Question 1

Which of the following could increase the supply of rands in the foreign exchange market?
A)A reduction in the rate of inflation in SA.
B)A reduction in real interest rates in SA.
C)An increase in the SA government budget deficit.
D)A depreciation of other currencies.

Accepted Answer

A reduction in real interest rates in South Africa could lead to capital outflows as investors seek higher returns elsewhere, increasing the supply of rands in the foreign exchange market.

Question 2

Households make their savings available to borrowers through
A)resource markets.
B)the loanable funds market.
C)the labour market.
D)taxes.

Accepted Answer

The loanable funds market is where households save money and make it available to borrowers, such as businesses and governments, through financial intermediaries like banks. Therefore, Option B correctly describes the process of how households make their savings available to borrowers.

Question 3

Assuming all other things unchanged, a higher SA real interest rate
A)decreases SA net capital outflow because SA residents and foreigners prefer to invest in SA.
B)None of these answers.
C)decreases SA net capital outflow because SA residents and foreigners prefer to invest abroad.
D)increases SA net capital outflow because SA residents and foreigners prefer to invest in SA.

Accepted Answer

A higher real interest rate in South Africa will increase the return on investment for both South African residents and foreigners, making it more attractive for them to invest their money in South Africa. As a result, the demand for South African assets will increase, leading to a decrease in South Africa's net capital outflow.

Question 4

If a country's net capital outflow is positive, it is an addition to its demand for loanable funds.

Accepted Answer

A positive net capital outflow means that the country is investing more abroad than it is receiving in foreign investment, which means it needs to borrow more to finance its investments. This increases the demand for loanable funds within the country.

Question 5

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

Accepted Answer

The answer of A country experiencing capital flight will experience...

Question 6

An increase in the government's budget deficit shifts the supply of loanable funds to the right.

Accepted Answer

An increase in the government's budget deficit increases the demand for loanable funds, which shifts the demand curve to the right. The supply of loanable funds is determined by private savings and does not change as a result of the government's budget deficit. Therefore, the supply curve remains the same and there is no shift.

Question 7

If SA raises its tariff on imported sugar, domestic sugar growers will benefit, but the rand will appreciate and domestic producers of export goods will be harmed.

Accepted Answer

When SA raises its tariff on imported sugar, domestic sugar growers will benefit as they will face less competition from foreign sugar growers. This will lead to an increase in the price of sugar, which will benefit domestic growers. However, this will also lead to an appreciation of the rand because the demand for rand will increase due to the increased demand for domestic sugar. An appreciated rand makes exports more expensive and imports cheaper, so domestic producers of export goods will be harmed as their products will become more expensive and less competitive in foreign markets.

Question 8

A rise in SA's net exports will increase the demand for the SA rands in the market for foreign currency exchange and the rand will appreciate in value.

Accepted Answer

An increase in net exports means that there is a greater demand for South African goods and services from foreign countries. This leads to an increase in the demand for South African currency in the foreign exchange market, which will drive up the value of the rand.

Question 9

A country's net capital outflow is always equal to its net exports.

Accepted Answer

The answer of A country's net capital outflow is always...

Question 10

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.

Accepted Answer

The answer of Other things the same, a lower real...

Question 11

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.

Accepted Answer

The answer of The open economy macroeconomic model takes
A)GDP, but...

Question 12

Which of the following statements regarding the loanable funds market is not true?
A)A decrease in a country's net capital outflow shifts the demand for loanable funds to the left.
B)An increase in domestic investment shifts the demand for loanable funds to the right.
C)An increase in a country's net capital outflow shifts the supply of loanable funds to the left.
D)An increase in a country's net capital outflow raises its real interest rate.

Accepted Answer

An increase in a country's net capital outflow actually shifts the demand for loanable funds to the right, as there is more demand for funds to invest in foreign countries. Option A and B are true statements and an increase in net capital outflow would lead to a decrease in supply of loanable funds, raising the real interest rate (Option D).

