Question 1

What would make the equilibrium interest rate decrease and the equilibrium quantity of funds increase?

Accepted Answer

When the supply of loanable funds shifts right, it means there are more funds available at every interest rate. This would lead to a decrease in the equilibrium interest rate due to the increased competition among lenders to attract borrowers. At the same time, the equilibrium quantity of funds will increase because there are more funds available for borrowers to borrow.

Question 2

If the quantity of loanable funds supplied is greater than the quantity demanded, what best describes the difference?

Accepted Answer

The answer of If the quantity of loanable funds supplied...

Question 3

What would make both the equilibrium interest rate and the equilibrium quantity of loanable funds decrease?

Accepted Answer

When the demand for loanable funds shifts left, it means there is less demand for borrowing. This decrease in demand leads to a lower equilibrium interest rate because lenders have to accept lower returns to find borrowers. Simultaneously, the quantity of loanable funds that gets borrowed and lent also decreases because there are fewer borrowers in the market.

Question 4

At the equilibrium interest rate in the open-macroeconomic model, what is the amount that people want to save?

Accepted Answer

At the equilibrium interest rate in an open economy, the amount that people want to save is equal to the desired quantity of net capital outflow plus domestic investment. This is because savings finance both domestic investment and net capital outflow.

Question 5

What changes will a shortage of loanable funds induce in a savings-investment diagram in a closed economy?

Accepted Answer

A shortage of loanable funds, without specifying a cause such as a change in savings behavior or investment demand, typically leads to an increase in the interest rate due to higher demand or lower supply at the existing interest rate. This does not necessarily imply a shift in the supply or demand curves themselves but rather a movement along the curves to a new equilibrium point with a higher interest rate.

Question 6

If the world real interest rate is less than the real interest rate that would occur in Canada if there was no trade, what should we expect to happen in the supply and demand for loanable funds graph?

Accepted Answer

The answer of If the world real interest rate is...

Question 7

Figure 13-1 
-Refer to Figure 13-1. In the figure shown, if the world real interest rate went from 7 to 6 percent, what changes would occur?

Accepted Answer

The answer of Figure 13-1 
-Refer to Figure 13-1. In...

Question 8

Figure 13-1 
-Refer to Figure 13-1. If the world interest rate equals 3 percent, what is the net capital outflow?

Accepted Answer

The answer of Figure 13-1 
-Refer to Figure 13-1. If...

Question 9

Figure 13-1 
-Refer to Figure 13-1. If the world interest rate equals 7 percent, what is the net capital outflow?

Accepted Answer

At the world interest rate of 7 percent, the net capital outflow is equal to the difference between the domestic supply of loanable funds ($10,000) and the domestic demand for loanable funds ($14,000), which is -$4,000. Therefore, the answer is D.

Question 10

In an open economy, what best identifies the sources of loanable funds?

Accepted Answer

In an open economy, loanable funds come from domestic savings (Canadians who consume less than their income) and government budget surplus, which adds to the pool of available funds for investment.

Question 11

In an open economy, where does the demand for loanable funds come from?

Accepted Answer

The answer of In an open economy, where does the...

Question 12

If the world real interest rate was lower than the interest rate that would occur if the Canadian economy were closed, then what would the Canadian net capital outflow be?

Accepted Answer

The answer of If the world real interest rate was...

Question 13

Figure 13-1 
-Refer to Figure 13-1. In the figure shown, if the real interest rate is 7 percent, what is the result?

Accepted Answer

The real interest rate is 7 percent, which is higher than the nominal interest rate of 5 percent. This means that the real value of money is increasing over time, so people are more likely to save money and less likely to borrow money. This will lead to a surplus of loanable funds, which is shown in the figure as a point above the equilibrium point.

Question 14

In an open economy, what does net capital outflow equal?

Accepted Answer

Net capital outflow is defined as the difference between the purchase of foreign assets by domestic residents and the purchase of domestic assets by foreign residents. In an open economy, net exports (or trade balance) is the difference between exports and imports. By definition, these two variables are equal, hence the answer is B.

