Econ 203 Practice Questions 2 PDF

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Chapter 13—A Macroeconomic Theory of the Small Open Economy MULTIPLE CHOICE 1. What macroeconomic measures are considered fixed in our open-economy model? a. the exchange rate, GDP,If and the world real interest rate b. the exchange rate, net capital outflow, and the inflation rate c. net capital outflow, the inflation rate, and the price level d. GDP, the price level, and the world real interest rate ANS: D BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-1

REF: p. 304-305

2. In an open economy, what are the determinants of the prevailing real interest rate? a. domestic supply and domestic demand for loanable funds b. world supply and domestic demand for loanable funds c. world supply and world demand for loanable funds d. domestic supply and world demand for lWEoanable funds ANS: C PTS: 1 BLM: Higher Order

DIF: Challenging REF: p. 307 NOT: Macro TB_13-2

3. If a country’s imports are greater than its exports, what is the country said to have? a. a trade surplus b. a trade deficit c. a comparative advantage d. an absolute advantage ANS: B BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-3

REF: p. 300

4. Which of the following are the main elements of our open-economy macroeconomic model? a. the market for loanable funds, the foreign-currency market, and the price level b. the market for goods and services, the price level, and GDP c. the market for goods and services, net capital outflow, and GDP d. the market for loanable funds, net capital outflow, and the foreign-currency market ANS: D BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-4

REF: p. 307

5. What does the open-economy macroeconomic model examine? a. the determination of output growth rate and the real interest rate b. the determination of unemployment and the exchange rate c. the determination of output growth rate and the inflation rate d. the determination of the trade balance and the exchange rate ANS: D BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-5

REF: p. 307

6. Which of the following does the open-economy macroeconomic model take as given? a. GDP, but not the price level b. the price level, but not GDP c. both the price level and GDP d. the exchange rate ANS: C BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-6

REF: p. 304

7. In an open economy, what does the market for loanable funds equate national saving with? a. domestic investment b. net capital outflow c. the sum of national consumption and government spending d. the sum of domestic investment and net capital outflow ANS: D BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-7

REF: p. 305

8. In an open economy, which of the following does the market for loanable funds take as given? a. saving b. investment c. exchange rate d. real interest rate ANS: D BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-8

REF: p. 305

9. In the open-economy macroeconomic model, how can the market for loanable funds identity be written? a. S = I b. S = NCO c. S = I + NCO d. S + I = NCO ANS: C BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-9

REF: p. 305

10. In the open-economy macroeconomic model, where does the supply of loanable funds come from? a. national saving b. private saving c. domestic investment d. the sum of domestic investment and net capital outflow ANS: A BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-10

REF: p. 305

11. In the open-economy macroeconomic model, where does the demand for loanable funds come from? a. domestic investment b. net exports c. net capital outflow d. the sum of net capital outflow and domestic investment ANS: D BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-11

REF: p. 305

12. Suppose a foreign real estate company wants to build a number of new houses in Canada. How does this affect the Canadian market for loanable funds? a. The supply of loanable funds increases. b. The demand for loanable funds increases. c. The supply of loanable funds decreases. d. The demand for loanable funds decreases. ANS: C BLM: Remember

PTS: 1 DIF: Average NOT: Macro TB_13-12

REF: p. 305

13. Jack and Jill are co-owners of the Canadian firm Wells Grey Petroleum. Jack borrows money to build an oil well in Alberta. Jill borrows money to build an oil well in Venezuela. How does this affect the market for loanable funds in Canada? a. Jack increases the demand for loanable funds. b. Jill increases the demand for loanable funds. c. Jack increases the supply for loanable funds. d. Jill increases the supply of loanable funds. ANS: A PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-13

14. What does a higher real interest rate lower the quantity of? a. national saving b. net capital outflow c. loanable funds demanded d. loanable funds supplied ANS: C PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-14

15. What does a lower real interest rate decrease the quantity of? a. loanable funds demanded b. loanable funds supplied c. domestic investment d. net capital outflow ANS: B PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-15

16. Which of the following best describes the effects of an increase in the real interest rate? a. It discourages people from saving and so increases the quantity of loanable funds demanded. b. It discourages people from saving and so decreases the quantity of loanable funds demanded. c. It encourages people to save and so increases the quantity of loanable funds supplied. d. It encourages people to save and so decreases the quantity of loanable funds supplied. ANS: C PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-16

17. What effect does a fall in the real interest rate have on the quantity of loanable funds? a. It increases the quantity demanded and decreases the quantity supplied. b. It decreases both the quantity demanded and supplied. c. It increases both the quantity demanded and supplied. d. It decreases the quantity demanded and increases the quantity supplied. ANS: A PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-17

18. Which of the following best describes the effects of an increase in real interest rates in Canada? a. It discourages both Canadian and foreign residents from buying Canadian assets. b. It encourages both Canadian and foreign residents to buy Canadian assets. c. It encourages Canadian residents to buy Canadian assets, but discourages foreign residents from buying Canadian assets. d. It encourages foreign residents to buy Canadian assets, but discourages Canadian residents from buying Canadian assets. ANS: B PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-18

19. Which of the following could be prompted by an interest rate that is temporarily higher in Canada than in the rest of the world? a. A Swiss bank purchases a Canadian bond instead of the German bond it had considered purchasing. b. Canadian firms decide, since interest rates are higher, to do more investment spending. c. Brad, a Canadian resident, decides to put less money in his savings account than he had planned to. d. Canadian net capital outflow increases. ANS: A PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-19

20. Which of the following is the effect of an increase in the Canadian real interest rate above the world interest rate? a. Canadians buy more foreign assets, which increases Canadian net capital outflow. b. Canadians buy more foreign assets, which reduces Canadian net capital outflow. c. Foreigners buy more Canadian assets, which reduces Canadian net capital outflow. d. Foreigners buy more Canadian assets, which increases Canadian net capital outflow. ANS: C PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-20

21. 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 ANS: C BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-21

REF: p. 307

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

a. b. c. d.

