Question 1

Which of the following is an effect of capital flight in a small economy such as Panama?

Accepted Answer

The answer of Which of the following is an effect...

Question 2

Mexico suffered from capital flight in 1994.What happened to Mexico's net exports?

Accepted Answer

Capital flight from Mexico in 1994 led to a depreciation of the peso, making Mexican goods cheaper for foreigners and thus increasing Mexico's net exports.

Question 3

If there is capital flight from Canada,how does the open-economy macroeconomic model change?

Accepted Answer

Capital flight from Canada implies that investors are moving their funds out of Canada to other countries. This would decrease the supply of loanable funds in Canada as there are fewer funds available for lending, shifting the supply of loanable funds curve to the left. At the same time, to move their funds out, investors would need to convert Canadian dollars into foreign currencies, increasing the supply of Canadian dollars in the foreign exchange market, which shifts the supply of dollars curve to the right.

Question 4

What is most likely to increase Canadian exports?

Accepted Answer

By reducing restrictions on foreign imports, Canadian firms will have better access to foreign markets, increasing their ability to export goods and services. A reduction in government spending or a reduction in the budget surplus may lead to economic contraction, reducing overall economic output including exports. Taxes on domestic saving are not directly related to exports.

Question 5

Mexico suffered from capital flight in 1994.Which statement best describes the effects of this event on the Canadian economy?

Accepted Answer

The answer of Mexico suffered from capital flight in 1994.Which...

Question 6

What will NOT change Canadian net exports?

Accepted Answer

Canadian net exports depend on the balance of trade, which is the difference between exports and imports. The imposition of import quotas will directly affect the amount of imports, but the other options (capital flight, government budget deficit, and world interest rate) do not directly affect the balance of trade and therefore will not change Canadian net exports.

Question 7

If foreign investors believe that the Algerian government will default on their debt,what might happen?

Accepted Answer

If foreign investors believe that the Algerian government will default on their debt, they will demand higher interest rates to compensate for the increased risk. This will lead to an increase in Algerian interest rates. Additionally, foreign investors may withdraw their investments from Algeria, leading to a net capital outflow. This combination of higher interest rates and higher net capital outflow will result in option B – an increase in both Algerian interest rates and net capital outflow.

Question 8

The 1998 default by the Russian government had results that were predictable using the textbook model.Which statement best describes what happened?

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Question 9

What would cause the real exchange rate of the Canadian dollar to depreciate?

Accepted Answer

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Question 10

If Morocco experienced capital flight,which statement would best explain the effects?

Accepted Answer

Capital flight would increase the supply of the Moroccan dirham in the foreign exchange market as investors sell off the currency, causing the real exchange rate to depreciate.

Question 11

Mexico suffered from capital flight in 1994.What happened to Mexico's real interest rate and the peso?

Accepted Answer

Capital flight often leads to a decrease in the demand for a country's currency, which then causes a depreciation of the currency's value. In response, the country's central bank may raise interest rates to make their currency more attractive to investors. So, the real interest rate rose, and the peso depreciated. This was the case in Mexico in 1994.

Question 12

Mexico suffered from capital flight in 1994.Which statement best describes the effects of this event on the Canadian economy?

Accepted Answer

The answer of Mexico suffered from capital flight in 1994.Which...

Question 13

In 2002 and again in 2014,the Argentinean government defaulted on its debt.Which statement is consistent with what the open-economy macroeconomic model predicts?

Accepted Answer

When a country defaults on its debt, it creates uncertainty and risk for investors. This typically leads to a higher perceived risk and, therefore, higher interest rates for that country. Additionally, if investors are trying to sell off their holdings of that country's debt, they will need to convert the proceeds into another currency, which will increase the supply of the country's currency on the foreign exchange market and lead to depreciation. Therefore, the open-economy macroeconomic model predicts that the Argentinean default would lead to higher interest rates and a depreciating currency, which is consistent with choice B.

Question 14

What is consistent with capital flight from Mexico?

Accepted Answer

The answer of What is consistent with capital flight from...

Question 15

When a country experiences capital flight,which statement best explains the effects?

Accepted Answer

Capital flight involves a large-scale exodus of financial assets and capital from a country, leading to a decrease in the supply of loanable funds. This decrease in supply shifts the supply curve to the left, causing interest rates to rise due to the scarcity of available funds.

Question 16

What will decrease Canadian net capital outflow?

Accepted Answer

The answer of What will decrease Canadian net capital outflow?
...

Question 17

The country of Lexburgh is politically very stable and has a long tradition of respecting property rights.If several other countries suddenly became politically unstable,which statement would happen?

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Question 18

What is consistent with capital flight from Mexico?

Accepted Answer

When capital is leaving Mexico, there is a decrease in demand for peso-denominated assets, which causes the peso to depreciate. This makes imports more expensive and exports cheaper, which can help offset capital flight. However, a depreciating currency can also lead to inflationary pressures and can make it harder for the government to borrow money internationally.

Question 19

What is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

Accepted Answer

The answer of What is most likely to result if...

Question 20

When a country suffers from capital flight,which statement best explains the effects?

Accepted Answer

Capital flight refers to the movement of large amounts of capital or assets out of a country due to various reasons such as economic instability, political uncertainty, or unfavorable investment climate. The outflow of capital reduces the supply of loanable funds in the country, causing the supply curve to shift leftward. With the reduced supply, the interest rate increases as there is now more demand for the available loanable funds. Therefore, option C is the correct answer.

Quiz 13: A Macroeconomic Theory of the Small Open Economy

Which of the following is an effect of capital flight in a small economy such as Panama?

Mexico suffered from capital flight in 1994.What happened to Mexico's net exports?

If there is capital flight from Canada,how does the open-economy macroeconomic model change?

What is most likely to increase Canadian exports?

Mexico suffered from capital flight in 1994.Which statement best describes the effects of this event on the Canadian economy?

What will NOT change Canadian net exports?

If foreign investors believe that the Algerian government will default on their debt,what might happen?

The 1998 default by the Russian government had results that were predictable using the textbook model.Which statement best describes what happened?

What would cause the real exchange rate of the Canadian dollar to depreciate?

If Morocco experienced capital flight,which statement would best explain the effects?

Mexico suffered from capital flight in 1994.What happened to Mexico's real interest rate and the peso?

Mexico suffered from capital flight in 1994.Which statement best describes the effects of this event on the Canadian economy?

In 2002 and again in 2014,the Argentinean government defaulted on its debt.Which statement is consistent with what the open-economy macroeconomic model predicts?

What is consistent with capital flight from Mexico?

When a country experiences capital flight,which statement best explains the effects?

What will decrease Canadian net capital outflow?

The country of Lexburgh is politically very stable and has a long tradition of respecting property rights.If several other countries suddenly became politically unstable,which statement would happen?

What is consistent with capital flight from Mexico?

What is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

When a country suffers from capital flight,which statement best explains the effects?