Question 1

Figure 32-3 -Refer to Figure 32-3. Suppose the Mexican economy starts at r₀ and E₀. Which of the following new equilibriums is consistent with capital flight?

Accepted Answer

Capital flight typically leads to an increase in interest rates and a depreciation of the currency, moving the equilibrium to r₁ and E₁.

Question 2

Which of the following will decrease Canadian net capital outflow?

Accepted Answer

The answer of Which of the following will decrease Canadian...

Question 3

Figure 32-3 -Refer to Figure 32-3. Suppose that the Mexican economy starts at r₀ and E₀. Which of the following are consistent with the effects of capital flight?

Accepted Answer

The answer of Figure 32-3 
-Refer to Figure 32-3. Suppose...

Question 4

The 1998 default by the Russian government had results that were predictable using the textbook model. Which of the following 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 interest rates and made Russian goods cheaper abroad, thus increasing net exports.

Question 5

Which of the following 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 potentially increasing net exports.

Question 6

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

Accepted Answer

The answer of When Mexico suffered from capital flight in...

Question 7

When Mexico suffered from capital flight in 1994, what happened to Mexico's net exports?

Accepted Answer

Capital flight led to a depreciation of the peso, making Mexican goods cheaper for foreign buyers, thus increasing net exports.

Question 8

Which of the following will not change Canadian net exports?

Accepted Answer

Canadian import quotas would decrease imports and, as a result, would decrease net exports. Capital flight and an increase in the government budget deficit would decrease net exports as a result of a decrease in investor confidence in the Canadian economy. An increase in the world interest rate would lead to an appreciation of the Canadian dollar, which would decrease exports and increase imports, leading to a decrease in net exports.

Question 9

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 10

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

Accepted Answer

Capital flight refers to the movement of capital from one country to another, usually due to political or economic instability. When this happens, investors sell their assets in the domestic market and convert them to foreign currency or invest them in more stable countries. This decreases the supply of loanable funds in the domestic market, shifting the supply curve to the left. As a result, the interest rate increases as borrowers compete for a smaller pool of available funds.

Question 11

When Mexico suffered from capital flight in 1994, what happened to Mexico's real interest rate and the peso?

Accepted Answer

During capital flight, investors sell off their assets and withdraw their funds from a country, typically causing its currency to depreciate. To counteract this, Mexico would have had to raise its interest rates to try to keep investors in the country. Therefore, the real interest rate would have risen. However, this rise in interest rates would likely have further hurt the economy, causing the peso to depreciate even more. So, the correct answer is D: the real interest rate rose and the peso depreciated.

Question 12

The country of Aquilonia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, which of the following would happen?

Accepted Answer

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

Question 13

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

Accepted Answer

Capital flight refers to a situation where investors and savers move their funds out of a country to invest in other countries perceived to offer more favorable returns or safer investments. When this happens, the supply of loanable funds within the country decreases, causing the supply curve to shift left. As a result, the interest rate rises, making borrowing more expensive for firms and individuals.

Question 14

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

Accepted Answer

Capital flight from Mexico in 1994 led to a decrease in demand for loanable funds and net capital outflow from Canada. This is because investors became more cautious and risk-averse, leading them to withdraw their investments from a relatively risky economy like Mexico and redirecting them to safer havens such as Canada. As a result, there was less demand for loanable funds in Canada as investors already had enough funds to invest in the country. Similarly, the net capital outflow decreased as Canadian investors did not have an incentive to invest outside of Canada.

Question 15

In 1995, Newt Gingrich, the Speaker of the U.S. House of Representatives, threatened to send the United States into default on its debt. During the day of this announcement, U.S. interest rates rose and the real exchange rate of the U.S. dollar depreciated. Which of the following changes is consistent with the results of the open-economy macroeconomic model?

Accepted Answer

According to the open-economy macroeconomic model, an increase in the perceived risk of default would lead to an increase in U.S. interest rates (as investors demand higher returns to compensate for the increased risk) and a depreciation of the U.S. dollar (as investors move their money to countries with lower perceived risk). Therefore, option C is the most likely outcome. Option A is inconsistent, as an increase in interest rates would typically lead to an increase in net capital inflows, not outflows. Option B is also inconsistent, as a threat of default would typically lead to a depreciation of the currency, not an appreciation. Option D is partially accurate, as a threat of default could lead to an increase in net capital outflow, but not necessarily an appreciation of the currency.

