Deck 14: A Macroeconomic Theory of the Open Economy

Question 1

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

A) fell. The increased saving would increase the quantity of loanable funds demanded.
B) fell. The increased saving would increase the quantity of loanable funds supplied.
C) rose. The increased saving would increase the quantity of loanable funds demanded.
D) rose. The increased saving would increase the quantity of loanable funds supplied.

Answer 1

D

Question 2

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

A) rise because net capital outflow and domestic investment rise.
B) rise because national saving rises.
C) fall because net capital outflow and domestic investment rise.
D) fall because national saving falls.

Answer 2

B

Question 3

The open-economy macroeconomic model examines the determination of

A) the output growth rate and the real interest rate.
B) unemployment and the exchange rate.
C) the output growth rate and the inflation rate.
D) the trade balance and the exchange rate.

Answer 3

D

Question 4

The open-economy macroeconomic model takes

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.

Question 5

Because the open-economy macroeconomic model focuses on the long run, it is assumed that

A) GDP, but not the price level is given.
B) the price level, but not GDP is given.
C) both the price level and GDP are given.
D) the price level and GDP are variables to be determined by the model.

Question 6

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

A) domestic investment.
B) net capital outflow.
C) the sum of national consumption and government spending.
D) the sum of domestic investment and net capital outflow.

Question 7

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

A) national saving.
B) private saving.
C) domestic investment.
D) the sum of domestic investment and net capital outflow.

Question 8

Other things the same an increase in the interest rate

A) increases national saving, this is shown by moving along the demand for loanable funds curve.
B) increases national saving, this is shown by moving along the supply of loanable funds curve.
C) decreases national saving, this is shown by moving along the demand for loanable funds curve.
D) decreases national saving, this is shown by moving along the supply of loanable funds curve.

Question 9

Other things the same, a higher real interest rate raises the quantity of

A) domestic investment.
B) net capital outflow.
C) loanable funds demanded.
D) loanable funds supplied.

Question 10

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

A) the sum of domestic investment and net capital outflow.
B) net capital outflow alone.
C) domestic investment alone.
D) None of the above is correct.

Question 11

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

A) rise because national saving rises.
B) rise because domestic investment rises.
C) fall because national saving falls.
D) fall because domestic investment falls.

Question 12

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

A) domestic investment.
B) net capital outflow.
C) national consumption minus domestic investment.
D) None of the above is correct.

Question 13

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

A) S = I
B) S = NCO
C) S = I + NCO
D) S + I = NCO

Question 14

Other things the same, a lower real interest rate decreases the quantity of

A) loanable funds demanded.
B) loanable funds supplied.
C) domestic investment.
D) net capital outflow.

Question 15

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

A) personal saving
B) public saving
C) public saving + personal saving
D) public saving + personal saving + net capital outflows

Question 16

In an open economy, national saving equals

A) domestic investment plus net capital outflow.
B) domestic investment minus net capital outflow.
C) domestic investment.
D) net capital outflow.

Question 17

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

A) the sum of domestic investment and net capital outflow.
B) the sum of national saving and net capital outflow.
C) national saving.
D) net exports

Question 18

The open-economy macroeconomic model includes

A) only the market for loanable funds.
B) only the market for foreign-currency exchange.
C) both the market for loanable funds and the market for foreign-currency exchange.
D) neither the market for loanable funds nor the market for foreign-currency exchange.

Question 19

Over the past three decades, the United States has

A) generally had, or been very near to a trade balance.
B) had trade deficits in about as many years as it has trade surpluses.
C) persistently had a trade deficit.
D) persistently had a trade surplus.

Question 20

Many U.S. business leaders argue that the current state of U.S. net exports is the result of

A) U.S. export subsidies.
B) free trade policies of foreign governments.
C) unproductive U.S. workers.
D) unfair foreign competition.

Question 21

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

A) $50 billion
B) $70 billion
C) $90 billion
D) $120 billion

Question 22

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.

