Question 1

A country has domestic investment of $100 billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?
A)-$100 billion
B)$100 billion
C)$300 billion
D)$600 billion

Accepted Answer

The answer of A country has domestic investment of $100...

Question 2

In the open-economy macroeconomic model, the supply of loanable funds equals
A)national saving. The demand for loanable funds comes from domestic investment + net capital outflow.
B)national saving. The demand for loanable funds comes only from domestic investment.
C)private saving. The demand for loanable funds comes from domestic investment + net capital outflow.
D)private saving. The demand for loanable funds comes only from domestic investment.

Accepted Answer

According to the open-economy macroeconomic model, the supply of loanable funds is equal to national saving. The demand for loanable funds is made up of domestic investment and net capital outflow. Therefore, the correct answer is A, national saving is the supply and the demand for loanable funds comes from domestic investment plus net capital outflow.

Question 3

Other things the same, a decrease in the U.S. real interest rate induces
A)Americans to buy more foreign assets, which increases U.S. net capital outflow.
B)Americans to buy more foreign assets, which reduces U.S. net capital outflow.
C)foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.
D)foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

Accepted Answer

A decrease in the U.S. real interest rate makes holding U.S. assets less attractive, so Americans are likely to buy more foreign assets instead. This increased demand for foreign assets will increase U.S. net capital outflow (NCFO) since NCFO is equal to foreign purchases of U.S. assets minus U.S. purchases of foreign assets.

Question 4

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?
A)$0
B)$200 billion
C)$400 billion
D)$800 billion

Accepted Answer

The answer of A country has I = $200 billion,...

Question 5

In the open-economy macroeconomic model, the supply of loanable funds comes from
A)national saving. Demand comes from only domestic investment.
B)national saving. Demand comes from domestic investment and net capital outflow.
C)Only net capital outflow. Demand for loanable funds comes from national saving.
D)domestic investment and net capital outflow. Demand for loanable funds comes from national saving.

Accepted Answer

In the open-economy macroeconomic model, the supply of loanable funds comes from national saving, and the demand for loanable funds comes from both domestic investment and net capital outflow. Therefore, choice B is the correct answer as it includes both national saving (the source of supply) and both domestic investment and net capital outflow (the sources of demand).

Question 6

If a country has a negative net capital outflow, then
A)on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.
B)on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds.
C)on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
D)on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Accepted Answer

The answer of If a country has a negative net...

Question 7

A country has output of $900 billion, consumption of $600 billion, government expenditures of $150 billion and investment of $120 billion. What is its supply of loanable funds?
A)$30 billion
B)$90 billion
C)$120 billion
D)$150 billion

Accepted Answer

The answer of A country has output of $900 billion,...

Question 8

Other things the same, an increase in the U.S. interest rate
A)raises net capital outflow which decreases the quantity of loanable funds demanded.
B)raises net capital outflow which increases the quantity of loanable funds demanded.
C)lowers net capital outflow which decreases the quantity of loanable funds demanded.
D)lowers net capital outflow which increases the quantity of loanable funds demanded.

Accepted Answer

The answer of Other things the same, an increase in...

Question 9

Other things the same, an increase in the U.S. real interest rate induces
A)Americans to buy more foreign assets, which increases U.S. net capital outflow.
B)Americans to buy more foreign assets, which reduces U.S. net capital outflow.
C)foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.
D)foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

Accepted Answer

The answer of Other things the same, an increase in...

Question 10

In an open economy, the demand for loanable funds comes from
A)only those who want to borrow funds to buy domestic capital goods.
B)only those who want to borrow funds to buy foreign assets.
C)those who want to borrow funds to buy either domestic capital goods or foreign assets.
D)neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets.

Accepted Answer

In an open economy, the demand for loanable funds comes from those who want to borrow funds to buy either domestic capital goods or foreign assets. This is because individuals and firms in an open economy have the option to invest in either domestic capital goods or foreign assets, and thus the demand for loanable funds is not restricted to just one type of investment.

Question 11

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds
A)only if the asset is located at home.
B)only if the asset is located abroad.
C)whether the asset is located at home or abroad.
D)None of the above is correct.

Accepted Answer

In an open-economy macroeconomic model, the purchase of a capital asset by domestic residents increases the demand for loanable funds regardless of whether the asset is located domestically or abroad. This is because the purchase requires financing, which leads to an increase in the demand for loans, affecting interest rates and potentially affecting the exchange rate.