Question 15

Which statement is consistent with negative net exports?

Accepted Answer

Negative net exports mean that a country is importing more goods and services than it is exporting, which results in a trade deficit. Therefore, option C, "exports are less than imports," is the correct statement. Option A, "exports are greater than imports," would indicate a trade surplus, which is the opposite of a negative net export. Option B, "net capital outflow is positive," and option D, "net capital outflow is zero," are not necessarily related to net exports and do not provide any information about a country's trade balance.

Question 16

In the market for foreign-currency exchange in the open-economy macroeconomic model, what does the amount of net capital outflow represent?

Accepted Answer

Net capital outflow represents the quantity of dollars supplied for the purpose of buying assets abroad. This is because net capital outflow is the difference between the amount of domestic saving invested abroad and the amount of foreign saving invested domestically. Therefore, a positive net capital outflow indicates that there is more domestic saving invested abroad, or in other words, more dollars supplied for the purpose of buying assets abroad.

Question 17

Figure 13-1 
-Refer to Figure 13-1. In the figure shown, if the real interest rate is 3 percent, what is the quantity of loanable funds demanded?

Accepted Answer

At a real interest rate of 3 percent, the quantity of loanable funds demanded is where the vertical axis intersects the demand curve. This point is at $7000 in the figure.

Question 18

Which statement is consistent with negative net exports?

Accepted Answer

Negative net exports indicate that a country is importing more goods and services than it is exporting. This means that there is a higher demand for foreign goods and currencies, which leads to an increase in the purchase of Canadian assets by foreigners. This results in a negative net capital outflow, as Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.

Question 19

If there is a surplus of loanable funds, what best describes the difference?

Accepted Answer

When there is a surplus of loanable funds, the quantity demanded is less than the quantity supplied. The excess funds can be used for investments abroad, leading to a net capital outflow.

Question 20

In the open-economy macroeconomic model, what is net capital outflow equal to?

Accepted Answer

Net capital outflow is equal to the quantity of dollars supplied in the foreign exchange market, as it represents the domestic residents' purchase of foreign assets minus foreigners' purchase of domestic assets.

Quiz 13: A Macroeconomic Theory of the Small Open Economy

What would make the equilibrium interest rate decrease and the equilibrium quantity of funds increase?

If the quantity of loanable funds supplied is greater than the quantity demanded, what best describes the difference?

What would make both the equilibrium interest rate and the equilibrium quantity of loanable funds decrease?

At the equilibrium interest rate in the open-macroeconomic model, what is the amount that people want to save?

What changes will a shortage of loanable funds induce in a savings-investment diagram in a closed economy?

If the world real interest rate is less than the real interest rate that would occur in Canada if there was no trade, what should we expect to happen in the supply and demand for loanable funds graph?

Figure 13-1 -Refer to Figure 13-1. In the figure shown, if the world real interest rate went from 7 to 6 percent, what changes would occur?

Figure 13-1 -Refer to Figure 13-1. If the world interest rate equals 3 percent, what is the net capital outflow?

Figure 13-1 -Refer to Figure 13-1. If the world interest rate equals 7 percent, what is the net capital outflow?

In an open economy, what best identifies the sources of loanable funds?

In an open economy, where does the demand for loanable funds come from?

If the world real interest rate was lower than the interest rate that would occur if the Canadian economy were closed, then what would the Canadian net capital outflow be?

Figure 13-1 -Refer to Figure 13-1. In the figure shown, if the real interest rate is 7 percent, what is the result?

In an open economy, what does net capital outflow equal?

Which statement is consistent with negative net exports?

In the market for foreign-currency exchange in the open-economy macroeconomic model, what does the amount of net capital outflow represent?

Figure 13-1 -Refer to Figure 13-1. In the figure shown, if the real interest rate is 3 percent, what is the quantity of loanable funds demanded?

Which statement is consistent with negative net exports?

If there is a surplus of loanable funds, what best describes the difference?

In the open-economy macroeconomic model, what is net capital outflow equal to?