Question 16

If Kenya experienced capital flight, which of the following best explains the effects?

Accepted Answer

Capital flight involves investors moving their assets out of a country, increasing the supply of the local currency in the foreign exchange market, which typically leads to depreciation of the currency.

Question 17

Figure 32-3 
-Refer to Figure 32-3. Which of the following is consistent with capital flight from Mexico?

Accepted Answer

Capital flight typically leads to a depreciation of the currency as investors sell off the currency, increasing its supply and reducing its value.

Question 18

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

Accepted Answer

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

Question 19

Which of the following is most likely to increase Canadian exports?

Accepted Answer

By reducing restrictions on foreign imports, Canadian businesses gain access to new markets and customers, which can lead to an increase in exports. Choices A and B are related to government spending and budget surplus, which may not directly affect exports. Choice D is related to domestic savings and does not have a direct impact on exports.

Question 20

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). Which of the following is consistent with what the open-economy macroeconomic model predicts?

Accepted Answer

According to the open-economy macroeconomic model, when a country faces the risk of defaulting on its debt, investors become more reluctant to hold its debt, which makes it more expensive for the government to borrow money. This reduction in demand for the country's debt leads to an increase in interest rates. Additionally, uncertainty about the country's economic prospects causes investors to sell its currency, in turn leading to a depreciation in the currency's value. Therefore, choice B that states "This event should have raised Argentinean interest rates and caused the Argentinean currency to depreciate" is consistent with what the model predicts.

Quiz 13: A Macroeconomic Theory of the Open Economy

Figure 32-3 -Refer to Figure 32-3. Suppose the Mexican economy starts at r₀ and E₀. Which of the following new equilibriums is consistent with capital flight?

Which of the following will decrease Canadian net capital outflow?

Figure 32-3 -Refer to Figure 32-3. Suppose that the Mexican economy starts at r₀ and E₀. Which of the following are consistent with the effects of capital flight?

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

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

When Mexico suffered from capital flight in 1994, what happened to Mexico's net exports?

Which of the following will not change Canadian net exports?

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

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

When Mexico suffered from capital flight in 1994, what happened to Mexico's real interest rate and the peso?

The country of Aquilonia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, which of the following would happen?

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

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

If Kenya experienced capital flight, which of the following best explains the effects?

Figure 32-3 -Refer to Figure 32-3. Which of the following is consistent with capital flight from Mexico?

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

Which of the following is most likely to increase Canadian exports?

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . Which of the following is consistent with what the open-economy macroeconomic model predicts?

Quiz 13: A Macroeconomic Theory of the Open Economy

Figure 32-3 -Refer to Figure 32-3. Suppose the Mexican economy starts at r0 and E0. Which of the following new equilibriums is consistent with capital flight?

Which of the following will decrease Canadian net capital outflow?

Figure 32-3 -Refer to Figure 32-3. Suppose that the Mexican economy starts at r0 and E0. Which of the following are consistent with the effects of capital flight?

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

Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to Canada over the past two decades?

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

When Mexico suffered from capital flight in 1994, what happened to Mexico's net exports?

Which of the following will not change Canadian net exports?

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

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

When Mexico suffered from capital flight in 1994, what happened to Mexico's real interest rate and the peso?

The country of Aquilonia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, which of the following would happen?

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

When Mexico suffered from capital flight in 1994, which of the following best describes the effects of this event on Canadian economy?

If Kenya experienced capital flight, which of the following best explains the effects?

Figure 32-3 -Refer to Figure 32-3. Which of the following is consistent with capital flight from Mexico?

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

Which of the following is most likely to increase Canadian exports?

In 2002 it looked like the Argentinean government might default on its debt (which eventually it did) . Which of the following is consistent with what the open-economy macroeconomic model predicts?

Figure 32-3 -Refer to Figure 32-3. Suppose the Mexican economy starts at r₀ and E₀. Which of the following new equilibriums is consistent with capital flight?

Figure 32-3 -Refer to Figure 32-3. Suppose that the Mexican economy starts at r₀ and E₀. Which of the following are consistent with the effects of capital flight?