Question 1

Suppose that U.S. savers decide that holding Brazilian assets has become riskier. What happens to U.S. net capital outflow? What happens to the U.S. real interest rate?

Accepted Answer

The answer of Suppose that U.S. savers decide that holding...

Question 2

Scenario 32-5
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Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes.
-Refer to Scenario 32-5. In the market for loanable funds which curve shifts and which direction does it shift?

Accepted Answer

The answer of Scenario 32-5
​
Suppose that Congress and the President...

Question 3

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Accepted Answer

The answer of Political events convince people that the assets...

Question 4

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

Accepted Answer

The answer of Explain how a decrease in the demand...

Question 5

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Accepted Answer

The answer of How are the identities S = NCO...

Question 6

Scenario 32-4
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In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks.
-Refer to Scenario 32-4. What happened to the domestic equilibrium interest rate and quantity of loanable funds supplied?

Accepted Answer

The answer of Scenario 32-4
​
In 2011 Greek citizens were concerned...

Question 7

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

Accepted Answer

The answer of Suppose that U.S. citizens start saving more....

Question 8

A country reduces its government budget deficit and also makes political reforms that lead people to believe this country's assets are less risky. Given the combination of a reduced deficit and lower asset risk, what happens to the interest rate?

Accepted Answer

The answer of A country reduces its government budget deficit...

Question 9

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

Accepted Answer

The answer of Explain how the relation between the real...

Question 10

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

Accepted Answer

The answer of If a country removes an import quota,...

Question 11

If people in the U.S. choose to save a smaller percentage of income, what will happen to the interest rate, net capital outflow, the exchange rate, and net exports?

Accepted Answer

The answer of If people in the U.S. choose to...

Question 12

Scenario 32-4
​
In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks.
-Refer to Scenario 32-4. What happened to domestic investment? Why?

Accepted Answer

The answer of Scenario 32-4
​
In 2011 Greek citizens were concerned...

Question 13

Scenario 32-4
​
In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks.
-Refer to Scenario 32-4. Which curve in the domestic loanable funds market shifted and which direction did it shift?

Accepted Answer

The answer of Scenario 32-4
​
In 2011 Greek citizens were concerned...

Question 14

Scenario 32-5
​
Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes.
-Refer to Scenario 32-5. What happens to the exchange rate, U.S. net exports, and the net exports of foreign countries?

Accepted Answer

The answer of Scenario 32-5
​
Suppose that Congress and the President...

Question 15

Scenario 32-4
​
In 2011 Greek citizens were concerned about the size of government debt. Fearful that the government might be unable to fulfill its promise to insure depositors in Greek banks against losses created by bank failures, depositors moved funds out of Greek banks.
-Refer to Scenario 32-4. Because of depositors reactions what happened to net capital outflow?

Accepted Answer

The answer of Scenario 32-4
​
In 2011 Greek citizens were concerned...

Question 16

Why do higher real interest rates lead to lower net capital outflow?

Accepted Answer

The answer of Why do higher real interest rates lead...

Question 17

State what, if anything, each of the following does to the supply or demand of loanable funds.
a.net capital outflow increases at each interest rate
b.domestic investment increases at each interest rate
c.the government deficit increases
d.private saving increases

Accepted Answer

The answer of State what, if anything, each of the...

Question 18

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

Accepted Answer

The answer of Suppose that the U.S. government budget deficit...

Question 19

If a country makes political reforms so that people now believe this country's assets are less risky, what happens to its interest rate, its exchange rate, and its net exports?

Accepted Answer

The answer of If a country makes political reforms so...

Question 20

Scenario 32-5
​
Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes.
-Refer to Scenario 32-5. What happens to the interest rate, U.S. net capital outflow, and the net capital outflow of foreign countries?

Accepted Answer

The answer of Scenario 32-5
​
Suppose that Congress and the President...

Quiz 32: A Macroeconomic Theory of the Open Economy

Suppose that U.S. savers decide that holding Brazilian assets has become riskier. What happens to U.S. net capital outflow? What happens to the U.S. real interest rate?

Scenario 32-5 Suppose that Congress and the President enact legislation that provides a tax rebate to businesses that purchase capital goods. Assume other countries make no policy changes. -Refer to Scenario 32-5. In the market for loanable funds which curve shifts and which direction does it shift?

Political events convince people that the assets of country x are now riskier. As a result of this change which curves in the open-economy macroeconomic model shift and which direction do they shift for country x?

Explain how a decrease in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.

How are the identities S = NCO + I and NCO = NX related to the foreign currency exchange market and the loanable funds market?

Suppose that U.S. citizens start saving more. What does this imply about the supply of loanable funds and the equilibrium real interest rate? What happens to the real exchange rate?

A country reduces its government budget deficit and also makes political reforms that lead people to believe this country's assets are less risky. Given the combination of a reduced deficit and lower asset risk, what happens to the interest rate?

Explain how the relation between the real exchange rate and net exports explains the downward slope of the demand for foreign-currency exchange curve.

If a country removes an import quota, what happens to its exchange rate, its exports, and its net exports?

If people in the U.S. choose to save a smaller percentage of income, what will happen to the interest rate, net capital outflow, the exchange rate, and net exports?

Why do higher real interest rates lead to lower net capital outflow?

State what, if anything, each of the following does to the supply or demand of loanable funds. a.net capital outflow increases at each interest rate b.domestic investment increases at each interest rate c.the government deficit increases d.private saving increases

Suppose that the U.S. government budget deficit decreases. What curves in the open-economy macroeconomic model shift? Explain why each curve shifts the direction it does.

If a country makes political reforms so that people now believe this country's assets are less risky, what happens to its interest rate, its exchange rate, and its net exports?