Question 1

At the equilibrium interest rate in the open-macroeconomic model,which of the following is the amount that people want to save?
A)the desired quantity of net capital outflow
B)the desired quantity of domestic investment
C)the desired quantity of net capital outflow plus domestic investment
D)the desired quantity of net capital outflow minus domestic investment

Accepted Answer

At equilibrium, the amount people want to save is equal to the desired quantity of net capital outflow plus domestic investment, as savings finance both domestic investment and net capital outflow.

Question 2

In an open economy,what does net capital outflow equal?
A)imports
B)net exports
C)exports
D)net imports

Accepted Answer

Net capital outflow (NCO) is equivalent to net exports (NX) in an open economy. NCO is the difference between a country's savings and investment, and represents the amount of domestic assets that are being invested abroad minus the amount of foreign assets that are being invested domestically. NX measures the difference between a country's exports and imports, and represents the amount of goods and services that are being exported minus the amount of goods and services that are being imported. In an open economy, NCO must equal NX, as any excess savings not used for domestic investment must be invested abroad, resulting in an increase in net exports.

Question 3

If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed,then the Canadian net capital outflow will be which of the following?
A)positive
B)negative
C)decreasing
D)increasing

Accepted Answer

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

Question 4

Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds increase?
A)The demand for loanable funds shifts right.
B)The demand for loanable funds shifts left.
C)The supply of loanable funds shifts right.
D)The supply of loanable funds shifts left.

Accepted Answer

The answer of Which of the following would make both...

Question 5

Figure 13-1
 
-Refer to the FigurE₁3-1.If the world interest rate equals 4 percent,what is the net capital outflow?
A)$4000
B)$2000
C)-$2000
D)-$4000

Accepted Answer

Net capital outflow is the difference between domestic saving and domestic investment. In this figure, domestic saving is $10,000 and domestic investment is $12,000, so net capital outflow is -$2,000 (meaning there is a flow of capital out of the country).

Question 6

In the market for foreign-currency exchange in the open-economy macroeconomic model,which of the following does the amount of net capital outflow represent?
A)the quantity of dollars supplied for the purpose of selling assets domestically
B)the quantity of dollars supplied for the purpose of buying assets abroad
C)the quantity of dollars demanded for the purpose of buying Canadian net exports of goods and services
D)the quantity of dollars demanded for the purpose of importing foreign goods and services

Accepted Answer

Net capital outflow represents the quantity of dollars supplied for the purpose of buying assets abroad. It is a measure of how much domestic investment is being financed by foreign savings. Therefore, option B is the correct choice.

Question 7

Which of the following would make the equilibrium interest rate increase and the equilibrium quantity of funds decrease?
A)The supply of loanable funds shifts right.
B)The supply of loanable funds shifts left.
C)The demand for loanable funds shifts right.
D)The demand for loanable funds shifts left.

Accepted Answer

The answer of Which of the following would make the...

Question 8

If there is a surplus of loanable funds,which of the following best describes the consequences?
A)The quantity demanded is greater than the quantity supplied, and the interest rate will rise.
B)The quantity demanded is greater than the quantity supplied, and the interest rate will fall.
C)The quantity demanded is less than the quantity supplied, and the interest rate will rise.
D)The quantity demanded is less than the quantity supplied, and the interest rate will fall.

Accepted Answer

When there is a surplus of loanable funds, the quantity demanded is less than the quantity supplied. This means that there are more funds available for borrowing than there are borrowers to take those funds. As a result, lenders will compete for borrowers by lowering the interest rate. Therefore, the interest rate will fall.

Question 9

Figure 13-1
 
-Refer to the FigurE₁3-1.In the figure shown,if the real interest rate is 4 percent,what is the quantity of loanable funds demanded?
A)$7000
B)$6000
C)$5000
D)$4000

Accepted Answer

At a real interest rate of 4%, the quantity of loanable funds demanded is the point where the loanable funds demanded curve intersects the vertical line representing the real interest rate of 4%. From the graph, we can see that at a real interest rate of 4%, the quantity of loanable funds demanded is approximately $6000. Therefore, the best choice is B.

Question 10

In an open economy,where does the demand for loanable funds come from?
A)only from those who want to borrow funds to buy domestic capital goods
B)only from those who want to borrow funds to buy foreign assets
C)from those who want to borrow funds to buy either domestic capital goods or foreign assets
D)from those who want to borrow funds to buy Canadian bonds or shares of stock in Canadian companies

Accepted Answer

In an open economy, the demand for loanable funds can come from both those who want to borrow funds to buy domestic capital goods and those who want to borrow funds to buy foreign assets. This is because people may choose to invest in both domestic and foreign markets, creating demand for loanable funds in both areas.

Question 11

Which of the following is consistent with negative net exports?
A)Net capital outflow is positive, so foreign assets bought by Canadians are greater than Canadian assets bought by foreigners.
B)Net capital outflow is positive, so Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.
C)Net capital outflow is negative, so foreign assets bought by Canadians are greater than Canadian assets bought by foreigners.
D)Net capital outflow is negative, so Canadian assets bought by foreigners are greater than foreign assets bought by Canadians.

