Question 1

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

Accepted Answer

Capital flight refers to the movement of large sums of money from one country to another due to economic or political instability. This results in a reduction of the overall supply of loanable funds in the country experiencing capital flight, as investors move their money elsewhere. As a result, the supply for loanable funds shifts left, driving up interest rates due to the lower supply of funds available for borrowing.

Question 2

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

Accepted Answer

Capital flight involves selling domestic currency to buy foreign assets, increasing the supply of the domestic currency in the foreign exchange market. This increased supply of British pounds would shift the supply curve right, leading to a depreciation of the pound.

Question 3

The country of Nowhere 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?

Accepted Answer

The answer of The country of Nowhere is politically very...

Question 4

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

If foreigners withdraw their funds, the Canadian dollar may depreciate, making Canadian goods cheaper for foreign buyers, thus increasing net exports.

Question 5

What is consistent with capital flight from Great Britain?

Accepted Answer

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

Question 6

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 7

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

Accepted Answer

The default led to a loss of investor confidence, causing capital flight and a depreciation of the ruble, which increased net exports. To stabilize the currency, interest rates were raised.

Question 8

What will NOT change Canadian net exports?

Accepted Answer

Canadian import quotas would impact the amount of imports allowed into the country, but it would not directly affect Canada's net exports. The other options could have an effect on net exports. Capital flight from Canada would reduce investment in Canada and potentially weaken the Canadian dollar, making exports cheaper and more attractive. An increase in the government budget deficit could lead to increased borrowing and potentially higher interest rates, which would make Canadian exports less competitive. An increase in the world interest rate could strengthen the Canadian dollar and make exports more expensive, reducing net exports.

Question 9

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

Accepted Answer

If foreign investors believe that the Lebanese government will default on their debt, they will demand a higher return to compensate for the increased risk. This will lead to an increase in Lebanese interest rates, making it more expensive for the government to borrow money. Additionally, investors may withdraw their capital from Lebanon, leading to a net capital outflow. This will put pressure on the Lebanese economy and the government's ability to pay its debts. Therefore, an increase in both Lebanese interest rates and net capital outflow is the most likely outcome if foreign investors believe that the Lebanese government will default on their debt.

Question 10

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

According to the open-economy macroeconomic model, a default on debt would increase the riskiness of investing in the country, which would cause foreign investors to demand a higher return on their investments. This increased demand for returns would lead to higher interest rates in the country. Additionally, the default would cause a decrease in demand for the Argentinean currency, causing it to depreciate.

Question 11

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

Accepted Answer

A shift of the supply of loanable funds to the left occurs when capital flees a country, as investors move their money out of the country, reducing the amount of loanable funds available in the country.

Question 12

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 13

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

Accepted Answer

Capital flight from Mexico in 1994 would have led to a decrease in demand for the peso, causing it to depreciate. To counteract the capital flight and stabilize the currency, the central bank would likely increase interest rates, thus the real interest rate would rise.

Question 14

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....

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 is most likely to increase Canadian exports?

Accepted Answer

By reducing restrictions on foreign imports, Canadian exporters would have access to more markets and customers, increasing the potential demand for Canadian products and thus leading to an increase in exports. The other options do not directly address export-related factors.

Question 17

What is consistent with capital flight from Great Britain?

Accepted Answer

Capital flight refers to the movement of large amounts of money outside of a country due to economic or political instability. When capital flight occurs in Great Britain, it causes a decrease in demand for the British pound, which leads to a depreciation of the currency in the foreign exchange market. This means that the real exchange rate of the pound decreases as well. Therefore, choice B is consistent with capital flight from Great Britain.

Question 18

What will decrease Canadian net capital outflow?

Accepted Answer

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

Question 19

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....

Question 20

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

Accepted Answer

Capital flight from Canada would lead to an increased supply of Canadian dollars in the foreign exchange market, causing the real exchange rate to depreciate.

Quiz 13: A Macroeconomic Theory of the Small Open Economy

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

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

The country of Nowhere 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 most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

What is consistent with capital flight from Great Britain?

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

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

What will NOT change Canadian net exports?

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

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?

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?

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?

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

What is most likely to increase Canadian exports?

What is consistent with capital flight from Great Britain?

What will decrease Canadian net capital outflow?

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

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