Canadians who consume less than their income and government budget deficit Canadians who consume less than their income and government budget surplus foreigners who buy Canadian bonds and shares of stock and Canadian government surplus foreigners who invest in Canada and Canadian government surplus

ANS: B PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-22

23. 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. ANS: C PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-23

24. 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. ANS: D PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-24

25. 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. ANS: C PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-25

26. 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. ANS: A PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-26

27. 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. ANS: B PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-27

28. 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 ANS: C PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-28

29. In an open economy, what does net capital outflow equal? a. imports b. net exports c. exports d. net imports ANS: B BLM: Remember Figure 13-1

PTS: 1 DIF: Easy NOT: Macro TB_13-29

REF: p. 305

30. 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 ANS: B PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-30

31. 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 ANS: B PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-31

32. 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 ANS: C PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-32

33. 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 ANS: A PTS: 1 BLM: Higher Order

DIF: Easy REF: p. 307 NOT: Macro TB_13-33

34. 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 ANS: D PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-34

35. 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 ANS: A PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-35

36. 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 ANS: C PTS: 1 BLM: Higher Order

DIF: Average REF: p. 307 NOT: Macro TB_13-36

37. 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. ANS: A BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-37

REF: p. 305

38. 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. ANS: D PTS: 1 BLM: Higher Order

DIF: Average REF: p. 305 NOT: Macro TB_13-38

39. 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 ANS: B PTS: 1 BLM: Higher Order

DIF: Average REF: p. 308-310 NOT: Macro TB_13-39

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

a. b. c. d.

the quantity of dollars supplied in the foreign exchange market the quantity of dollars demanded in the foreign exchange market the quantity of funds supplied in the loanable funds market the quantity of funds demanded in the loanable funds market

ANS: A BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-40

REF: p. 308-310

41. What is net capital outflow equal to? a. national saving minus the trade balance b. domestic investment plus national saving c. national saving minus domestic investment d. domestic investment minus national saving ANS: C BLM: Remember

PTS: 1 DIF: Average NOT: Macro TB_13-41

REF: p. 305

42. What does the value of net exports equal? a. the value of national saving b. the value of public saving c. the value of national saving minus imports d. the value of national saving minus domestic investment ANS: D BLM: Remember

PTS: 1 DIF: Average NOT: Macro TB_13-42

REF: p. 305

43. Which of the following is included in the demand for dollars in the market for foreign-currency exchange in the open-market macroeconomic model? a. A firm in Kenya wants to buy wheat from a Canadian firm. b. A Japanese bank desires to purchase Canadian government securities. c. A Canadian citizen wants to buy a bond issued by a Mexican corporation. d. A Canadian citizen exchanges dollars for euros. ANS: A PTS: 1 BLM: Higher Order

DIF: Challenging REF: p. 308-310 NOT: Macro TB_13-43

44. Which of the following is included in the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model? a. A retail outlet in Afghanistan wants to buy watches from a Canadian manufacturer. b. A Canadian bank loans dollars to Blair, a Canadian resident, who wants to purchase a new car made in Canada. c. A Canadian-based mutual fund wants to purchase stock issued by a Polish company. d. A Canadian resident imports a car made in Japan. ANS: C PTS: 1 BLM: Higher Order

DIF: Challenging REF: p. 308-310 NOT: Macro TB_13-44

45. Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the right? a. The exchange rate rises. b. The exchange rate falls. c. The expected rate of return on Canadian assets rises. d. The expected rate of return on Canadian assets falls. ANS: D PTS: 1 BLM: Higher Order

DIF: Average REF: p. 308-310 NOT: Macro TB_13-45

46. Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left? a. The exchange rate rises. b. The exchange rate falls. c. The expected rate of return on Canadian assets rises. d. The expected rate of return on Canadian assets falls. ANS: C PTS: 1 BLM: Higher Order

DIF: Average REF: p. 308-310 NOT: Macro TB_13-46

47. What is the real exchange rate equal to? a. the relative price of domestic and foreign currency b. the relative price of domestic and foreign goods c. the ratio between the domestic and foreign interest rates d. the nominal exchange rate minus the inflation rate ANS: B BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-47

REF: p. 308-310

48. What does the identity “net capital outflow = net exports” imply? a. The supply of dollars equals the demand in the foreign-currency market. b. National saving equals domestic investment. c. The volume of exports equals the volume of imports. d. Canadian investment abroad is equal to foreign investment in Canada. ANS: A BLM: Remember

PTS: 1 DIF: Easy NOT: Macro TB_13-48

REF: p. 308-310

49. In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following results from a higher real exchan...