Question 1

Which of the following contains a list only of things that increase when the budget deficit of the U.S.increases?
A)U.S.supply of loanable funds,U.S.interest rates,U.S.domestic investment
B)U.S.imports,U.S.interest rates,the real exchange rate of the dollar
C)U.S.interest rates,the real exchange rate of the dollar,U.S.domestic investment
D)the real exchange rate of the dollar,U.S.net capital outflow,U.S.net exports

Accepted Answer

When the U.S. budget deficit increases, it often leads to higher interest rates as the government borrows more, which can attract foreign capital, increasing the real exchange rate of the dollar. Higher interest rates can also lead to increased imports due to a stronger dollar.

Question 2

From 2001 to 2004 the U.S.budget went from surplus to deficit.According to the open economy macroeconomic model,this change should have
A)increased U.S.interest rates and increased the real exchange rate of the dollar.
B)increased U.S.interest rates and decreased the real exchange rate of the dollar.
C)decreased U.S.interest rates and increased the real exchange rate of the dollar.
D)decreased U.S.interest rates and decreased the real exchange rate of the dollar.

Accepted Answer

A budget deficit typically leads to higher interest rates due to increased government borrowing, which attracts foreign capital, appreciating the real exchange rate of the dollar.

Question 3

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus,domestic investment would
A)rise and there would be a trade surplus.
B)rise and there would be a trade deficit.
C)fall and there would be a trade surplus.
D)fall and there would be a trade deficit.

Accepted Answer

When the government moves from a budget deficit to a surplus, it reduces its borrowing, freeing up more funds for domestic investment. This can lead to a trade surplus as domestic savings increase, potentially reducing the need for foreign capital.

Question 4

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-4.Suppose that the government goes from a budget surplus to a budget deficit.The effects of the change could be illustrated by
A)shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)shifting the demand curve in panel a to the left and the supply curve in panel c to the left.
C)shifting the supply curve in panel a to the right and the demand curve in panel c to the right.
D)shifting the supply curve in panel a to the left and the supply curve in panel c to the left.

Accepted Answer

A budget deficit implies the government is borrowing more, reducing the supply of loanable funds, which shifts the supply curve to the left in both panels.

Question 5

If the government of Canada increased its budget deficit,then domestic investment
A)and net exports would rise.
B)would rise and net exports would fall.
C)would fall and net exports would rise.
D)and net exports would fall.

Accepted Answer

An increase in the budget deficit typically leads to higher interest rates, which can crowd out domestic investment and appreciate the currency, reducing net exports.

Question 6

Which of the following would not be a consequence of an increase in the U.S.government budget deficit?
A)U.S.interest rates rise
B)U.S.net capital outflow falls
C)the real exchange rate of the U.S.dollar depreciates
D)the U.S.supply of loanable funds shifts left

Accepted Answer

An increase in the U.S. government budget deficit typically leads to higher interest rates and reduced net capital outflow, which can cause the U.S. dollar to appreciate, not depreciate.

Question 7

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-5.In the market for foreign-currency exchange,the effects of an increase in the budget surplus can be illustrated as a move from j to
A)g.
B)h.
C)i.
D)k.

Accepted Answer

The answer of Figure 32-5
Refer to this diagram of the...

Question 8

In the 1980s,the U.S.government budget deficit rose.At the same time the U.S.trade deficit grew larger,the real exchange rate of the dollar appreciated,and U.S.net capital outflow decreased.Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?
A)the U.S.trade deficit grew
B)the real exchange rate of the dollar appreciated
C)U.S.net capital outflow fell
D)None of the above is contrary to the predictions of the model.

Accepted Answer

The open-economy macroeconomic model predicts that an increase in the budget deficit leads to a decrease in national saving, which reduces net capital outflow, causes the real exchange rate to appreciate, and results in a larger trade deficit. Therefore, none of the events listed are contrary to the model's predictions.

Question 9

From 1980 to 1987,U.S.net capital outflows decreased.According to the open-economy macroeconomic model,which of the following could have caused this?
A)an increase in the demand for U.S.currency in the market for foreign-currency exchange
B)a decrease in the demand for U.S.currency in the market for foreign-currency exchange
C)an increase in the supply of loanable funds
D)a decrease in the supply of loanable funds

Accepted Answer

The answer of From 1980 to 1987,U.S.net capital outflows decreased.According...

