Question

Suppose the imposition of a trade policy did not alter the interest rate or level of NCO. If an import quota was imposed, then the demand curve for the domestic currency would shift to the right and the real exchange rate would increase.

Select one:

True

False

Question text

When Mexico suffered from capital flight in 1994, Mexico's real interest rate fell and the Mexican peso appreciated.

Select one:

True

False

Question text

In the open-economy macroeconomic model, the market for loanable funds equates national saving with the sum of net capital outflow and net exports.

Select one:

True

False

Answer 1

Question 1

Answer is TRUE

Because when government imposes import quota,nothing happens in the market for loanable funds or to net capital outflow.An import quota increases the demand for domestic currency and causes the exchange rate to appreciate

Question 2

Answer is FALSE

When Mexico suffered from capital flight in 1994, Mexico's real interest rate rose and its real exchange
rate depreciated.

Question 3

Answer is FALSE

The market for loanable funds shows the supply of savings and the demand for loans. The real interest rate adjusts until the quantity of savings supplied is equal to the quantity of loans demanded.

In open economy,

Private saving + public saving + net capital outflow = Investment

(Y-T-C) + (T-G) + NCO =I