Question

According to the open-economy macro model, if the budget deficit of the U.S. increases then U.S. interest rates increase, U.S. domestic investment increases, NCO decreases and the U.S imports decrease because the U.S. dollar appreciates.

Select one:

True

False

In the market for foreign currency exchange, the amount of U.S. net exports desired at each real exchange rate represents the quantity of U.S. dollars demanded for the purpose of buying U.S. goods and services by foreign residents.

Select one:

True

False

Question text

Ceteris paribus, an increase in the U.S. interest rate raises net capital outflow which increases the quantity of loanable funds demanded.

Select one:

True

False

Question text

According to open economy macroeconomic model, an increase in the real exchange rate would tend to shift the demand for U.S. dollars in the foreign-currency exchange market to the left.   

Select one:

True

False

Question text

A tax on imported goods is called a tariff and an import quota is a limit on the quantity of a good that can be produced abroad and sold domestically.

Select one:

True

False

Answer 1

QUESTION 1

Answer is False

Because a budget deficit reduces the supply of loanable funds which increases the real interest rates which in turn reduces the net capital oputflow . The decrease in net capital outflow reduces the supply of dollars to be exchanged into foreign currency which causes the real exchange rate to appreciate

QUESTION 2

Answer is TRUE

Because in the market for foreign currency exchange, the amount of U.S. net exports expected at each real exchange rate represents the quantity of U.S. dollars demanded for the purpose of buying U.S. goods and services by foreign residents.

QUESTION 3

Answer is TRUE

An increase in the U.S. interest rate raises net capital outflow which increases the quantity of loanable funds demanded. This occurs in case of capital flight.

QUESTION 4

Answer is TRUE

Because

An increase in the real exchange rate means people in a country can get more foreign goods for an same amount of domestic goods. Therefore an increase in the real exchange rate will tend to increase net imports.

QUESTION 5

Answer is TRUE

Because A tax on imported goods is called a tariff and an import quota is a limit on the quantity of a good that can be produced abroad and sold domestically.