Question 10

Which of the following would not be a consequence of an increase in the U.S.government budget deficit?
A)the U.S.trade balance rises
B)the U.S.interest rate rises
C)domestic investment in the U.S.falls
D)the real exchange rate of the U.S.dollar appreciates

Accepted Answer

An increase in the U.S. government budget deficit would lead to a decrease in domestic savings, which, in turn, would lead to an increase in domestic borrowing. This increased demand for funds would raise interest rates, which could attract foreign capital inflows and appreciate the exchange rate of the U.S. dollar. These effects would make exports more expensive and imports cheaper, leading to a deterioration in the U.S. trade balance. However, an increase in the U.S. government budget deficit would not directly lead to a rise in the U.S. trade balance; rather, it would likely have the opposite effect.

Question 11

From 2001 to 2004,the U.S.government went from a budget surplus to a budget deficit.According to the open-economy macroeconomic model,this should have decreased
A)both the supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.
B)neither the supply of loanable funds nor the supply of dollars in the market for foreign-currency exchange.
C)the supply of loanable funds but not the supply of dollars in the market for foreign-currency exchange.
D)the supply of dollars in the market for foreign-currency exchange,but not the supply of loanable funds.

Accepted Answer

A budget deficit reduces national savings, which decreases the supply of loanable funds. It also reduces the supply of dollars in the foreign exchange market as the government borrows more, affecting the trade balance.

Question 12

Figure 32-5
Refer to this diagram of the open-economy macroeconomic model to answer the questions below.

-Refer to Figure 32-4.Suppose that U.S.firms desire to purchase more equipment and build more factories and stores in the U.S.The effects of this are illustrated by
A)shifting the demand curve in panel a to the right and the demand curve in panel c to the left.
B)shifting the demand curve in panel a to the right and the supply curve in panel c to the left.
C)shifting the supply curve in panel a to the right and the demand curve in panel c to the left.
D)shifting the supply curve in panel a to the right and the supply curve in panel c to the right.

Accepted Answer

When U.S. firms desire to purchase more equipment and build more factories and stores in the U.S., this leads to an increase in investment demand in panel a, shifting the demand curve to the right. This increase in investment demand will raise the interest rate, which reduces net exports in panel c by appreciating the dollar, thereby shifting the supply curve to the left. Therefore, the effects of this are illustrated by shifting the demand curve in panel a to the right and the supply curve in panel c to the left, as shown in Figure 32-5.

Question 13

If a government started with a budget deficit and moved to a surplus,domestic investment
A)and the real exchange rate would rise.
B)and the real exchange rate would fall.
C)would rise and the real exchange rate would fall.
D)would fall and the real exchange rate would rise.

Accepted Answer

When a government moves from a budget deficit to a surplus, it implies that they are spending less than they are earning. This means that there will be less demand for credit and the interest rates will fall, making it cheaper for businesses to borrow and invest. This leads to an increase in domestic investment. As domestic investment rises, it leads to an increase in demand for domestic currency which will cause the real exchange rate to fall.

Question 14

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?
A)the interest rate
B)net exports
C)the exchange rate
D)All of the above are correct.

Accepted Answer

An increase in the budget deficit can lead to higher interest rates, which attracts foreign capital, causing the domestic currency to appreciate. This appreciation makes exports more expensive and imports cheaper, leading to a decrease in net exports.

Question 15

Which of the following contains a list only of things that increase when the budget deficit of the U.S.decreases?
A)U.S.supply of loanable funds,U.S.net capital outflow,U.S.domestic investment
B)U.S.supply of loanable funds,U.S.exports,the real exchange rate of the dollar
C)U.S.interest rates,the real exchange rate of the dollar,U.S.domestic investment
D)the real exchange rate of the dollar,U.S.net capital outflow,U.S.net exports

Accepted Answer

When the U.S. budget deficit decreases, the supply of loanable funds increases, leading to lower interest rates, which can increase net capital outflow and domestic investment.

