Question 1

Figure 13-1 
-Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?
A) There would be an increase in net capital outflow.
B) The demand for loanable funds curve to shift right.
C) The supply for loanable funds curve to shift left.
D) There would be a decrease in net capital outflow.

Accepted Answer

An increase in the world real interest rate would make it more attractive for domestic residents to lend abroad, leading to an increase in net capital outflow.

Question 2

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 3

If there is a surplus of loanable funds,what best describes the difference?
A) The quantity demanded is less 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 excess is the net capital outflow
D) The quantity demanded is less than the quantity supplied,and the shortage is the net capital inflow.

Accepted Answer

The answer of If there is a surplus of loanable...

Question 4

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

The answer of Figure 13-1 
-Refer to the Figure13-1.If the...

Question 5

What 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

A leftward shift in the supply of loanable funds indicates a decrease in the availability of funds, leading to higher interest rates and a lower equilibrium quantity of funds.

Question 6

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 7

In the market for foreign-currency exchange in the open-economy macroeconomic model,what 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 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 the difference between the amount of domestic saving available to finance domestic investment and the amount of domestic investment undertaken. It reflects the country's net acquisition of foreign assets.

Question 8

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 9

At the equilibrium interest rate in the open-macroeconomic model,what 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

The answer of At the equilibrium interest rate in the...

Question 10

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) $3000
B) $4000
C) $5000
D) $6000

Accepted Answer

The answer of Figure 13-1 
-Refer to the Figure13-1.In the...

Question 11

Figure 13-1 
-Refer to the Figure13-1.If the world interest rate equals 6 percent,what is the net capital outflow?
A) -$4000
B) -$2000
C) $2000
D) $4000

Accepted Answer

Net capital outflow is positive when domestic saving exceeds domestic investment. If the world interest rate is 6 percent and the figure indicates that at this rate, domestic saving is greater than domestic investment by $2000, then the net capital outflow is $2000.

Question 12

In an open economy,where does the demand for loanable funds come from?
A) from those who want to borrow funds to buy domestic capital goods
B) 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

The answer of In an open economy,where does the demand...

Question 13

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 14

What 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

If the demand for loanable funds shifts right, it indicates that there is an increased desire for borrowing and investment. This would result in an increase in both equilibrium interest rate and equilibrium quantity of loanable funds.

Question 15

If the quantity of loanable funds supplied is greater than the quantity demanded,what best describes the difference?
A) There is a surplus 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 that is used to buy foreign assets.
D) There is a shortage of loanable funds that is used to buy foreign assets.

Accepted Answer

The answer of If the quantity of loanable funds supplied...

Question 16

Which statement 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 the value of a country's exports exceeds the value of its imports, indicating a trade surplus.

Question 17

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

Accepted Answer

If the world real interest rate exceeds the interest rate that would occur if the Canadian economy were closed, then Canadian investors would prefer to invest their funds in foreign countries, where they can earn a higher return. This would lead to an increase in Canadian net capital outflow, which is defined as the difference between the capital inflow into Canada and the capital outflow from Canada. A positive net capital outflow means that more funds are flowing out of Canada than flowing in, which indicates that Canadian investors are investing in foreign countries.

Question 18

Which statement 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 goods and services imported is greater than the value of goods and services exported. This causes a negative net capital outflow, meaning that the amount of money leaving the country to pay for imports is greater than the amount of money coming in from the sale of exports. Choice D is consistent with this as it states that Canadian assets bought by foreigners (i.e. money coming into the country) is greater than foreign assets bought by Canadians (i.e. money leaving the country).

Question 19

In an open economy,what 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

The answer of In an open economy,what best identifies the...

Question 20

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) equals net exports (NX) in an open economy, as NCO represents the difference between domestic saving and domestic investment, while NX represents the difference between exports and imports. Therefore, NCO=NX.

Quiz 13: A Macroeconomic Theory of the Small Open Economy

Figure 13-1 -Refer to the Figure 13-1.In the figure shown,if the world real interest rate went from 6 to 7 percent,what changes would occur?

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

If there is a surplus of loanable funds,what best describes the difference?

Figure 13-1 -Refer to the Figure13-1.If the world interest rate equals 4 percent,what is the net capital outflow?

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

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

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

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

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?

Figure 13-1 -Refer to the Figure13-1.If the world interest rate equals 6 percent,what is the net capital outflow?

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

Figure 13-1 -Refer to the Figure13-1.In the figure shown,if the real interest rate is 6 percent,what is the result?

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

If the quantity of loanable funds supplied is greater than the quantity demanded,what best describes the difference?

Which statement is consistent with positive net exports?

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

Which statement is consistent with negative net exports?

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

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