Question 13

Which of the following statement regarding the loanable funds market is true?
A)A decrease in the government budget deficit increases the real interest rate.
B)An increase in the government budget deficit shifts the supply of loanable funds to the right.
C)An increase in private saving shifts the supply of loanable funds to the left.
D)An increase in the government budget deficit shifts the supply of loanable funds to the left.

Accepted Answer

The answer of Which of the following statement regarding the...

Question 14

An increase in the government budget deficit
A)has no impact on the real interest rate and fails to crowd out investment because foreigners buy assets in the deficit country.
B)decreases the real interest rate and crowds out investment.
C)None of these answers.
D)increases the real interest rate and crowds out investment.

Accepted Answer

An increase in the government budget deficit increases demand for loanable funds, causing the interest rate to increase. This increase in the interest rate crowds out investment by making it more expensive for businesses and individuals to borrow money.

Question 15

The supply of foreign exchange is
A)determined by the real exchange rate.
B)independent of the real exchange rate.
C)determined by central bankers.
D)determined by the government of the country concerned.

Accepted Answer

The supply of foreign exchange is not determined by the real exchange rate or any specific government or central bank. It is mainly determined by the willingness of foreign entities to supply currency to the foreign exchange market, which is independent of the real exchange rate. Factors affecting the supply of foreign currency include foreign investment, trade balance, and borrowing. Therefore, option B is the best choice.

Question 16

If SA raises its tariff on imported sugar, it will reduce imports and improve its trade balance.

Accepted Answer

Raising tariffs on imported sugar may reduce imports, but it doesn't necessarily improve the trade balance, as it could lead to retaliatory tariffs and affect other economic factors.

Question 17

An increase in SA net capital outflow increases the supply of rands in the market for foreign currency exchange and decreases the real exchange rate of the rands.

Accepted Answer

An increase in net capital outflow means there is a greater supply of South African rands in the market for foreign currency exchange. As a result, the real exchange rate of the rands decreases, since there is a greater supply of rands in the market relative to the demand for them.

Question 18

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.

Accepted Answer

The open economy macroeconomic model focuses on the determinants of the trade balance and the exchange rate, which are important variables in international trade and financial flows. The model takes into account factors such as government policies, foreign investment, and global economic conditions that affect a country's ability to maintain a favorable balance of trade and manage its exchange rate. While output growth rate, real interest rate, unemployment, and inflation rate are important macroeconomic variables, they are not the primary focus of the open economy model.

Question 19

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

Accepted Answer

The answer of Net capital outflow is the purchase of...

Question 20

All other things being equal, an increase in a country's real interest rate reduces net capital outflow.

Accepted Answer

Real interest rates affect the return on investment in a country, so if a country's real interest rate increases, foreign investors are more likely to invest in that country, leading to a decrease in net capital outflow.

Quiz 12: A Macroeconomic Theory of the Open Economy

Which of the following could increase the supply of rands in the foreign exchange market?

Households make their savings available to borrowers through

Assuming all other things unchanged, a higher SA real interest rate

If a country's net capital outflow is positive, it is an addition to its demand for loanable funds.

A country experiencing capital flight will experience a reduction in its net capital outflow and its net exports.

An increase in the government's budget deficit shifts the supply of loanable funds to the right.

If SA raises its tariff on imported sugar, domestic sugar growers will benefit, but the rand will appreciate and domestic producers of export goods will be harmed.

A rise in SA's net exports will increase the demand for the SA rands in the market for foreign currency exchange and the rand will appreciate in value.

A country's net capital outflow is always equal to its net exports.

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

The open economy macroeconomic model takes

Which of the following statements regarding the loanable funds market is not true?

Which of the following statement regarding the loanable funds market is true?

An increase in the government budget deficit

The supply of foreign exchange is

If SA raises its tariff on imported sugar, it will reduce imports and improve its trade balance.

An increase in SA net capital outflow increases the supply of rands in the market for foreign currency exchange and decreases the real exchange rate of the rands.

The open economy macroeconomic model examines the determination of

Net capital outflow is the purchase of domestic assets by foreigners minus the purchase of foreign assets by domestic residents.

All other things being equal, an increase in a country's real interest rate reduces net capital outflow.