Question 23

A country has national saving of $100 billion, government expenditures of $30 billion, domestic investment of $80 billion, and net capital outflow of $20 billion. What is its demand for loanable funds?

A) $60 billion
B) $70 billion
C) $100 billion
D) $120 billion

Question 24

A country has national saving of $50 billion, government expenditures of $30 billion, domestic investment of $10 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

A) $20 billion
B) $30 billion
C) $50 billion
D) $60 billion

Question 25

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

A) only those who want to buy domestic capital goods.
B) only those who want to buy foreign assets.
C) those who want to buy either domestic capital goods or foreign assets.
D) None of the above is correct.

Question 26

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.

Question 27

A country has output of $600 billion, consumption of $350 billion, government expenditures of $90 billion and investment of $60 billion. What is its supply of loanable funds?

A) $160 billion
B) $150 billion
C) $60 billion
D) $30 billion

Question 28

Other things the same, a decrease in the real interest rate

A) decreases the quantity of loanable funds demanded.
B) increases the quantity of loanable funds demand
C) shifts the demand for loanable funds to the right.
D) shifts the demand for loanable funds to the left.

Question 29

The explanation for the slope of

A) the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving.
B) the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving.
C) the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving.
D) the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

Question 30

In an open economy, the source for the demand for loanable funds is

A) national saving.
B) national saving + net capital outflow.
C) investment
D) investment + net capital outflow

Question 31

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.

Question 32

The slope of the supply of loanable funds is based on an increase in

A) only national saving when the interest rate rises.
B) both national saving and net capital outflow when the interest rate rises.
C) only national saving when the interest rate falls.
D) both national saving and net capital outflow when the interest rate falls.

Question 33

A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouses) is included in the demand for loanable funds in the U.S.?

A) both the one in Ohio and the one in Italy
B) only the one in Ohio
C) only the one in Italy
D) neither the one in Ohio nor the one in Italy

Question 34

In an open economy, the source of the demand for loanable funds is

A) national saving
B) national saving + net capital outflow
C) investment + the government budget deficit
D) investment + net capital outflow

Question 35

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.

Question 36

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which locations) is included in the U.S. demand for loanable funds?

A) only the U.S.
B) only Mexico
C) Mexico and the U.S.
D) neither Mexico nor the U.S.

Question 37

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.

Question 38

A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $50 billion, and net capital outflow of $30 billion. What is its supply of loanable funds?

A) $30 billion
B) $40 billion
C) $50 billion
D) $80 billion

Question 39

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

Question 40

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

A) $40 billion
B) $60 billion
C) $90 billion
D) $130 billion

Question 41

Which of the following is the most likely response to a decrease in the U.S. real interest rate?

A) a U.S. company decides to expand its factory
B) a U.S. citizen decides to purchase fewer foreign bonds
C) a German mutual fund decides to increase its deposits at a U.S. bank
D) All of the above are consistent.

Question 42

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.

Question 43

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

Question 44

A country has GDP of $700 billion, consumption of $450 billion, government expenditures of $100 billion, and domestic investment of $200 billion. What is its supply of loanable funds?

A) $350 billion
B) $250 billion
C) $200 billion
D) $150 billion

Question 45

If interest rates rose more in Japan than in the U.S., then other things the same

A) U.S. citizens would buy more Japanese bonds and Japanese citizens would buy more U.S. bonds.
B) U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds.
C) U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy more U.S. bonds.
D) U.S. citizens would buy fewer Japanese bonds and Japanese citizens would buy fewer U.S. bonds.

Question 46

A country has domestic investment of $200 billion. Its citizens purchase $600 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?

A) $400 billion
B) $500 billion
C) $600 billion
D) $800 billion

Question 47

An increase in the real interest rate in the United States changes the quantity of loanable funds demanded because

A) U.S. residents will want to buy more foreign assets.
B) Foreign residents will want to buy more U.S. goods and services.
C) U.S. firms will want to purchase fewer U.S. capital goods.
D) All of the above are correct.