Question 12

A country has output of $700 billion, consumption of $500 billion, government expenditures of $100 and investment of $60 million. What is its supply of loanable funds?
A)$140 billion
B)$100 billion
C)$60 billion
D)$40 billion

Accepted Answer

The answer of A country has output of $700 billion,...

Question 13

Other things the same, as the real interest rate rises
A)domestic investment and net capital outflow both rise.
B)domestic investment and net capital outflow both fall.
C)domestic investment rises and net capital outflow falls.
D)domestic investment falls and net capital outflow rises.

Accepted Answer

The answer of Other things the same, as the real...

Question 14

If interest rates rise in the U.S., then other things the same
A)foreigners would buy more U.S. bonds which increases the quantity of loanable funds demanded in the U.S.
B)foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.
C)foreigners would buy fewer U.S. bonds which increases the quantity of loanable funds demanded in the U.S.
D)foreigners would buy fewer U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.

Accepted Answer

The answer of If interest rates rise in the U.S.,...

Question 15

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $60 billion, and net capital outflow of $20 billion. What is its demand for loanable funds?
A)$40 billion
B)$60 billion
C)$80 billion
D)$120 billion

Accepted Answer

The answer of A country has national saving of $80...

Question 16

Other things the same, as the real interest rate falls
A)domestic investment and net capital outflow both rise.
B)domestic investment and net capital outflow both fall.
C)domestic investment rises and net capital outflow falls.
D)domestic investment falls and net capital outflow rises.

Accepted Answer

As the real interest rate falls, it becomes less expensive to borrow money, which encourages domestic investment. Additionally, foreign investors may also find it more attractive to invest in the domestic economy, as the return on investment is relatively higher due to the lower interest rate. This leads to an increase in net capital outflow as well.

Question 17

U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?
A)The U.S. only.
B)Denmark only.
C)The U.S. and Denmark.
D)Neither the U.S. nor Denmark.

Accepted Answer

The U.S. demand for loanable funds includes borrowing for factories in the U.S. and Denmark because Titan Bikes is a U.S. corporation.

Question 18

U.S. corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. Borrowing for which well is included in the demand for loanable funds in the U.S.?
A)The U.S. and Venezuela.
B)The U.S. only.
C)Venezuela only.
D)Neither the U.S. or Venezuela.

Accepted Answer

The answer of U.S. corporation Well's Petroleum borrows money to...

Question 19

If a country has a positive net capital outflow, then
A)on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.
B)on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds.
C)on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
D)on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

Accepted Answer

A positive net capital outflow means that the country is exporting more capital than it is importing. This implies that the country is purchasing assets from abroad, which adds to its demand for domestically generated loanable funds because it needs to finance those purchases.

Question 20

Other things the same, if the interest rate falls, then
A)firms will want to borrow more, which increases the quantity of loanable funds demanded.
B)firms will want to borrow less, which decreases the quantity of loanable funds demanded.
C)firms will want to borrow more, which increase the quantity of loanable funds supplied.
D)firms will want to borrow less, which decreases the quantity of loanable funds supplied.

Accepted Answer

When the interest rate falls, borrowing becomes cheaper for firms, which increases their demand for loans. This, in turn, increases the quantity of loanable funds demanded. Therefore, choice A is the correct answer.

Quiz 19: A Macroeconomic Theory of the Open Economy

A country has domestic investment of $100 billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

In the open-economy macroeconomic model, the supply of loanable funds equals

Other things the same, a decrease in the U.S. real interest rate induces

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?

In the open-economy macroeconomic model, the supply of loanable funds comes from

If a country has a negative net capital outflow, then

A country has output of $900 billion, consumption of $600 billion, government expenditures of $150 billion and investment of $120 billion. What is its supply of loanable funds?

Other things the same, an increase in the U.S. interest rate

Other things the same, an increase in the U.S. real interest rate induces

In an open economy, the demand for loanable funds comes from

In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds

A country has output of $700 billion, consumption of $500 billion, government expenditures of $100 and investment of $60 million. What is its supply of loanable funds?

Other things the same, as the real interest rate rises

If interest rates rise in the U.S., then other things the same

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $60 billion, and net capital outflow of $20 billion. What is its demand for loanable funds?

Other things the same, as the real interest rate falls

U.S. corporation Titan Bikes borrows funds to build a factory in the U.S. and a factory in Denmark. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds?

U.S. corporation Well's Petroleum borrows money to build an oil well in Texas and to build another in Venezuela. Borrowing for which well is included in the demand for loanable funds in the U.S.?

If a country has a positive net capital outflow, then

Other things the same, if the interest rate falls, then