Accepted Answer

Negative net exports means that the value of exports is less than the value of imports. This can occur if foreigners are buying more Canadian assets than Canadians are buying foreign assets, resulting in a negative net capital outflow. Therefore, choice D, where net capital outflow is negative and Canadian assets bought by foreigners are greater than foreign assets bought by Canadians, is consistent with negative net exports.

Question 12

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?
A)the supply curve to shift to the left
B)the demand curve to shift to the right
C)net capital outflow to remain unchanged
D)net capital outflow to decrease

Accepted Answer

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

Question 13

In the open-economy macroeconomic model,what is net capital outflow equal to?
A)the quantity of dollars supplied in the foreign exchange market
B)the quantity of dollars demanded in the foreign exchange market
C)the quantity of funds supplied in the loanable funds market
D)the quantity of funds demanded in the loanable funds market

Accepted Answer

The answer of In the open-economy macroeconomic model,what is net...

Question 14

Which of the following is consistent with positive net exports?
A)Exports are greater than imports.
B)Net capital outflow is negative.
C)Exports are less than imports.
D)Net capital outflow is zero.

Accepted Answer

Positive net exports means that a country's exports exceed its imports, indicating a trade surplus. This would be consistent with choice A, where exports are greater than imports.

Question 15

What changes will a shortage of loanable funds induce in a savings-investment diagram in a closed economy?
A)The demand for loanable funds curve will shift right, so the interest rate will rise.
B)The supply of loanable funds curve will shift left, so the interest rate will fall.
C)There will be no shifts of the curves, but the interest rate will rise.
D)There will be no shifts of the curves, but the interest rate will fall.

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 16

Figure 13-1
 
-Refer to the FigurE₁3-1e.In the figure shown,if the real interest rate is 4 percent,which of the following changes will there be pressure for?
A)the real interest rate to rise
B)the demand for loanable funds curve to shift right
C)the supply for loanable funds curve to shift left
D)the real interest rate to fall

Accepted Answer

In the given figure, the equilibrium real interest rate is at point A where the demand for loanable funds curve intersects the supply for loanable funds curve. If the real interest rate is 4 percent and there is pressure for a change, it means that either the demand for loanable funds curve will shift to the right, indicating an increase in borrowing demand or the supply for loanable funds curve will shift to the left, indicating a decrease in saving supply. However, since the question asks about the pressure for a change, we can assume that there is no external factor causing the shift in demand or supply curve. Therefore, the only remaining option is for the real interest rate to rise, which would create an incentive for savers to supply more funds and for borrowers to demand less funds until a new equilibrium is reached at a higher real interest rate.

Question 17

Figure 13-1
 
-Refer to the FigurE₁3-1.If the world interest rate equals 6 percent,what is the net capital outflow?
A)-4
B)-2
C)2
D)4

Accepted Answer

The answer of Figure 13-1
 
-Refer to the FigurE₁3-1.If the...

Question 18

Figure 13-1
 
-Refer to the FigurE₁3-1.In the figure shown,if the real interest rate is 6 percent,what is the result?
A)surplus of $4000
B)surplus of $2000
C)shortage of $4000
D)shortage of $2000

Accepted Answer

The answer of Figure 13-1
 
-Refer to the FigurE₁3-1.In the...

Question 19

If the quantity of loanable funds supplied is greater than the quantity demanded,which of the following best describes the consequences?
A)There is a shortage of loanable funds, and the interest rate will fall.
B)There is a shortage of loanable funds, and the interest rate will rise.
C)There is a surplus of loanable funds, and the interest rate will fall.
D)There is a surplus of loanable funds, and the interest rate will rise.

Accepted Answer

When the quantity of loanable funds supplied is greater than the quantity demanded, there is a surplus of loanable funds. This would lead to a decrease in interest rates as lenders would compete to attract borrowers. Therefore, choice C, "There is a surplus of loanable funds, and the interest rate will fall" is the most appropriate choice.

Question 20

In an open economy,which of the following best identifies the sources of loanable funds?
A)Canadians who consume less than their income and government budget deficit
B)Canadians who consume less than their income and government budget surplus
C)foreigners who buy Canadian bonds and shares of stock and Canadian government surplus
D)foreigners who invest in Canada and Canadian government surplus

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.

Quiz 13: A Macroeconomic Theory of the Small Open Economy

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

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

If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed,then the Canadian net capital outflow will be which of the following?

Which of the following would make both the equilibrium interest rate and the equilibrium quantity of loanable funds increase?

Figure 13-1 -Refer to the FigurE₁3-1.If the world interest rate equals 4 percent,what is the net capital outflow?

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

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

If there is a surplus of loanable funds,which of the following best describes the consequences?

Figure 13-1 -Refer to the FigurE₁3-1.In the figure shown,if the real interest rate is 4 percent,what is the quantity of loanable funds demanded?

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

Which of the following is consistent with negative net exports?

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?

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

Which of the following is consistent with positive net exports?

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

Figure 13-1 -Refer to the FigurE₁3-1e.In the figure shown,if the real interest rate is 4 percent,which of the following changes will there be pressure for?

Figure 13-1 -Refer to the FigurE₁3-1.If the world interest rate equals 6 percent,what is the net capital outflow?

Figure 13-1 -Refer to the FigurE₁3-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

If the quantity of loanable funds supplied is greater than the quantity demanded,which of the following best describes the consequences?

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