Question 48

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.

Question 49

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.

Question 50

Other things the same, if the U.S. interest rate falls, then U.S. residents will want to purchase

A) more foreign assets, which increases the quantity of loanable funds demanded.
B) fewer foreign assets, which decreases the quantity of loanable funds demanded.
C) more foreign assets, which increase the quantity of loanable funds supplied.
D) fewer foreign assets, which decreases the quantity of loanable funds supplied.

Question 51

Other things the same, a decrease in the real interest rate raises the quantity of

A) domestic investment and net capital outflow.
B) domestic investment but not net capital outflow.
C) net capital outflow but not domestic investment.
D) neither domestic investment nor net capital outflow.

Question 52

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.

Question 53

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.

Question 54

An increase in real interest rates in the United States

A) discourages both U.S. and foreign residents from buying U.S. assets.
B) encourages both U.S. and foreign residents to buy U.S. assets.
C) encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets.
D) encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets.

Question 55

Which of the following is the most likely response to an increase in the U.S. real interest rate?

A) a London bank purchases a U.S. bond instead of a Japanese bond it had considered purchasing
B) U.S. firms decide to buy more capital goods
C) a U.S. citizen decides to put less money in his savings account than he had planned.
D) All of the above are consistent.

Question 56

Other things the same, a decrease in the interest rate

A) reduces domestic investment which reduces the quantity of loanable funds supplied.
B) reduces domestic investment which reduces the quantity of loan funds demanded.
C) raises domestic investment which raises the quantity of loanable funds supplied.
D) raises domestic investment which raises the quantity of loanable funds demanded.

Question 57

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.

Question 58

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.

Question 59

Other things the same, a decrease in the real interest rate

A) increases the quantity of loanable funds demanded.
B) shifts the demand for loanable funds curve to the right.
C) decreases the quantity of loanable funds demanded.
D) shifts the demand for loanable funds curve to the left.

Question 60

A country has private saving of $500 billion, public saving of -$100 billion, domestic investment of $150 billion, and net capital outflow of $250 billion. What is its supply of loanable funds?

A) $650 billion
B) $600 billion
C) $400 billion
D) $350 billion

Question 61

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

A) rises, which increases quantity of loanable funds demanded.
B) rises, which decreases the quantity of loanable funds demanded.
C) falls, which increases the quantity of loanable funds demanded.
D) falls, which decreases the quantity of loanable funds demanded.

Question 62

Other things the same, if the real interest rate in a country falls, domestic residents will desire to purchase

A) more capital goods and more foreign bonds.
B) more capital goods but fewer foreign bonds.
C) more foreign bonds but fewer capital goods.
D) fewer capital goods and fewer foreign bonds.

Question 63

If there is a surplus of loanable funds, the quantity demanded is

A) greater than the quantity supplied and the interest rate will rise.
B) greater than the quantity supplied and the interest rate will fall.
C) less than the quantity supplied and the interest rate will rise.
D) less than the quantity supplied and the interest rate will fall.

Question 64

If at a given real interest rate desired national saving is $140 billion, domestic investment is $90 billion, and net capital outflow is $60 billion, then at that real interest rate in the loanable funds market there is a

A) surplus. The real interest rate will rise.
B) surplus. The real interest rate will fall.
C) shortage. The real interest rate will rise.
D) shortage. The real interest rate will fall.

Question 65

If there is a surplus in the market for loanable funds, the resulting change in the real interest rate

A) reduces both the quantity of loanable funds supplied and the quantity of loanable funds demanded.
B) reduces the quantity of loanable funds supplied and raises the quantity of loanable funds demanded
C) raises both the quantity of loanable funds supplied and the quantity of loanable funds demanded.
D) raises the quantity of loanable funds supplied and reduces the quantity of loanable funds demanded.

