and U.S. net capital outflow the same amount.

Which of the following statements about trade policy is true ?

A country's trade policy has no impact on the size of its trade balance.

Which of the following groups would not benefit from a U.S. import quota on Japanese autos?

U.S. farmers who export grain

An example of a trade policy is

a tariff on sugar.

An export subsidy should have the opposite effect of

a tariff.

Which of the following groups would be most harmed by a U.S. government budget deficit?

Boeing Aircraft Manufacturing wishing to sell jets to Saudi Arabia

Capital flight

increases a country's net exports and decreases its long-run growth path.

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

False

A country's net capital outflow (NCO ) is always equal to its net exports (NX ).

True

Other things being the same, an increase in a country's real interest rate reduces net capital outflow.

True

An increase in U.S. net capital outflow increases the supply of dollars in the market for foreign-currency exchange and decreases the real exchange rate of the dollar.

True

If labor unions convince Americans to "buy American," it will improve (move toward surplus) the U.S. trade balance.

False

If a country's net capital outflow (NCO ) is positive, it is an addition to its demand for loanable funds.

True

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

False

An increase in the government's budget deficit tends to cause the real exchange rate of the dollar to depreciate.

False

The term "twin deficits" refers to a country's trade deficit and its government budget deficit.

True

If the United States raises its tariff on imported sugar, it will reduce imports and improve the trade balance.

False

If the United States raises its tariff on imported sugar, domestic sugar growers will benefit, but the dollar will appreciate and domestic producers of export goods will be harmed.

True

An increase in the government budget deficit reduces net exports.

True

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

False

If Americans increase their saving, the dollar will appreciate in the market for foreign-currency exchange.

False

A rise in Mexico's net exports (NX ) will increase the demand for pesos in the market for foreign-currency exchange and the peso will appreciate in value.

True

In the open economy model, the supply of loanable funds comes from national saving and net capital outflow.

False

An increase in the U.S. interest rate decreases U.S. net capital outflow.

True

In the open-economy macroeconomic model, if there is currently a surplus in the foreign exchange market, the quantity of desired net exports will increase as the market moves to equilibrium.

True

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

False

Capital flight increases a country's interest rate. This increase in the interest rate makes net capital outflow lower than it would be had the interest rate stayed the same.

True

In equilibrium a country has a net capital outflow of $200 billion and domestic investment of $150 billion. What is the quantity of loanable funds demanded?

$350 billion

An increase in U.S. interest rates relative to Canadian interest rates

encourages both U.S. and Canadian residents to buy more U.S. assets.

If there is a surplus in the U.S. loanable funds market, then the interest rate

falls, which increases the quantity of loanable funds demanded.

If there is a surplus in the U.S. loanable funds market, then

NCO + I < S.

The supply of dollars in the market for foreign exchange shifts right if

U.S. residents want to buy more foreign bonds.

In the open-economy macroeconomic model, as the exchange rate rises,

desired net exports fall, so the quantity of dollars demanded falls.

Which of the following is consistent with moving from a surplus to equilibrium in the market for foreign currency exchange?

the exchange rate falls causing U.S. residents to import less

Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange?

the exchange rate rises so foreign residents want to buy fewer U.S. goods and services

In the open-economy macroeconomic model, as the exchange rate rises, which of the following rises?

neither desired purchases of U.S. assets by foreign residents nor desired purchase of foreign assets by U.S. residents

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

desired net exports but not desired net capital outflow

A U.S. company wants to buy yen in order to buy Japanese bonds. In the open-economy macroeconomic model, this transaction would be part of

the supply of currency in the foreign exchange market, and part of the demand for loanable funds.

In the open-economy macroeconomic model, if the supply of loanable funds shifts right

the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.

In the open-economy macroeconomic model, if the supply of loanable funds shifts left

the interest rate rises and the supply of dollars in the market for foreign currency exchange shifts left.

If the demand for net exports rises, which of the following happens in the open-economy macroeconomic model?

the exchange rate rises

If a country's budget deficit rises, then its exchange rate

rises, so its imports rise.

If a country raises its budget deficit then

the supply of its currency in the market for foreign exchange shifts left.

If a country raises its budget deficit, then its

net capital outflow and net exports fall.

If a country raises its budget deficit then

its supply of but not its demand for loanable funds shifts.

A firm produces manufacturing equipment, some of which it exports. Which of the following effects of a budget deficit would likely reduce the quantity of equipment it sells?

the change in the interest rate and the change in the exchange rate

The imposition of an import quota shifts

the demand for currency right, so the exchange rate rises.

If the U.S. imposes a quota on cotton, then

exports of other goods will fall and imports of other goods will rise.

In equilibrium which of the following happens if the U.S. imposes tariffs on leather boots?

U.S. production of leather boots rise

If fear of default on bonds issued by U.S. corporations rise, then

net capital outflow rises and the exchange rate falls.

When a country experiences capital flight, its net capital outflow,

which is part of the demand for loanable funds, increases.

A firm produces manufacturing equipment, some of which it exports. Which of the following effects of capital flight in the country it produces in would likely reduce the quantity of equipment it sells?

what happens to the interest rate but not what happens to the exchange rate

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