Question

If German citizens (residents) decide to save a smaller fraction of their incomes, then real interest rates in Germany will increase and NCO in Germany will decrease.   

Select one:

True

False

A large and sudden movement of funds out of a country is called capital flight and it is frequently caused by an increase in political or economic instability.

Select one:

True

False

Question text

In the open-economy macroeconomic model, the quantity of dollars demanded in foreign-currency exchange markets depends on the real exchange rate and the quantity of dollars supplied in foreign-exchange markets depends on the real interest rate.

Select one:

True

False

Question text

Suppose a country has national saving of $140 billion, government expenditures of $80 billion, taxes of $70 billion, domestic investment of $180 billion, and net capital outflow of – $40 billion. As a results its supply of loanable funds is $140 billion.

Select one:

True

False

Question text

Suppose the U.S. government went from a budget deficit to a budget surplus. According to the open-economy macroeconomic model, this will cause the real interest rate in the U.S. to increase and U.S. net capital outflow to decrease.

Select one:

True

False

Answer 1

1.True- If interest are high then capital will not outflow.

2.True- Capital will fly out as political and economic situation is uncertain.

3. This statement is correct but dollar rate is not only determined by interest rates but also by import-export volumes. Hence if it is only interest rate then it is false statement.

4. Savings+ investments- net capital outflow.

140+80+180-40= 360 hence false.

5. As government has surplus money then it means that government needs less money and there is more supply than demand for money. Interest rates will go down. Hence false.