Question 66

If the demand for loanable funds shifts right, then

A) the real interest rate and the equilibrium quantity of loanable funds both fall.
B) the real interest rate falls and the equilibrium quantity of loanable funds rises.
C) the real interest rate and the equilibrium quantity of loanable funds both rise.
D) the real interest rate rises and the equilibrium quantify of loanable funds falls.

Question 67

If interest rates rose more in the U.S. than in France, then other things the same

A) U.S. citizens would buy more French bonds and French citizens would buy more U.S. bonds.
B) U.S. citizens would buy more French bonds and French citizens would buy fewer U.S. bonds.
C) U.S. citizens would buy fewer French bonds and French citizens would buy more U.S. bonds.
D) U.S. citizens would buy fewer French bonds and French citizens would buy fewer U.S. bonds.

Question 68

If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a

A) shortage of loanable funds and the interest rate will fall.
B) shortage of loanable funds and the interest rate will rise.
C) surplus of loanable funds and the interest rate will fall.
D) surplus of loanable funds and the interest rate will rise.

Question 69

At the equilibrium real interest rate in the open-economy macroeconomic model, the equilibrium quantity of loanable funds equals

A) net capital outflow.
B) domestic investment.
C) foreign currency supplied.
D) national saving.

Question 70

If at a given real interest rate desired national saving is $60 billion, domestic investment is $30 billion, and net capital outflow is $20 billion, then at that real interest rate in the loanable funds market there is a

A) surplus. The real interest rate will rise.
B) surplus. The real interest rate will fall.
C) shortage. The real interest rate will rise.
D) shortage. The real interest rate will fall.

Question 71

If at a given real interest rate desired national saving is $200 billion, domestic investment is $100 billion, and net capital outflow is $80 billion, then at that real interest rate in the loanable funds market there is a

A) surplus. The real interest rate will rise.
B) surplus. The real interest rate will fall.
C) shortage. The real interest rate will rise.
D) shortage. The real interest rate will fall.

Question 72

At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of

A) net capital outflow.
B) domestic investment.
C) net capital outflow plus domestic investment.
D) foreign currency supplied.

Question 73

If there is a surplus in the market for loanable funds, then the interest rate

A) rises, so national saving rises.
B) rises, so national saving falls.
C) falls, so national saving rises.
D) falls, so national saving falls.

Question 74

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

A) NCO > I.
B) NCO < I.
C) NCO + I > S.
D) NCO + I < S.

Question 75

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?

A) $50 billion
B) $150 billion
C) $200 billion
D) $350 billion

Question 76

If there is a shortage of loanable funds, then

A) the demand for loanable funds will shift right so the real interest rate rises.
B) the supply of loanable funds will shift left so the real interest rate falls.
C) there will be no shifts of the curves, but the real interest rate rises.
D) there will be no shifts of the curves, but the real interest rate falls.

Question 77

If the quantity of loanable funds supplied is less than the quantity demanded, then there is a

A) shortage of loanable funds and the interest rate will fall.
B) shortage of loanable funds and the interest rate will rise.
C) surplus of loanable funds and the interest rate will fall.
D) surplus of loanable funds and the interest rate will rise.

Question 78

At the equilibrium real interest rate in the open-economy macroeconomic model

A) saving = domestic investment
B) saving = net capital outflow
C) net capital outflow = domestic investment
D) net capital outflow + domestic investment = saving

Question 79

If the demand for loanable funds shifts left, then

A) the real interest rate and the equilibrium quantity of loanable funds both fall.
B) the real interest rate falls and the equilibrium quantity of loanable funds rises.
C) the real interest rate and the equilibrium quantity of loanable funds both rise.
D) the real interest rate rises and the equilibrium quantity of loanable funds falls.

Question 80

If the supply of loanable funds shifts right, then the equilibrium

A) interest rate falls, so domestic residents will want to purchase more foreign assets.
B) interest rate falls, so domestic residents will want to purchase fewer foreign assets.
C) interest rate rises, so domestic residents will want to purchase more foreign assets.
D) interest rate rises, so domestic residents will want to purchase fewer foreign assets.