Question

If interest rates rose more in the U.S. than in Canada, then other things the same, U.S. citizens would buy more Canadian bonds and Canadian citizens would buy less U.S. bonds.

Select one:

True

False

Suppose the government went from a budget deficit to a budget surplus. According to the open-economy macroeconomic model, this should have decreased both the supply of loanable funds and the supply of dollars in the market for foreign-currency exchange.

Select one:

True

False

Question text

The demand for loanable funds slopes downward because a decrease in the interest rate provides an incentive for people to borrow more and the supply of loanable funds slopes upward because an increase in the interest rate provides an incentive for people to save more.

Select one:

True

False

When a country suffers from capital flight, the exchange rate depreciates because supply in the market for foreign-currency exchange shifts right.

Select one:

True

False

Question text

Suppose the amount of national saving at each interest rate remains the same. If U.S. firms decide to invest more domestically at each interest rate, then the real interest rate in the U.S. rises and U.S. net capital outflow increases.

Select one:

True

False

Answer 1

A) The above statement is false

The statement should have been

If interest rates rose more in the U.S. than in Canada, then other things the same, U.S. citizens would Not buy more Canadian bonds and Canadian citizens would buy More U.S. bonds

NOTE: As interest rate increases rate of returns increases and makes the investment more attractive

B)This statement is True.

As Government is moving from a budget deficit to budget surplus which indicates that the Money flow in the market would be Less So that would result in less loanable funds and less foreign currency exchange due to lack of liquidity in the market

C)This Statement is Flase

The statement should have been

The demand for loanable funds slopes Upwardbecause a decrease in the interest rate provides an incentive for people to borrow more and the supply of loanable funds slopes Downward because an increase in the interest rate provides an incentive for people to save less

Note:As the interest rate decrease the demand for the loan increases as it becomes more affordable to the Loan taker as he need to pay less intrest and vice versa

D) This statement is True

As Captial Flight means Taking of the capital form one country to another as the Capital flight increases the demand for the Foreign currency will be more and the supply would be less this would result in Depreciation of the currency and makes the foriegn currency more stronger as compared to domestic currency

E)This Statement is False

The statement should have been

Suppose the amount of national saving at each interest rate remains the same. If U.S. firms decide to invest more domestically at each interest rate, then the real interest rate in the U.S. rises and U.S. net capital outflow Decreases

Note: As more people are investing domestically the money of the country will remain in the country and would result jn Decrease in the net capital outflow of the country