Question 16

Which of the following is the most likely result from an increase in a country's government budget surplus?
A)higher interest rates
B)lower imports
C)lower net capital outflows
D)lower domestic investment

Accepted Answer

If a country's government budget surplus increases, it means that the government is collecting more revenue than it is spending. This often leads to a reduction in government borrowing, which can reduce the demand for loans and lower interest rates. However, an increase in government budget surplus can also lead to lower imports, as the government may decide to reduce spending on imports in order to keep the surplus. This reduction in imports can lead to a decrease in net capital outflows, as the country has fewer imports to pay for. However, there is no direct relationship between government budget surplus and domestic investment.

Question 17

In the United States in the early 1980s,there was a government budget
A)surplus and a trade surplus.
B)deficit and a trade deficit.
C)surplus and a trade deficit.
D)deficit and a trade surplus.

Accepted Answer

The early 1980s in the United States saw a government budget deficit and a trade deficit. The budget deficit was largely due to increased military spending and tax cuts, while the trade deficit was fueled by a strong dollar and increased imports.

Question 18

If a government of a country with a zero trade balance increases its budget deficit,then the real exchange rate
A)appreciates and there is a trade surplus.
B)appreciates and there is a trade deficit.
C)depreciates and there is a trade surplus.
D)depreciates and there is a trade deficit.

Accepted Answer

An increase in the budget deficit can lead to higher interest rates, attracting foreign capital and causing the currency to appreciate. This makes exports more expensive and imports cheaper, leading to a trade deficit.

Question 19

If the French government increases its expenditures and reduces taxes,then France's interest rate
A)and its exchange rate rise.
B)rises and its exchange rate falls.
C)falls and its exchange rate rises.
D)and its exchange rate fall.

Accepted Answer

The answer of If the French government increases its expenditures...

Question 20

Which of the following contains a list only of things that decrease when the budget deficit of the U.S.increases?
A)U.S.net exports,U.S.domestic investment,U.S.net capital outflow
B)U.S.supply of loanable funds,U.S.interest rates,U.S.domestic investment
C)U.S.imports,U.S.interest rates,the real exchange rate of the dollar
D)None of the above is correct.

Accepted Answer

When the budget deficit increases, the government borrows more money, which reduces the supply of loanable funds. This drives up interest rates, which discourages domestic investment and net exports.

Quiz 19: A Macroeconomic Theory of the Open Economy: How Policies and Events Affect an Open Economy

Which of the following contains a list only of things that increase when the budget deficit of the U.S.increases?

From 2001 to 2004 the U.S.budget went from surplus to deficit.According to the open economy macroeconomic model,this change should have

If the government of a country with a zero trade balance started with a budget deficit and moved to a budget surplus,domestic investment would

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4.Suppose that the government goes from a budget surplus to a budget deficit.The effects of the change could be illustrated by

If the government of Canada increased its budget deficit,then domestic investment

Which of the following would not be a consequence of an increase in the U.S.government budget deficit?

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-5.In the market for foreign-currency exchange,the effects of an increase in the budget surplus can be illustrated as a move from j to

From 1980 to 1987,U.S.net capital outflows decreased.According to the open-economy macroeconomic model,which of the following could have caused this?

Which of the following would not be a consequence of an increase in the U.S.government budget deficit?

From 2001 to 2004,the U.S.government went from a budget surplus to a budget deficit.According to the open-economy macroeconomic model,this should have decreased

Figure 32-5 Refer to this diagram of the open-economy macroeconomic model to answer the questions below. -Refer to Figure 32-4.Suppose that U.S.firms desire to purchase more equipment and build more factories and stores in the U.S.The effects of this are illustrated by

If a government started with a budget deficit and moved to a surplus,domestic investment

In the open-economy macroeconomic model which of the following falls if there is an increase in the budget deficit?

Which of the following contains a list only of things that increase when the budget deficit of the U.S.decreases?

Which of the following is the most likely result from an increase in a country's government budget surplus?

In the United States in the early 1980s,there was a government budget

If a government of a country with a zero trade balance increases its budget deficit,then the real exchange rate

If the French government increases its expenditures and reduces taxes,then France's interest rate

Which of the following contains a list only of things that decrease when the budget deficit of the U.S.increases?