Question

If the demand for loanable funds shifts to the left and the supply of loanable funds shifts to the right, then the real interest rate rises.

Select one:

True

False

Question text

In the open economy macroeconomic model of the U.S. economy, national savings is equal to the difference between domestic investment and net capital outflow.

Select one:

True

False

Suppose residents of the United States desired to decrease their purchases of foreign assets. Ceteris paribus, the real exchange rate would decrease and the quantity of dollars exchanged in the market for foreign-currency exchange would decrease.

Select one:

True

False

Question text

Suppose that the U.S. imposes an import quota on cars and trucks. The import quota makes the real exchange rate of the U.S. dollar depreciate and the real interest rate in the United States decreases.

Select one:

True

False

Question text

A U.S. corporation borrows funds to build a factory in the U.S. and a factory in China. Borrowing for factories in both locations is included in the U.S. demand for loanable funds.

Select one:

True

False

Answer 1

FALSE: If demand for loanable funds shifts to left and supply of loanable funds shifts to right, the real interest rate will decrease as the demand is decreasing leading to lesser quantity needed at that interest rate but instead quantity is increased leading to decreasing interest rate.

FALSE: An economy’s saving can be used to finance investment at home or buy assets abroad. Thus, national saving equals domestic investment plus net capital outflow and not their difference.

TRUE: Since the demand for foreign assets decreases leading to leftward shift in demand curve which would result in decrease in both exchange rate and quantity as the demand decreases which leads to decrease in price.

FALSE: Now the imports will decrease as the price for importing goods will be more leading to decrease in demand for foreign goods and same supply. Since exports remain the same and imports decrease, the exchange rate will increase the exchange rate and also improves the interest rates.

TRUE: The borrowings is done by US corporation whether for business in US or China, the income from these bussiness will be counted in national income of US and so does the borrowings.